<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1999
REGISTRATION NO. 333-82251
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BROADBASE SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7372 77-0417081
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
172 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
(650) 614-8300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHUCK BAY
CHIEF FINANCIAL OFFICER
172 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
(650) 614-8300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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GORDON K. DAVIDSON ROBERT M. MATTSON, JR.
DAVID K. MICHAELS TAMARA POWELL TATE
JOHN F. PLATZ CRAIG S. MORDOCK
WENDY LUN BRANDON C. PARRIS
FENWICK & WEST LLP MORRISON & FOERSTER LLP
TWO PALO ALTO SQUARE 19900 MACARTHUR BOULEVARD
PALO ALTO, CALIFORNIA 94306 IRVINE, CALIFORNIA 92612
(650) 494-0600 (949) 251-7500
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL 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 PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 30, 1999
[BROADBASE LOGO]
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4,000,000 SHARES
COMMON STOCK
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This is the initial public offering of Broadbase Software, Inc. and we are
offering 4,000,000 shares of our common stock. We anticipate that the initial
public offering price will be between $10.00 and $12.00 per share.
We have applied to list our common stock on the Nasdaq National Market under the
symbol "BBSW."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND BROADBASE
PUBLIC COMMISSIONS SOFTWARE, INC.
<S> <C> <C> <C>
Per share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to 600,000 additional
shares to cover any over-allotments.
DEUTSCHE BANC ALEX. BROWN
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
THOMAS WEISEL PARTNERS LLC
E*OFFERING
THE DATE OF THIS PROSPECTUS IS , 1999.
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-------------------------
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 4
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS AND INDUSTRY
DATA................................ 16
USE OF PROCEEDS....................... 17
DIVIDEND POLICY....................... 17
CAPITALIZATION........................ 18
DILUTION.............................. 19
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 22
BUSINESS.............................. 31
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MANAGEMENT............................ 48
CERTAIN TRANSACTIONS.................. 57
PRINCIPAL STOCKHOLDERS................ 59
DESCRIPTION OF CAPITAL STOCK.......... 61
SHARES ELIGIBLE FOR FUTURE SALE....... 64
UNDERWRITING.......................... 66
LEGAL MATTERS......................... 69
EXPERTS............................... 69
WHERE YOU CAN FIND ADDITIONAL
INFORMATION......................... 70
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should carefully read the
entire prospectus, including "Risk Factors" and the financial statements, before
making an investment decision.
OUR BUSINESS
Broadbase develops and markets software that integrates and analyzes
customer information from Internet and traditional business channels, enabling
businesses to improve their customer acquisition, retention and profitability.
Broadbase EPM integrates information from numerous points of customer
interaction, or touch points, by pulling information from multiple data sources
and transforming it into a standard format that can be analyzed. Broadbase EPM
then analyzes this reformatted information to provide a comprehensive
understanding of the customer lifecycle from initial identification through
acquisition and retention. Our products then allow businesses to translate this
analysis into specific actions such as targeting profitable customers,
personalizing customer interactions and identifying opportunities to sell
complementary or higher-end products and services. By integrating, analyzing and
acting on valuable customer information, our products enable businesses to build
long-lasting and profitable customer relationships.
The Internet is emerging as an important channel for businesses to interact
with their customers. As a result, traditional "bricks and mortar" companies are
adapting many of their business activities to the Internet. In addition, a new
class of Internet-only companies is rapidly emerging. Together, these companies
represent a new category of enterprise called the e-business. The rise of the
Internet as a new business channel has led to a dramatic increase in the number
of ways that businesses interact with their customers. Today, these include not
only traditional storefronts, catalogs and call centers, but also websites,
e-mail marketing campaigns and online customer service. The Internet has also
created a highly competitive environment for businesses, where customers can
easily switch among alternative product and service offerings. To maintain
customer loyalty in this environment, e-businesses need to develop a complete
understanding of individual customers to maximize the effectiveness of every
customer interaction.
Broadbase EPM is a software solution that addresses this need. Broadbase
EPM consists of a suite of applications that are built on EPM/Foundation, our
software platform that provides a wide range of analytic capabilities. Broadbase
EPM integrates information that has traditionally been isolated in separate
systems designed to support specific types of customer interactions, such as
customer service and Internet-based sales. It provides decision-makers in sales,
marketing, customer service and e-commerce business functions with a more
comprehensive view of the customer. Each application provides these
decision-makers with analysis of customer information that is specifically
designed for their particular business function. Our solutions can generally be
deployed in less than 30 days, allowing our customers to quickly capture revenue
opportunities and achieve rapid return on investment. To date, over 80 end user
customers have licensed our products from us and our distributors and resellers.
Traditional "bricks and mortar" customers include ADP, Boeing, Chevron, Fidelity
Investments, Hewlett-Packard, Inprise, New Century Energy, Plymouth Rock,
Rockwell, The Sharper Image and United Airlines, each of which has licensed
products and purchased services totaling at least $150,000. In addition, we have
licensed our new e-business applications to two Internet-only companies, InsWeb
and Mercata.
OUR BUSINESS HAS RISKS
We introduced EPM/Foundation in the fourth quarter of 1997, and began
offering our analytic applications in the third quarter of 1998. In May 1999, we
expanded our suite by introducing our first applications designed for
e-business. We expect that our future growth will depend significantly on
revenue from licenses of these new applications. We have incurred net losses in
each period since our inception and as of June 30, 1999 we had accumulated net
losses of approximately $29.0 million. We have not achieved profitability and we
expect to continue to incur losses for the foreseeable future. Our business is
subject to risks, and our market is subject to rapid technological change and
intense competition.
1
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THE OFFERING
Common stock offered by
Broadbase.......................... 4,000,000 shares
Common stock to be outstanding
after this offering................ 17,203,690 shares
Use of proceeds.................... General corporate purposes, including
working capital. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................. BBSW
The number of shares of our common stock that will be outstanding after
this offering is based on the number outstanding on June 30, 1999 and assumes
the conversion into common stock of all our preferred stock and convertible
debentures outstanding on that date. It excludes 2,050,013 shares subject to
outstanding options and warrants as of June 30, 1999 at a weighted-average
exercise price of $0.65 per share and additional shares available for issuance
under our stock plans.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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PERIOD FROM YEARS ENDED SIX MONTHS
NOVEMBER 28, 1995 DECEMBER 31, ENDED JUNE 30,
(INCEPTION) TO ------------------ ------------------
DECEMBER 31, 1996 1997 1998 1998 1999
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................... $ -- $ -- $ 3,439 $ 1,447 $ 3,539
Gross margin.................. -- -- 2,472 998 2,179
Loss from operations.......... (1,273) (5,575) (11,452) (5,158) (10,520)
Net loss...................... $(1,272) $(5,487) $(11,343) $(5,100) $(10,887)
Basic and diluted net loss per
share....................... $ (4.30) $ (6.19) $ (8.85) $ (4.58) $ (6.30)
Weighted-average common
shares -- basic and
diluted..................... 296 887 1,281 1,114 1,728
Pro forma basic and diluted
net loss per share.......... $ (1.51) $ (1.16)
Pro forma weighted-average
common shares -- basic and
diluted..................... 7,536 9,383
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JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $27,981 $27,981 $67,846
Working capital........................................ 21,357 21,357 61,222
Total assets........................................... 32,561 32,561 72,426
Long-term debt and capital lease obligations, net of
current portion...................................... 10,302 777 777
Stockholders' equity................................... $12,964 $22,489 $62,354
</TABLE>
The unaudited pro forma balance sheet data summarized above gives effect to
the conversion of all our preferred stock and convertible debentures outstanding
as of June 30, 1999 into common stock upon the closing of this offering. See
Notes 3, 5 and 9 of Notes to Consolidated Financial Statements. The unaudited
pro forma as adjusted balance sheet data above reflects the receipt of the net
proceeds from the sale of the 4,000,000 shares of common stock offered by
Broadbase at an assumed initial public offering price of $11.00 per share after
deducting the estimated underwriting discounts and commissions and offering
expenses.
2
<PAGE> 6
Unless otherwise indicated, all information in this prospectus:
- assumes that the underwriters do not exercise their over-allotment option
to purchase additional shares in this offering;
- gives effect to a Delaware reincorporation to be implemented prior to
completion of this offering; and
- gives effect to the conversion of all our preferred stock and convertible
debentures into common stock upon completion of this offering.
Broadbase and Broadbase EPM are trademarks of Broadbase. This prospectus also
contains trademarks and trade names of other companies.
We incorporated in California in November 1995 under the name BroadBase
Information Systems, Inc., and plan to reincorporate in Delaware as Broadbase
Software, Inc. prior to this offering. Our address is 172 Constitution Drive,
Menlo Park, California 94025, and our telephone number is (650) 614-8300.
3
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RISK FACTORS
Before you invest in our common stock, you should carefully consider the
risks described below, together with all of the other information included in
this prospectus.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS LIMITED
We are still in the early stages of our development. Our revenue and income
potential is unproven and depends on emerging, rapidly changing markets and on
acceptance of products that we have only recently introduced. Because our
operating history is limited and our product offerings are evolving, it is
difficult to evaluate our business and our future prospects.
We incorporated in November 1995, and from that date through December 1997
were in the development stage, conducting research and developing our initial
products. We have only recently begun licensing our products and deriving
revenue. In the fourth quarter of 1997, we introduced our first product,
EPM/Foundation, which was designed to enable organizations to build and manage
datamarts -- a system for storing, retrieving and managing data for a specific
business function or department -- to analyze their customer information. In the
third quarter of 1998, we began offering Broadbase EPM applications designed to
operate with EPM/ Foundation to provide analysis for customer relationship
management. In May 1999, we introduced Broadbase EPM applications designed for
Internet sales channels, Internet marketing and other customer-focused
e-business applications. We also released new versions of existing Broadbase EPM
applications in May 1999. Because we have only recently introduced our products,
it is difficult to predict whether our products will be accepted by the market
and the level of revenues we can expect to derive from sales of our products.
OUR GROWTH DEPENDS ON MARKET ACCEPTANCE OF OUR RECENTLY INTRODUCED BROADBASE EPM
APPLICATIONS DESIGNED FOR INTERNET-BASED SYSTEMS
We first introduced Broadbase EPM applications designed for Internet-based
systems in May 1999. We expect that our future growth will depend significantly
on revenue from licenses of these Broadbase EPM applications and related
services, which is subject to significant risks. These new applications are our
first products specifically designed for the emerging e-business market. To
date, two customers, InsWeb and Mercata, have licensed these e-business
applications. To date, revenue from licenses of our Broadbase EPM applications
have constituted only a minority of our revenues, and most of our license
revenue has been derived from licenses of EPM/Foundation. There are significant
risks inherent in the introduction of new products like our new e-business
applications. Market acceptance of these new applications will depend on the
growth of the market for e-business solutions. This growth may not occur. We
also cannot be certain that our new e-business applications will meet customer
performance expectations. If they do not meet customer expectations or the
market for these products fails to develop or develops more slowly than we
expect, our business would be harmed.
WE HAVE INCURRED LOSSES SINCE INCEPTION AND WE EXPECT TO INCUR LOSSES FOR THE
FORESEEABLE FUTURE
We incurred net losses and losses from operations for each period from our
inception through the second quarter of 1999. As of June 30, 1999, we had
accumulated net losses of approximately $29.0 million, which represented 415% of
our cumulative revenue as of that date. We have not achieved profitability and
we expect to continue to incur substantial operating losses for the foreseeable
future. We expect to incur increasing sales and marketing, research and
development and general and administrative expenses. As a result, we will need
to significantly increase our revenue to achieve profitability. While our
revenue has grown significantly in 1999, our growth may not continue at the
current rate or at all.
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WE EXPECT OUR QUARTERLY REVENUE AND OPERATING RESULTS TO FLUCTUATE
Our revenue and operating results are likely to vary significantly from
quarter to quarter. The factors that affect our quarterly operating results
include:
- the demand for our products, particularly our recently-introduced
Broadbase EPM applications;
- the size and timing of customer orders for our EPM/Foundation product,
our Broadbase EPM applications and our professional services;
- increased expenses for sales and marketing, product development and
administration;
- changes in the mix of sales between EPM/Foundation and the various
Broadbase EPM applications we provide as well as the level of sales of
professional services as compared to product licenses;
- changes in the mix of our domestic and international sales; and
- changes in general economic and market conditions.
Our quarterly revenue increased 208% from the first quarter of 1998 to the first
quarter of 1999 and increased 113% from the second quarter of 1998 to the second
quarter of 1999. We do not believe that these rates of growth are indicative of
the growth in revenues, if any, that we can expect in the future. Accordingly,
we believe that period-to-period comparisons of our operating results may not be
meaningful and you should not rely on these comparisons as an indication of our
future performance. Our operating results may fall below the expectations of
investors. In this event, the market price of our common stock would likely
fall.
OUR OPERATING EXPENSES ARE INCREASING AND WE WOULD NOT BE ABLE TO REDUCE THEM
QUICKLY, WHICH COULD RESULT IN LOWER THAN EXPECTED OPERATING RESULTS IF WE DO
NOT ACHIEVE EXPECTED REVENUE LEVELS
We plan to significantly increase our operating expenses as we expand our
sales, marketing, research and development, professional services, customer
support and administrative groups. These expenses will be incurred before we
generate any revenues from this increased spending. If we do not significantly
increase revenues as a result of these efforts, we will not achieve
profitability. Our operating expenses are based on our expectations of future
revenues and are relatively fixed in the short term. As a result, we would not
be able to reduce spending quickly if our revenue were lower than we had
projected. Our ability to accurately forecast our quarterly revenue is limited
because of our limited operating history, the rapidly evolving nature of our
market and the sales cycle for our products, which can be long and
unpredictable. If our revenue falls below our expectations in any quarter, or if
we increase our spending ahead of our revenue growth, our operating results
would be lower than expected.
THE UNPREDICTABLE TIMING OF OUR SALES AND IMPLEMENTATION CYCLE MAKES IT
DIFFICULT TO FORECAST OUR OPERATING RESULTS
Our products can have a long and unpredictable sales cycle. Consequently,
we face difficulty predicting the quarter in which sales to expected customers
will occur. This contributes to the uncertainty of our future operating results.
Potential customers often require time to weigh the costs and benefits of our
products compared to those of in-house development and integration efforts. As a
result, our sales cycle has typically ranged from approximately two to four
months, although it can take longer.
In a typical application license transaction, a portion of the
implementation of our products is performed by our professional services group,
which connects our products to the customer's systems and data sources. Upon
completion of that connection, no significant obligations remain
5
<PAGE> 9
with respect to implementation, and we recognize the revenue related to that
license. The actual connection process can often be completed in approximately
two to four weeks. However, the timing of the commencement and completion of
this connection process is subject to factors that may be beyond our control, as
this process requires access to the customer's facilities and coordination with
the customer's personnel after delivery of the software. As a result, we
typically do not recognize the license revenue from an application license until
one to three months after our product is shipped to the customer. Uncertainty as
to when our product can be connected at the customer's facilities makes it more
difficult to forecast our operating results and can result in significant
variability in our period to period results.
WE NEED TO ATTRACT, TRAIN AND RETAIN ADDITIONAL QUALIFIED PERSONNEL IN A
COMPETITIVE EMPLOYMENT MARKET
Our success depends on our ability to attract, train and retain qualified,
experienced employees. There is substantial competition for experienced
management, engineering, sales and marketing personnel, particularly in the
market segment in which we compete. If we are unable to retain our existing key
personnel, or to attract, train and retain additional qualified personnel, we
may experience inadequate levels of staffing to develop and sell our products
and perform services for our customers.
We believe that our success will depend on the continued services of our
executive officers. Other than initial offer letters containing information
regarding compensation, we do not currently have employment agreements with any
of these individuals. As a result, these employees serve "at-will" and may elect
to pursue other opportunities at any time. The loss of any of our executive
officers could harm our business. Certain of our executive officers joined us
only recently and have had a limited time to work together. We cannot assure you
that they will be able to work effectively together to manage our growth and
continuing operations. Our Executive Vice President of Applications and
Engineering joined Broadbase in December 1998, our Executive Vice President of
Sales joined Broadbase in May 1999, and our Vice President of Marketing joined
Broadbase in July 1999. If we are unable to expand our sales and marketing
organizations in a timely manner, our growth could be limited.
OUR BUSINESS WILL SUFFER IF WE DO NOT INCREASE MARKET AWARENESS OF OUR PRODUCTS
BY SIGNIFICANTLY EXPANDING OUR SALES CAPABILITIES
We sell our products primarily through our direct sales force. We must
significantly expand our direct sales operations to increase market awareness of
our products and increase revenue. We cannot be certain that we will be
successful in these efforts. Our products and services require sophisticated
sales efforts. As a result, our ability to increase our direct sales operation
will depend on our ability to recruit, train and retain top sales people with
advanced sales skills and technical knowledge. There is a shortage of sales
personnel with these qualifications, and competition for qualified personnel is
intense in our industry.
Prior to 1999, our sales force sold our EPM/Foundation product and
applications designed to provide analysis for customer relationship management.
The skills required to sell these products differ in many respects from the
skills required to sell applications designed for Internet-based systems.
Accordingly, the introduction of our new e-business applications has required us
to hire new sales personnel with these skills and train existing personnel to
sell these new applications. As a result, most of our current direct sales force
has been with us for a relatively short period. During the first six months of
1999, we added nine direct sales representatives to our direct sales force,
which represents 45% of our total direct sales representatives and 23% of our
total sales personnel as of June 30, 1999. New sales personnel require training
and take time to achieve full productivity. If we are unable to hire or retain
qualified sales personnel, or if newly hired personnel fail to develop the
necessary skills or reach productivity more slowly than anticipated, our
business could be harmed.
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WE ARE DEPENDENT ON MARKETING, TECHNOLOGY AND DISTRIBUTION RELATIONSHIPS THAT
MAY GENERALLY BE TERMINATED AT ANY TIME, AND IF OUR CURRENT AND FUTURE
RELATIONSHIPS ARE NOT SUCCESSFUL, OUR GROWTH MAY BE LIMITED
We rely on marketing and technology relationships with a variety of
companies which, in part, generate leads for the sale of our products. These
marketing and technology relationships include relationships with:
- system integrators and consulting firms;
- vendors of e-commerce and Internet software;
- vendors of software designed for customer relationship management or for
management of organizations' operational information;
- vendors of key technology and platforms; and
- demographic data providers.
If we cannot maintain successful marketing and technology relationships or
cannot enter into additional marketing and technology relationships, we may have
difficulty expanding the sales of our products and our growth may be limited.
While these companies do not sell or distribute our products, we believe that
many of our direct sales are the result of leads generated by vendors of
e-business and enterprise applications that work with our products. Our
marketing and technology relationships are generally not documented in writing,
or are governed by agreements that can be terminated by either party with little
or no prior notice. Some of these agreements specify that payments are to be
made by us to these companies for providing us with qualifying customer leads.
The generation of leads to date by these companies has not generally satisfied
the specified criteria and therefore payments for leads have been immaterial in
amount.
In addition, we have distribution relationships with companies located in
the United States, Japan and the Netherlands that distribute or resell our
products -- our indirect sales channel. Sales through our indirect sales channel
accounted for approximately 28.7% of our total revenue for 1998 and 40.8% for
the six months ended June 30, 1999. Sales of our products to Indus, which
integrates EPM/Foundation into certain of its enterprise solutions for the
energy and utility industries, represented 18.4% of our total revenue in 1998
and 11% in the first six months of 1999. Substantially all of our sales in Japan
have been made through distributors. If we cannot maintain successful
relationships with our indirect sales channel, we may have difficulty expanding
the sales of our products and our growth may be limited.
Companies with which we have a marketing, technology or distribution
relationship may promote products of several different companies, including, in
some cases, products that compete with our products. These companies may not
devote adequate resources to selling our products. We may not be able to
maintain these relationships and enter into additional relationships that will
provide timely and cost-effective customer support and service.
CUSTOMER SATISFACTION AND DEMAND FOR OUR PRODUCTS WILL DEPEND ON OUR ABILITY TO
EXPAND OUR PROFESSIONAL SERVICES GROUP, WHICH ASSISTS OUR CUSTOMERS WITH THE
IMPLEMENTATION OF OUR PRODUCTS
We believe that growth in our product sales depends on our ability to
provide our customers with professional services to assist with support,
training, consulting and initial implementation of our products and to educate
third-party systems integrators in the use of our products. As a result, we plan
to increase the number of professional services personnel to meet these needs.
New professional services personnel will require training and take time to reach
full productivity. We may not be able to attract or retain a sufficient number
of highly qualified professional services personnel. Competition for qualified
professional services
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personnel with the appropriate knowledge is intense. We are in a new market and
there is a limited number of people who have the necessary skills. To meet our
customers' needs for professional services, we may also need to use more costly
third-party consultants to supplement our own professional services group. In
addition, we could experience delays in recognizing revenue if our professional
services group falls behind schedule in connecting our products to customers'
systems and data sources.
WE MAY BE UNABLE TO ATTRACT NEW CUSTOMERS IF WE DO NOT DEVELOP NEW PRODUCTS AND
ENHANCEMENTS
If we do not continue to improve our products and develop new products that
keep pace with competitive product introductions and technological developments,
satisfy diverse and rapidly evolving customer requirements and achieve market
acceptance, we may be unable to attract new customers. For example, we are
developing new applications as well as new versions of a number of our existing
applications, which are scheduled for release in the second half of 1999. We may
not be successful in developing and marketing these applications and new
versions, or other product enhancements and new products that respond to
technological advances and market changes, on a timely or cost-effective basis.
In addition, even if these products are developed and released, they may not
achieve market acceptance. We have in the past experienced delays in releasing
new products and product enhancements and may experience similar delays in the
future. These delays or problems in the installation or implementation of our
new releases may cause customers to forego purchases of our products.
MARKET ACCEPTANCE OF OUR PRODUCTS MAY SUFFER IF WE ARE UNABLE TO KEEP PACE WITH
RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY
Rapidly changing technology and operating system standards may impede
market acceptance of our products. Our new Broadbase EPM applications have been
designed based upon currently prevailing Internet technology. If new Internet
technologies emerge that are incompatible with Broadbase EPM applications, our
key products may become obsolete and our existing and potential customers may
seek alternatives to our products. We may not be able to quickly adapt our
products to any new Internet technology.
Additionally, we have designed our products to work with databases such as
Oracle and Microsoft SQL Server. Any changes to those databases, or increasing
popularity of other databases, could require us to modify our products, and
could cause us to delay releasing future products and enhancements. Furthermore,
software adapters are necessary to integrate our products with other systems and
data sources used by our customers. We must develop and update these adapters to
reflect changes to these systems and data sources in order to maintain the
functionality provided by our products. As a result, uncertainties related to
the timing and nature of new product announcements, introductions or
modifications by vendors of operating systems, databases, customer relationship
management software, web servers and other enterprise and Internet-based
applications could delay our product development, increase our product
development expense or cause customers to delay evaluation, purchase and
deployment of our products.
WE ARE DEPENDENT ON THE ACCEPTANCE AND USE OF THE WINDOWS NT OPERATING SYSTEM
Our products currently run only on the Windows NT operating system. Any
change to this operating system could require us to modify our products and
could cause us to delay product releases. Any decline in the market acceptance
of the Windows NT operating system for any reason, including as a result of
errors or delayed introduction of enhancement or upgrades, could seriously harm
us. If potential customers do not want to use the Windows NT operating system,
we will need to develop products that run on other operating systems such as
UNIX.
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<PAGE> 12
The development of new products in response to these risks would require us
to commit a substantial investment of resources, and we may not be able to
successfully develop or introduce such products on a timely or cost-effective
basis, or at all, which could lead potential customers to choose alternatives to
our products.
WE FACE INTENSE COMPETITION WHICH COULD MAKE IT DIFFICULT TO ACQUIRE AND RETAIN
CUSTOMERS
Our market is intensely competitive, and we expect competition to intensify
in the future. Our failure to maintain and enhance our competitive position
could seriously harm our business. Our customers' requirements and the
technology available to satisfy those requirements are continually changing.
Therefore, we must be able to respond to these changes in order to remain
competitive. Our competitors vary in size and in the scope and breadth of
products and services offered.
We have three primary sources of competition:
- providers of consulting services-based analysis solutions, such as
E.piphany;
- vendors of point solutions that provide website analysis, such as Accrue,
Andromedia and Net Perceptions; and
- in-house development efforts by potential customers using traditional or
generic decision support tools.
In addition, we face potential competition from vendors of other enterprise
applications as they expand the functionality of their product offerings,
including companies that design software for decision support, management of
customer relationships or of organizations' operational information, as well as
vendors of database applications. Accordingly, it is possible that new
competitors may emerge and acquire our market share.
Some of our current and potential competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do, and thus may be able to respond more quickly to new or
changing opportunities, technologies and customer requirements. Also, many
current and potential competitors have wider name recognition and more extensive
customer bases that they could leverage, thereby gaining market share to our
detriment. They may be able to undertake more extensive promotional activities,
adopt more aggressive pricing strategies, and offer purchasers more attractive
terms than we can. Our competitors may develop products that are superior to
ours or that achieve greater market acceptance. In addition, current and
potential competitors may establish cooperative relationships among themselves
or with third parties to enhance their products to address customer needs.
Competitive pressures may make it difficult for us to acquire and retain
customers and may require us to reduce the price of our products. We cannot be
certain that we will be able to compete successfully with existing or new
competitors. If we fail to compete successfully against current or future
competitors, our business would be seriously harmed.
WE DEPEND ON OUR INTELLECTUAL PROPERTY, AND LITIGATION REGARDING OUR
INTELLECTUAL PROPERTY COULD HARM OUR BUSINESS
Our intellectual property is important to our business. Our intellectual
property includes our proprietary technology, our trade secrets, copyrights in
our software products, including EPM/Foundation and our Broadbase EPM
applications, and our Broadbase and Broadbase EPM trademarks. Our copyrights are
important to the protection of our software, and our trademarks are important to
the protection of our company and product names. These copyrights and trademarks
discourage unauthorized use of our software and our company and product names
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<PAGE> 13
and provide us with a way to enforce our rights in the event that this
unauthorized use occurs. We have no patents, although patents may become
increasingly important in software and e-business applications. Unauthorized use
or misappropriation of our intellectual property could seriously harm our
business. Third parties may infringe upon our intellectual property rights, and
we may be unable to detect this unauthorized use or effectively enforce our
rights. In addition, any legal action that we may bring to protect our
intellectual property rights could be expensive and distract management from
day-to-day operations.
Our business activities may infringe upon the proprietary rights of others,
and other parties may assert infringement claims against us. For example, on
July 21, 1999, Timeline, Inc. filed a complaint against us in the United States
District Court for the Western District of Washington, alleging infringement by
us of U.S. Patent No. 5,802,511 held by Timeline. Timeline has requested
permanent injunctions prohibiting us from directly or indirectly infringing the
Timeline patent, and seeks damages, exemplary damages, costs and attorneys'
fees. Timeline has further disclosed to us patent claims of a pending related
patent application that Timeline expects to be issued and to be added to the
present case. Litigation is subject to inherent uncertainties. In addition,
cases like this generally involve issues of law that are evolving, presenting
further uncertainty. It is possible that we could be found liable for infringing
the Timeline patent. See "Business -- Legal Proceedings" for a description of
this litigation and our assessment of its merits.
In addition, in the future, we may receive communications from other
parties asserting that our intellectual property infringes their proprietary
rights. If we become liable to Timeline or any other third party for infringing
its intellectual property rights, we could be required to pay substantial damage
awards and to develop non-infringing technology, obtain licenses or cease
selling the applications that contain the infringing intellectual property. We
could have to redesign our products, which could be costly and time-consuming
and could substantially delay product shipments, assuming that a redesign is
feasible. We may be unable to develop non-infringing technology or obtain
licenses on commercially reasonable terms, if at all. Any of these results would
seriously harm our business. Furthermore, we expect to incur substantial costs
in defending against the Timeline litigation, and these costs could increase
significantly if this dispute goes to trial. Our defense of the Timeline
litigation and any other litigation, regardless of the merits of the complaint,
will likely be time-consuming, costly and a distraction for our management
personnel. Publicity related to the Timeline litigation, and any other
litigation, could also harm the sale of our products.
SOFTWARE DEFECTS COULD LEAD TO LOSS OF REVENUE OR DELAY IN MARKET ACCEPTANCE FOR
OUR PRODUCTS
Our software products are internally complex and may contain defects,
especially when they are first introduced or when new versions are released. In
the past we have discovered software errors in some of our products after their
introduction. If we are not able to detect and correct errors in products or
releases before commencing commercial shipments, we may experience loss of
revenue or delays in market acceptance for our products. We continue to evaluate
our products for errors following the commencement of commercial shipments and
receive information from customers regarding errors they detect, as well as
requests for future enhancements to our products. Our license agreements with
our customers typically contain provisions designed to limit our exposure to
potential product liability claims. However, all domestic and international
jurisdictions may not enforce these limitations. We may encounter product
liability claims in the future. Product liability claims brought against us
could divert the attention of management and key personnel, could be expensive
to defend and may result in adverse settlements and judgments.
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<PAGE> 14
BARRIERS TO INTERNATIONAL EXPANSION COULD LIMIT OUR FUTURE GROWTH
We intend to expand our international operations, but we may face
significant barriers to this expansion. Our failure to manage our international
operations effectively could limit the future growth of our business.
International sales represented approximately 5.1% of our total revenue for the
year ended December 31, 1998 and 23.6% of our total revenue in the first six
months of 1999, substantially all of which consisted of sales of EPM/Foundation
to customers in Japan. We conduct our international sales primarily through
direct sales offices in Germany, the Netherlands and the United Kingdom, and
through distributors in Japan. The expansion of our existing international
operations and entry into additional international markets will require
significant management attention and financial resources.
Our international operations face numerous risks. Our products must be
localized -- customized to meet local user needs -- in order to be sold in
particular foreign countries. Developing local versions of our products for
foreign markets is difficult and can take longer than we anticipate. We
currently have limited experience in localizing products and in testing whether
these localized products will be accepted in the targeted countries. For
example, we are currently marketing localized products only in Japan, and we
have only recently begun to develop products for sale in Germany. We cannot
assure you that our localization efforts will be successful. In addition, we
have only a limited history of marketing, selling and supporting our products
and services internationally. As a result, we must hire and train experienced
personnel to staff and manage our foreign operations. However, we may experience
difficulties in recruiting and training an international staff. We must also be
able to enter into strategic relationships with companies in international
markets, particularly in Japan where all of our sales have been made through
distributors. If we are not able to maintain successful strategic relationships
internationally or recruit additional companies to enter into strategic
relationships, our future growth could be limited.
We also face certain other risks inherent in conducting business
internationally, such as:
- difficulties and costs of staffing and managing international operations;
- language and cultural differences;
- difficulties in collecting accounts receivable and longer collection
periods;
- seasonal business activity in certain parts of the world;
- fluctuations in currency exchange rates;
- legal and governmental regulatory requirements;
- trade barriers; and
- potentially adverse tax consequences.
Any of these factors could seriously harm our international operations and,
consequently, our business.
To date, a majority of our international revenue and costs have been
denominated in foreign currencies. We have not engaged in any foreign exchange
hedging transactions, and we are therefore subject to foreign currency risk.
WE ARE GROWING RAPIDLY, AND THE FAILURE TO MANAGE OUR GROWTH, INCLUDING
EXPANSION OF OUR MANAGEMENT SYSTEMS, COULD ADVERSELY AFFECT OUR BUSINESS
We have grown rapidly and will need to continue to grow in all areas of
operation in order to execute our business strategy. Our total number of
full-time employees grew from 41 at December 31, 1997 to 105 at June 30, 1999,
and we anticipate further significant increases in the number of our employees.
Our growth has placed significant demands on management as
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<PAGE> 15
well as on our administrative, operational and financial resources and controls.
We expect our future growth to cause similar, and perhaps increased, strain on
our systems and controls. In particular, we need to substantially upgrade our
information systems including accounting and order entry. We also will need to
institute new systems such as human resource management and time and billing
systems. If we cannot effectively establish and improve our processes, we may
not be able to manage our growth successfully or sustain and manage the growth
rates we have experienced in the past.
OUR PROSPECTS FOR OBTAINING ADDITIONAL FINANCING, IF REQUIRED, ARE UNCERTAIN AND
FAILURE TO OBTAIN NEEDED FINANCING COULD AFFECT OUR ABILITY TO PURSUE FUTURE
GROWTH
We expect that our cash on hand, cash equivalents, credit facilities and
proceeds from our recent preferred stock financing will be sufficient to meet
our working capital and capital expenditure needs for at least the next 12
months. After that time, we intend to fund our working capital and capital
expenditure requirements from any remaining cash and cash equivalents, cash
received from this offering, cash generated from operating activities, existing
and future bank financing and possibly from future sales of our capital stock.
In addition, we may need to raise additional funds to fund expansion, to respond
to competitive pressures or to acquire complementary products, businesses or
technologies. We cannot assure you that we would be able to obtain additional
financing on favorable terms, if at all. If we issue additional equity
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of common stock. If we cannot raise necessary additional funds
on acceptable terms, we may not be able to develop or enhance our products, fund
expansion, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements.
RISKS RELATED TO OUR INDUSTRY
POTENTIAL YEAR 2000 PROBLEMS MAY INVOLVE SIGNIFICANT TIME AND EXPENSE AND MAY
REDUCE OUR FUTURE SALES
If our technology or technology developed by third parties which is
incorporated into our products or which interacts with our products, is not year
2000 compliant in a timely manner, our business could be seriously harmed. The
year 2000 problem exists because many currently installed computer systems and
software products electronically store dates using only the last two digits of
the calendar year. As a result, these systems may not be able to distinguish
whether "00" means 1900 or 2000, which may cause system failures or erroneous
results. Year 2000 problems could subject us to liability claims and disrupt our
operations and customers' purchasing patterns, any of which could harm our
business.
Our products operate in complex network environments and directly or
indirectly interact with a number of other hardware and software systems that we
cannot adequately evaluate for year 2000 compliance. In addition, technology
developed by others and incorporated in our products could have year 2000
problems. We may face claims based on year 2000 problems in other companies'
products, or issues arising from the integration of multiple products within an
overall system. We may in the future be required to defend our products or
services in litigation or arbitration proceedings involving our products or
services related to year 2000 compliance issues, or to negotiate resolutions of
claims based on year 2000 issues. Defending and resolving year 2000-related
disputes, regardless of the merits of such disputes, and any liability we have
for year 2000-related damages, including consequential damages, could be
expensive. In addition, we may experience reduced sales of products as customers
and potential customers put a priority on correcting year 2000 problems and
therefore defer purchases of our products. Accordingly, demand for our products
may be particularly volatile and unpredictable for the remainder of 1999 and
early 2000.
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<PAGE> 16
We currently have no contingency plans in place to address the risks
associated with unremediated year 2000 problems, but we are currently developing
these plans and expect to have them in place in the third quarter of 1999. With
the exception of our accounting system and software on a few of the computers
used by our sales representatives to demonstrate our products, we believe that
virtually all of our internal information systems are currently year 2000
compliant. We are in the process of obtaining the necessary compliance upgrades
for the systems that are not already year 2000 compliant. If we do not complete
in a timely manner these compliance upgrades for our internal information
systems, our operations could be disrupted as a result of a temporary lack of
availability of our accounting systems and an inability of certain of our sales
representatives to engage in demonstrations of our products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Readiness" for more information about our potential year 2000 problems and
the measures that we have taken to address these problems.
WE DEPEND ON THE GROWTH IN THE USE OF THE INTERNET FOR OUR BUSINESS
Our future success depends heavily on the increased acceptance and use of
the Internet for business. Although the Internet is experiencing rapid growth in
the number of users and traffic, this growth is a recent phenomenon and may not
continue. Furthermore, despite this growth in usage, the use of the Internet for
business transactions is relatively new. If use of the Internet for business
does not continue to increase or increases more slowly than expected, our
business would be seriously harmed. Consumers and businesses may reject the
Internet as a viable commercial medium, or be slow to adopt it, for a number of
reasons, including potentially inadequate network infrastructure, slow
development of enabling technologies, concerns about the security of
transactions and confidential information and insufficient commercial support.
The Internet infrastructure may not be able to support the demands placed on it
by increased Internet usage and bandwidth requirements. In addition, delays in
the development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or increased governmental regulation,
could cause the Internet to lose its viability as a commercial medium. If these
or any other factors cause use of the Internet for business to slow or decline,
our business would be harmed. Even if the required infrastructure, standards,
protocols or complementary products, services or facilities are developed, we
may incur substantial expenses adapting our products to changing or emerging
technologies.
INCREASING GOVERNMENTAL REGULATION OF THE INTERNET COULD LIMIT THE MARKET FOR
OUR PRODUCTS
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, such as user privacy,
taxation of goods and services provided over the Internet, pricing, content and
quality of products and services. Legislation could dampen the growth in
Internet usage and decrease or limit its acceptance as a communications and
commercial medium. If enacted, these laws and regulations could limit the market
for our products. In addition, existing laws could be applied to the Internet,
including consumer privacy laws. Legislation or application of existing laws
could expose companies involved in electronic commerce, or e-commerce, to
increased liability, which could limit the growth of e-commerce generally.
GOVERNMENT REGULATION OF THE COLLECTION AND USE OF PERSONAL DATA COULD REDUCE
DEMAND FOR OUR PRODUCTS
Our products connect to and analyze data from various applications,
including Internet applications, that enable businesses to capture and use
information about their customers. Government regulation which limits our
customers' use of this information could reduce the demand for our products. A
number of jurisdictions have adopted, or are considering adopting, laws that
restrict the use of customer information from Internet applications. The
European Union has required that its member states adopt legislation that
imposes restrictions on the collection and use of personal data on the Internet,
and that limits the transfer of personally-
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<PAGE> 17
identifiable data to countries that do not impose equivalent restrictions. In
the United States, the Children's Online Privacy Protection Act was enacted in
October 1998. This legislation directs the Federal Trade Commission to regulate
the collection of data from children on commercial websites. In addition, the
Federal Trade Commission has begun investigations into the privacy practices of
businesses that collect information on the Internet. These and other
privacy-related initiatives could reduce demand for some of the Internet
applications with which our products operate, and could restrict the use of our
products in some e-commerce applications. This could reduce demand for our
products.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE WHICH COULD LEAD TO LOSSES BY INVESTORS AND TO
SECURITIES LITIGATION
Our common stock has never been sold in a public market. An active trading
market for our common stock may not develop or be sustained after completion of
this offering. We will negotiate and determine the initial public offering price
with the representatives of the underwriters based on several factors. The
initial public offering price may not be indicative of the prices that will
prevail in the public market after this offering, and the market price of the
common stock could fall below the initial public offering price.
The value of your investment in Broadbase could decline due to the impact
of any of the following factors upon the market price of our common stock:
- variations in our actual and anticipated operating results;
- changes in our earnings estimates by analysts;
- our failure to meet analysts' performance expectations; and
- lack of liquidity.
In addition, stock markets, particularly the Nasdaq National Market, have
experienced extreme price and volume fluctuations, and the market prices of
securities of technology companies, particularly Internet-related companies,
have been highly volatile. These fluctuations have often been unrelated to the
operating performance of such companies. Fluctuations such as these may affect
the market price of our common stock. Substantial sales of our common stock
after this offering could also cause our stock price to decline. As a result,
investors may not be able to resell their shares at or above the initial public
offering price.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in their stock price. This
type of litigation could result in substantial costs and could divert our
management's attention and resources.
OUR OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS WILL HAVE SIGNIFICANT CONTROL
OVER US WHICH COULD DELAY OR PREVENT A CHANGE OF CONTROL
Our executive officers, directors and major stockholders will have
significant control over us following completion of this offering as they will
beneficially own an aggregate of approximately 53.8% of our outstanding common
stock at that time. This could limit the ability of our other stockholders to
influence matters requiring approval by our stockholders, including the election
of directors and the approval of mergers or similar transactions.
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<PAGE> 18
WE HAVE ADOPTED ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT THE SALE OF
OUR COMPANY AND DIMINISH THE VOTING RIGHTS OF THE HOLDERS OF OUR COMMON STOCK
Provisions of our certificate of incorporation, bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. For example, we have a classified board
of directors. In addition, our stockholders are unable to act by written consent
or to fill any vacancy on the board of directors. In addition, our stockholders
cannot call special meetings of stockholders for any purpose, including to
remove any director or the entire board of directors without cause. We will also
be subject to the provisions of Section 203 of the Delaware General Corporation
Law regulating corporate takeovers. These provisions could also limit the price
that investors might be willing to pay in the future for shares of our common
stock.
WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING, AND OUR
INVESTMENT OF THESE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN
Our management has broad discretion as to how to spend the proceeds from
this offering and may spend these proceeds in ways with which our stockholders
may not agree. Pending any such uses, we plan to invest the net proceeds of this
offering in short-term, investment-grade, interest-bearing securities. These
investments may not yield a favorable return.
FUTURE SALES OF SHARES OF OUR COMMON STOCK COULD CAUSE THE PRICE OF OUR SHARES
TO DECLINE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could decline. These 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. Based upon the number of our shares outstanding as of June 30,
1999, upon completion of this offering, we will have outstanding 17,203,690
shares of common stock, assuming no exercise of outstanding options or warrants
after June 30, 1999. Of these shares, the 4,000,000 shares sold in this offering
will be freely tradable, 10,449,061 additional shares of common stock will be
available for sale in the public market 180 days after the date of this
prospectus following the expiration of lock-up agreements, and 2,754,629 more
shares will become available for sale in the public market on subsequent dates.
These stockholders may be released from their lock-up agreements at any time and
without notice, which would allow for the earlier sale of shares in the public
market.
After this offering, the holders of approximately 9,991,146 million shares
of common stock, which represent 58% of our outstanding stock after completion
of this offering, will be entitled to certain rights to have the resale of their
shares registered under the Securities Act of 1933. If these holders cause a
large number of securities to be registered and sold in the public market, such
sales could result in a significant decline in the market price for our common
stock.
SOME OF OUR EXISTING INVESTORS HAVE RIGHTS REGARDING THE PURCHASE OF SHARES IN
THIS OFFERING
In connection with our private financing in July 1999, we granted rights to
purchase shares in our initial public offering to many of the investors, subject
to compliance with applicable laws, including federal securities laws. Under the
SEC's interpretation of Sections 2(3) and 5 of the Securities Act, to the extent
that these investors participate in this offering, the holders of these rights
may be able to demand a refund of the purchase price of any shares acquired in
this offering.
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<PAGE> 19
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
INVESTMENT
The initial public offering price is substantially higher than the pro
forma net book value per share of the outstanding common stock. If you purchase
shares of our common stock, you will incur immediate and substantial dilution in
the amount of $7.38 per share. If the holders of outstanding options or warrants
exercise those options or warrants, you will experience further dilution.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND INDUSTRY DATA
We make many statements in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere that are
forward-looking and are not based on historical facts. These statements relate
to our future plans, objectives, expectations and intentions. We may identify
these statements by the use of words such as "believe," "expect," "anticipate,"
"intend" and "plan" and similar expressions. These forward-looking statements
involve a number of 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 we discuss in "Risk Factors" and
elsewhere in this prospectus. These forward-looking statements speak only as of
the date of this prospectus, and we caution you not to rely on these statements
without also considering the risks and uncertainties associated with these
statements and our business that are addressed in this prospectus.
This prospectus contains estimates of market growth related to the
Internet. These estimates have been included in studies published by Forrester
Research, a market research firm. These estimates assume that certain events,
trends and activities will occur. If Forrester Research is wrong about any of
their assumptions, then their market estimates may also be wrong.
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<PAGE> 20
USE OF PROCEEDS
The net proceeds to us from the sale of the 4,000,000 shares of common
stock offered by us will be approximately $39.9 million, at an assumed initial
public offering price of $11.00 per share and after deducting estimated
underwriting discounts and commissions and offering expenses. If the
underwriters' over-allotment option is exercised in full, our net proceeds will
be $46.0 million. We intend to use the net proceeds from this offering primarily
for general corporate purposes, including working capital. We may also use a
portion of the net proceeds from this offering to acquire or invest in
businesses, technologies or services that are complementary to our business. We
have no present plans or commitments and are not engaged in any negotiations
with respect to any transactions of this type.
We have not identified any specific uses for the net proceeds from this
offering, and we will have discretion over their use and investment. Pending use
of the net proceeds, we intend to invest the net proceeds from this offering in
short-term, interest-bearing, investment-grade securities. See "Risk
Factors -- We have broad discretion to use the proceeds from this offering, and
our investment of these proceeds may not yield a favorable return."
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our capital
stock. We intend to retain any future earnings to finance future growth and do
not anticipate paying any cash dividends in the future. In addition, the terms
of our credit facility with Silicon Valley Bank restrict our ability to pay cash
dividends.
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<PAGE> 21
CAPITALIZATION
The following table shows:
- our actual capitalization as of June 30, 1999;
- our capitalization as of that date on a pro forma basis to give effect to
the conversion of all preferred stock and convertible debentures
outstanding at June 30, 1999 into common stock upon the closing of this
offering and to give effect to changes in our authorized shares as a
result of our Delaware reincorporation; and
- our pro forma capitalization as adjusted to reflect our receipt of the
net proceeds from the sale of shares of common stock offered by us at an
assumed initial public offering price of $11.00 per share and after
deducting estimated underwriting discounts and commissions and offering
expenses.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term liabilities, less current portion................. $ 10,302 $ 777 $ 777
Stockholders' equity:
Preferred stock, par value $0.001 per share; 15,154,046
shares authorized, 8,663,089 shares issued and
outstanding, actual, no shares issued or outstanding,
pro forma and pro forma as adjusted.................... 8 -- --
Common stock, par value $0.001 per share; 90,000,000
shares authorized, 3,226,808 shares issued and
outstanding, actual; 13,203,690 shares issued and
outstanding, pro forma; 17,203,690 shares issued and
outstanding, pro forma as adjusted..................... 3 12 16
Additional paid-in capital................................ 53,513 63,037 102,898
Deferred stock compensation............................... (10,907) (10,907) (10,907)
Notes receivable from stockholders........................ (626) (626) (626)
Accumulated other comprehensive loss...................... (38) (38) (38)
Accumulated deficit....................................... (28,989) (28,989) (28,989)
-------- -------- --------
Total stockholders' equity............................. 12,964 22,489 62,354
-------- -------- --------
Total capitalization.............................. $ 23,266 $ 23,266 $ 63,131
======== ======== ========
</TABLE>
The outstanding share information shown in the table above excludes:
- 36,764 shares of common stock issuable upon the exercise of outstanding
warrants as of June 30, 1999, at a weighted-average per share exercise
price of $2.34;
- 2,013,249 shares of common stock issuable upon the exercise of
outstanding stock options as of June 30, 1999, at a weighted-average per
share exercise price of $0.62;
- 572,443 shares of common stock available for future grant under our 1996
Equity Incentive Plan as of June 30, 1999;
- 3,500,000 shares of common stock to be initially available for future
grant under our 1999 Equity Incentive Plan; and
- 500,000 shares of common stock to be initially available for issuance
under our 1999 Employee Stock Purchase Plan.
See "Management -- Employee Benefit Plans" for more information about our
stock plans.
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<PAGE> 22
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $22.5
million, or $1.70 per share of common stock. Pro forma net tangible book value
per share represents the amount of our total tangible assets less total
liabilities, divided by 13,203,690 shares of common stock outstanding as of June
30, 1999 after giving effect to the conversion of all outstanding shares of
preferred stock and convertible debentures into shares of common stock upon
completion of this offering. After giving effect to the receipt of the net
proceeds from the sale of 4,000,000 shares of our common stock at an assumed
initial public offering price of $11.00 per share and after deducting estimated
underwriting discounts and commissions and the estimated offering expenses, our
pro forma net tangible book value as of June 30, 1999 would have been
approximately $62.4 million, or $3.62 per share. This represents an immediate
increase in pro forma net tangible book value of $1.92 per share to existing
stockholders and an immediate dilution of $7.38 per share to new investors
purchasing shares at the initial public offering price. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share as of
June 30, 1999.......................................... $1.70
Increase per share attributable to new investors.......... 1.92
-----
Pro forma net tangible book value per share after
offering.................................................. 3.62
------
Dilution per share to new investors......................... $ 7.38
======
</TABLE>
The following table summarizes, as of June 30, 1999, on the pro forma basis
described above, the number of shares of common stock purchased from us, the
total consideration paid to us and the average price per share paid by existing
stockholders and by new investors purchasing shares of common stock in this
offering, before deducting estimated underwriting discounts and commissions and
the estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 13,203,690 76.7% $ 63,049,000 58.9% $ 4.77
New investors........... 4,000,000 23.3 44,000,000 41.1 11.00
---------- ----- ------------ ----- ------
Total................. 17,203,690 100.0% $107,049,000 100.0% $ 6.22
========== ===== ============ ===== ======
</TABLE>
The above discussion and tables assume no exercise of any stock options or
warrants outstanding as of June 30, 1999. As of June 30, 1999, there were
options and warrants outstanding to purchase a total of 2,050,013 shares of our
common stock with a weighted-average exercise price of $0.65 per share. If any
of these options or warrants are exercised, there will be further dilution to
new public investors. Please see Notes 5 and 9 of Notes to Financial Statements
for more information about these options and warrants.
19
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this prospectus. The consolidated
statement of operations data for the period from November 28, 1995 (inception)
to December 31, 1996 and each of the two years ended December 31, 1997 and 1998
and the consolidated balance sheet data at December 31, 1997 and 1998, are
derived from our consolidated financial statements that have been audited by
Ernst & Young LLP, independent auditors, and are included elsewhere in this
prospectus. The consolidated balance sheet data as of June 30, 1999 and the
consolidated statement of operations data for the six months ended June 30, 1998
and 1999 are derived from unaudited consolidated financial statements included
elsewhere in this prospectus and include, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments, that are necessary
for the fair presentation of our financial position and results of operations
for those periods. Historical results are not necessarily indicative of future
results. The pro forma consolidated balance sheet data as of June 30, 1999 is
unaudited and reflects the assumed conversion of all outstanding shares of
preferred stock and convertible debentures into common stock upon the completion
of this offering.
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED SIX MONTHS ENDED
NOVEMBER 28, 1995 DECEMBER 31, JUNE 30,
(INCEPTION) TO ------------------ -------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue:
License........................................ $ -- $ -- $ 2,996 $ 1,349 $ 2,693
Maintenance and professional services.......... -- -- 443 98 846
------- ------- -------- ------- --------
Total net revenue....................... -- -- 3,439 1,447 3,539
Cost of revenue:
License........................................ -- -- 713 366 428
Maintenance and professional services.......... -- -- 254 83 932
------- ------- -------- ------- --------
Total cost of revenue................... -- -- 967 449 1,360
------- ------- -------- ------- --------
Gross margin..................................... -- -- 2,472 998 2,179
Operating expenses:
Sales and marketing............................ 130 2,851 7,888 3,641 6,495
Research and development....................... 928 1,980 3,738 1,665 2,800
General and administrative..................... 215 744 1,165 522 932
Amortization of deferred stock compensation.... -- -- 1,133 328 2,472
------- ------- -------- ------- --------
Total operating expenses................ 1,273 5,575 13,924 6,156 12,699
------- ------- -------- ------- --------
Loss from operations............................. (1,273) (5,575) (11,452) (5,158) (10,520)
Interest income.................................. 30 154 335 158 194
Interest expense................................. (29) (66) (226) (100) (561)
------- ------- -------- ------- --------
Net loss......................................... $(1,272) $(5,487) $(11,343) $(5,100) $(10,887)
======= ======= ======== ======= ========
Basic and diluted net loss per share............. $ (4.30) $ (6.19) $ (8.85) $ (4.58) $ (6.30)
======= ======= ======== ======= ========
Weighted-average shares used in computing basic
and diluted net loss per share................. 296 887 1,281 1,114 1,728
======= ======= ======== ======= ========
Pro forma basic and diluted
net loss per share............................. $ (1.51) $ (1.16)
======== ========
Weighted-average shares used in computing pro
forma basic and diluted net loss per share..... 7,536 9,383
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1999
----------------- --------------------
1997 1998 ACTUAL PRO FORMA
------ ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $1,153 $13,990 $27,981 $27,981
Working capital............................................. 61 8,801 21,357 21,357
Total assets................................................ 2,113 17,173 32,561 32,561
Long-term debt and capital lease obligations, net of current
portion................................................... 916 9,360 10,302 777
Stockholders' equity (net capital deficiency)............... (75) 1,226 12,964 22,489
</TABLE>
20
<PAGE> 24
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain consolidated statement of operations
data for each of the six quarters beginning with the quarter ended March 31,
1998 through the quarter ended June 30, 1999, including such amounts expressed
as a percentage of total net revenue. This quarterly information is unaudited,
but has been prepared on the same basis as the annual consolidated financial
statements and, in the opinion of management, reflects all adjustments,
consisting only of normal recurring adjustments necessary for a fair
representation of the information for the periods presented. This statement of
operations data should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this prospectus. Operating
results for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue:
License..................................... $ 482 $ 867 $ 888 $ 759 $ 1,126 $ 1,567
Maintenance and professional services....... -- 98 104 241 360 486
------- ------- ------- ------- ------- -------
Total net revenue..................... 482 965 992 1,000 1,486 2,053
Cost of revenue:
License..................................... 210 156 180 167 260 168
Maintenance and professional services....... -- 83 84 87 391 541
------- ------- ------- ------- ------- -------
Total cost of revenue................. 210 239 264 254 651 709
------- ------- ------- ------- ------- -------
Gross margin.................................. 272 726 728 746 835 1,344
Operating expenses:
Sales and marketing......................... 1,595 2,046 1,975 2,272 2,656 3,839
Research and development.................... 742 923 1,030 1,043 1,188 1,612
General and administrative.................. 219 303 315 328 494 438
Amortization of deferred stock
compensation.............................. 62 266 374 431 925 1,547
------- ------- ------- ------- ------- -------
Total operating expenses.............. 2,618 3,538 3,694 4,074 5,263 7,436
------- ------- ------- ------- ------- -------
Loss from operations.......................... (2,346) (2,812) (2,966) (3,328) (4,428) (6,092)
Interest income............................... 53 105 94 83 113 81
Interest expense.............................. (60) (40) (47) (79) (260) (301)
------- ------- ------- ------- ------- -------
Net loss...................................... $(2,353) $(2,747) $(2,919) $(3,324) $(4,575) $(6,312)
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
PERCENT OF TOTAL NET REVENUE
Net revenue:
License..................................... 100.0% 89.8% 89.5% 75.9% 75.8% 76.3%
Maintenance and professional services....... -- 10.2 10.5 24.1 24.2 23.7
------- ------- ------- ------- ------- -------
Total net revenue..................... 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
License..................................... 43.6 16.2 18.1 16.7 17.5 8.2
Maintenance and professional services....... -- 8.6 8.5 8.7 26.3 26.4
------- ------- ------- ------- ------- -------
Total cost of revenue................. 43.6 24.8 26.6 25.4 43.8 34.5
------- ------- ------- ------- ------- -------
Gross margin.................................. 56.4 75.2 73.4 74.6 56.2 65.5
Operating expenses:
Sales and marketing......................... 330.9 212.0 199.1 227.2 178.7 187.0
Research and development.................... 153.9 95.6 103.8 104.3 79.9 78.5
General and administrative.................. 45.4 31.4 31.8 32.8 33.2 21.3
Amortization of deferred stock
compensation.............................. 12.9 27.6 37.7 43.1 62.2 75.4
------- ------- ------- ------- ------- -------
Total operating expenses.............. 543.1 366.6 372.4 407.4 354.0 362.2
------- ------- ------- ------- ------- -------
Loss from operations.......................... (486.7) (291.4) (299.0) (332.8) (297.8) (296.7)
Interest income............................... 11.0 10.9 9.5 8.3 7.6 3.9
Interest expense.............................. (12.5) (4.1) (4.7) (7.9) (17.5) (14.7)
------- ------- ------- ------- ------- -------
Net loss...................................... (488.2)% (284.6)% (294.2)% (332.4)% (307.7)% (307.5)%
======= ======= ======= ======= ======= =======
</TABLE>
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and related notes
appearing elsewhere in this prospectus. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
The actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including but not
limited to those set forth under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
We incorporated in November 1995 and from that date through December 1997
were in the development stage, conducting research and developing our initial
products. In the fourth quarter of 1997, we introduced EPM/Foundation. This
software product was originally designed to enable organizations to build and
manage datamarts for their customer information. In the third quarter of 1998,
we began offering Broadbase/EPM applications, built on EPM/ Foundation, which
provide analysis for customer relationship management. In May 1999 we expanded
our Broadbase/EPM suite by introducing new applications designed for Internet
sales channels, Internet marketing and other customer-focused e-business
applications, as well as new versions of our existing applications. As a result,
most of our license revenue through the first six months of 1999 has been
derived from licenses of EPM/Foundation. Throughout these periods, we expanded
our organization by hiring personnel in key areas, particularly marketing, sales
and research and development. We have grown from a total of 41 full-time
employees at December 31, 1997 to 75 full-time employees at December 31, 1998
and 105 full-time employees at June 30, 1999, and we intend to continue to
increase our number of employees throughout 1999.
Our revenue comes principally from licenses of our software products, with
the balance coming from maintenance and professional services. We adopted the
provisions of Statement of Position ("SOP") No. 97-2 Software Revenue
Recognition, as amended by SOP No. 98-4, Deferral of the Effective Date of
Certain Provisions of SOP No. 97-2. Under SOP No. 97-2 we recognize license
revenue when persuasive evidence of an agreement exists, delivery of the product
has occurred, no significant company obligations with regard to installation or
implementation of the software remain, the fee is fixed or determinable and
collectibility is probable. In a typical application license transaction, our
professional services group connects our product to the customer's systems and
data sources. Upon completion of that connection, no significant obligations
remain with respect to implementation, and we recognize the revenue related to
that license. The actual connection process can often be completed in two to
four weeks. However, the timing of the commencement and completion of this
process is subject to factors that may be beyond our control, as this process
requires access to the customer's facilities and coordination with the
customer's personnel following delivery of the software. As a result, we
typically do not recognize the license revenue from an application license until
one to three months after our product is shipped to the customer. License
revenue generated by distributors and other resellers is recognized upon receipt
of a reseller report of sale and our shipment of the licensed software.
Maintenance and support revenue associated with new product licenses and
maintenance revenue resulting from renewed maintenance contracts are deferred
and recognized ratably over the contract period. Professional services revenue
is recognized when services are performed.
Currently, businesses that license our products generally license one or
more Broadbase EPM applications, together with EPM/Foundation and adapters to
interface with the customers' existing data sources. Customers generally receive
nonexclusive, perpetual licenses to use our
22
<PAGE> 26
products for a specified number of servers and named concurrent users. After the
initial license, they may purchase licenses for additional servers and users as
needed. In addition, customers often purchase professional services from us,
including training services, although they may use other consulting
organizations. Customers that license our products also usually purchase
maintenance contracts, which provide software upgrades and technical support
over a stated term, typically 12 months.
We sell our products through our direct sales force and through indirect
sales channels. Direct sales are made by our direct sales force in North
America, Germany, the United Kingdom and the Netherlands. Our indirect sales
channels include software application vendors, resellers and distributors
located in the United States, Japan and the Netherlands. Sales through indirect
sales channels accounted for approximately 28.7% of our total net revenue for
1998 and 40.8% for the six months ended June 30, 1999. Although a significant
portion of our revenue to date has been generated by our indirect sales
channels, we intend to continue increasing the size of our direct sales force,
both in the United States and internationally.
Revenue from customers outside North America represented 5.1% of our total
net revenue for 1998 and 23.6% for the six months ended June 30, 1999.
Substantially all of our international revenue has been derived from sales of
EPM/Foundation by our distributors in Japan. We intend to continue to expand our
international operations and commit significant management time and financial
resources to developing our direct and indirect international sales channels.
International revenue may not, however, increase as a percentage of total net
revenue.
We have experienced substantial net losses since our inception due to the
significant costs incurred to develop our technology and products and to recruit
and train personnel for our engineering, sales, marketing, professional services
and administration departments. As of June 30, 1999, we had an accumulated
deficit of $29.0 million. We expect to continue to incur substantial operating
losses for the foreseeable future.
RESULTS OF OPERATIONS
NET REVENUE
License. We began licensing our products in the first quarter of 1998.
License revenue increased from nothing in the period from inception through 1996
and nothing in 1997 to $3.0 million in 1998. License revenue increased from $1.3
million in the first six months of 1998 to $2.7 million in the first six months
of 1999, representing an increase of 107.7%. These increases in license revenue
are attributable to increases in the number of licenses sold, reflecting the
results of the expansion of our direct sales force and our indirect sales
channels. We intend to continue to expand both these channels. In addition, we
expect the average size of our revenue per license transaction to increase as a
result of our licensing Broadbase EPM applications as well as EPM/Foundation.
Our license revenue decreased from the third quarter of 1998 to the fourth
quarter of 1998, as we transitioned to a direct sales force with the specific
skills required to sell our new Broadbase EPM applications for customer
relationship management.
During 1998, we invested in developing our direct and indirect sales
channels as well as our maintenance and professional services groups. The result
of these efforts is reflected in the 48.4% increase in license revenue between
the fourth quarter of 1998 and the first quarter of 1999 and the steadily
increasing revenue from maintenance and professional services from the second
quarter of 1998 through the second quarter of 1999.
23
<PAGE> 27
Maintenance and professional services. Maintenance revenue is recognized on
a straight-line basis over the period support is provided, usually one year. We
first began recognizing maintenance revenue in the second quarter of 1998 for
maintenance contracts sold at the end of the first quarter of 1998. Professional
services revenue is recognized as the services are performed. Professional
services revenue was first recognized in the second quarter of 1998. Maintenance
and professional services revenue increased from nothing in the period from
inception through 1996 and nothing in 1997, to $443,000 in 1998 and increased
from $98,000 in the first six months of 1998 to $846,000 in the first six months
of 1999. The growth in maintenance and professional services revenue in the
first six months of 1999 compared to the same period of 1998 reflects the
expansion of our installed base of customers and the Company's increasing
emphasis on providing its customers with post-implementation consulting and
support.
COST OF REVENUE
Cost of licenses. The cost of licenses consists primarily of royalties paid
to third parties and the cost of product manuals, media, packaging and shipping.
The cost of licenses increased from nothing in the period from inception through
1996 and nothing in 1997 to $713,000 in 1998 and from $366,000 in the first six
months of 1998 to $428,000 in the first six months of 1999, primarily as a
result of increased license revenue. Our cost of licenses has varied
significantly from quarter to quarter. These variations are due primarily to
changes in the mix of products sold, since our products require payment of
royalties to third parties at differing rates.
Cost of maintenance and professional services. The cost of maintenance and
professional services consists primarily of personnel costs associated with
providing maintenance and support services, consulting services and training
services. We began incurring costs associated with maintenance and support in
the second quarter of 1998 when support periods for our customers began, which
resulted in an increase from nothing in the period from inception through 1996
and nothing in 1997 to $254,000 in 1998 and from $83,000 in the first six months
of 1998 to $932,000 in the first six months of 1999. The increase in cost of
maintenance and professional services between the first six months of 1998 and
the first six months of 1999 was due primarily to the hiring of a vice president
of professional services and eight additional professional services personnel.
We plan to continue expanding our professional services group and, accordingly,
expect the dollar amount of our cost of maintenance and professional services to
increase.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, benefits, bonuses, commissions, travel and promotional expenses and
the facilities cost for the various domestic and international field sales
offices. Sales and marketing expenses increased from $130,000 for the period
from inception through 1996 to $2.9 million in 1997 and to $7.9 million in 1998
and from $3.6 million in the six months of 1998 to $6.5 million in the first six
months of 1999. These increases in sales and marketing expenses resulted
primarily from higher salary, recruiting, benefits, travel and facilities costs
associated with the hiring of additional sales and marketing personnel and the
expansion of our international sales organization. Full time sales and marketing
personnel grew from 23 at June 30, 1998 to 44 at June 30, 1999. We plan to
continue expanding our sales and marketing organization, and expect our sales
and marketing expense to increase.
Research and development. Research and development expenses consist
primarily of salaries for development personnel and related costs associated
with the development of new products, the enhancement of existing products,
localization, quality assurance and testing. Research and development expenses
increased from $928,000 in the period from inception through 1996 to $2.0
million in 1997 and to $3.7 million in 1998 and from $1.7 million in the first
six months of 1998 to $2.8 million in the first six months of 1999. These
increases in
24
<PAGE> 28
research and development expenses were due to the hiring of additional personnel
and to other expenses associated with the development and localization of new
products. Full time research and development personnel grew from 25 at June 30,
1998 to 33 at June 30, 1999. We plan to continue expanding our research and
development organization, and expect our research and development expense to
increase.
General and administrative. General and administrative expenses consist
primarily of salaries of executive, financial, human resource and information
services personnel as well as outside professional fees. General and
administrative expenses increased from $215,000 in the period from inception
through 1996 to $744,000 in 1997 and to $1.2 million in 1998 and from $522,000
in the first six months of 1998 to $932,000 in the first six months of 1999.
These increases in general and administrative expenses were primarily due to
increased staffing required to support our expanded operations in the United
States and abroad and, to a lesser extent, increased costs of outside
professional services and costs to implement additional management information
systems. Our full time general and administrative personnel grew from 8 at June
30, 1998 to 13 at June 30, 1999.
Deferred compensation. We recorded deferred compensation of approximately
$3.5 million in 1998, representing the difference between the exercise prices of
options granted to acquire approximately 632,000 shares of common stock during
1998 and the deemed fair value for financial reporting purposes of our common
stock on the grant dates. We amortized deferred compensation expense of
approximately $1.1 million during 1998. This compensation expense relates to
options awarded to individuals in all operating expense categories. Total
deferred compensation at December 31, 1998 of approximately $2.3 million is
being amortized using a graded vesting method over the vesting periods of the
options. In addition, we granted options to purchase common stock in the first
six months of 1999 for which we recorded additional deferred compensation of
approximately $11.0 million which will be amortized using a graded vesting
method over the vesting periods of the options. The amortization of deferred
compensation recorded through June 30, 1999 will be approximately $6.0 million
for 1999, $4.2 million for 2000, $2.1 million for 2001, $897,000 for 2002 and
$142,000 for 2003.
Interest income. Interest income consists of interest earned on our cash
and cash equivalents. Interest income for the period from inception through 1996
was $30,000 and for 1997 was $154,000, representing interest earned on the cash
proceeds of our Series A and Series B preferred stock financings. Interest
income increased to $335,000 in 1998, due primarily to the investment of the
proceeds of our Series C preferred stock financing. Interest income increased
from $158,000 in the first six months of 1998 to $194,000 in the first six
months of 1999 due to higher invested cash balances in 1999 as a result of the
investment of proceeds received from the sale of $8.3 million and $1.3 million
of Series D convertible debentures in December 1998 and April 1999,
respectively.
Interest expense. Interest expense consists primarily of interest on our
notes payable, bank line of credit and convertible debentures. Interest expense
increased from $29,000 for the period from inception through 1996 to $66,000 in
1997 due to $300,000 in additional borrowings in 1997 under notes from a
financial institution, and to $226,000 in 1998 due to $1.0 million in additional
borrowing in 1998 under a bank line of credit. Interest expense increased from
$100,000 in the first six months of 1998 to $561,000 in the first six months of
1999 due primarily to interest payments on $8.3 million of convertible
debentures issued in December 1998 and $1.3 million of convertible debentures
issued in April 1999.
Income taxes. There was no federal income tax provision in any period
presented due to our net operating losses. We had deferred tax assets of
approximately $2.9 million as of December 31, 1997 and $6.5 million as of
December 31, 1998. Realization of deferred tax assets is dependent on future
earnings, if any, the timing and amount of which are uncertain.
25
<PAGE> 29
Accordingly, a valuation allowance, in an amount equal to the net deferred tax
assets as of December 31, 1997 and 1998, has been established to reflect these
uncertainties. Our deferred tax assets primarily relate to net operating loss
and tax credit carryforwards. As of December 31, 1998, we had federal net
operating loss carryforwards of approximately $15.4 million and state net
operating loss carryforwards of approximately $10.7 million. We also had federal
and state research and development tax credit carryforwards of approximately
$300,000 and $200,000, respectively. The net operating loss and tax credit
carryforwards will expire at various dates beginning in 2004, if not utilized.
Utilization of the net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating loss and tax
credit carryforwards before utilization.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded our operations primarily through the sale of
equity securities, with net proceeds of $38.6 million, sales of convertible
debentures, with net proceeds of $9.5 million, and bank borrowings.
Net cash used in operating activities was $4.8 million in 1997 and $6.1
million in 1998. Net cash used in operating activities was $6.4 million in the
six months ended June 30, 1999. In each period, net cash used in operating
activities resulted from our net loss offset in part by increases in current
liabilities, especially deferred revenue in 1998 and accrued expenses in the
first six months of 1999. The increase in deferred revenue consisted primarily
of prepayments of licenses from Japanese distributors and prepayment of
maintenance.
Our investing activities used cash of $661,000 in 1997, $1.4 million in
1998 and $637,000 in the first six months of 1999. Net cash used in investing
activities in these periods was primarily the result of capital expenditures for
computer and communications equipment, purchased software, office equipment,
furniture, fixtures and leasehold improvements.
Our financing activities provided cash of $1.1 million in 1997, $20.4
million in 1998 and $21.0 million in the first six months of 1999. In 1997,
financing activities provided cash primarily from issuance of $1.0 million of
long-term debt. In 1998, financing activities provided cash of $11.9 million
from the issuance of preferred stock, $8.3 million from the issuance of
convertible debentures and $1.0 million from borrowings under our bank credit
facility. This was offset in part by long-term debt repayment of $380,000 and a
$400,000 loan to an officer and stockholder in exchange for a non-recourse
promissory note which is secured by common stock of Broadbase held by the
officer. For the first six months of 1999, our financing activities provided
cash primarily from the issuance of $20.0 million of preferred stock and the
issuance of $1.3 million of convertible debentures.
In July 1998, we entered into a loan and security agreement with Silicon
Valley Bank, providing a line of credit of up to $2.0 million and an equipment
line of credit of up to $1.0 million. Any borrowings under the line of credit
bear interest at the bank's prime lending rate, and any borrowings under the
equipment line of credit would bear interest at the bank's prime lending rate
plus 0.5%. As of June 30, 1999, borrowings under the line of credit would have
accrued interest at a rate of 7.75% and the borrowings under the equipment line
of credit accrued interest at a rate of 8.25%. Borrowings under this agreement
are secured by certain assets of Broadbase. As of June 30, 1999, no borrowings
were outstanding and $2.0 million was available for borrowing under the line of
credit. In addition, as of that date, $833,500 was outstanding under the
equipment line of credit. Borrowings under the equipment line of credit are due
in 36 equal monthly installments of principal, plus accrued interest, beginning
in January 1999 and ending in December 2001. The agreement contains covenants
requiring that we
26
<PAGE> 30
satisfy certain financial ratios and maintain a minimum tangible net worth. The
agreement also prohibits us from paying cash dividends. As of December 31, 1998
and June 30, 1999, we were in compliance with these covenants. In addition, as
of June 30, 1999, we had outstanding indebtedness under two separate notes
payable to a financial institution aggregating $684,000, at a weighted-average
interest rate of 14.5% per year.
As of June 30, 1999, we had $28.0 million of cash and cash equivalents
which, together with the $2.0 million available for borrowing under our bank
line of credit, will be sufficient to fund our operations, including working
capital and capital equipment purchase requirements for the next 12 months.
After that time, we intend to fund our working capital and capital expenditure
requirements from any remaining cash and cash equivalents, cash received from
this offering, cash generated from operating activities, existing and future
bank financing and possibly from future sales of our capital stock. We cannot be
certain that we would be able to obtain additional financing on favorable terms,
if at all. If we cannot raise necessary additional funds on acceptable terms, we
may not be able to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.
At June 30, 1999, we had no material commitments for capital expenditures and
$2.1 million of minimum lease payments under noncancellable operating and
capital leases, net of future sublease income under noncancellable subleases.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Our exposure to market risk for changes in interest rates relates primarily
to our long-term debt obligations. We primarily use proceeds from these debt
obligations to support general corporate requirements including capital
expenditures and working capital needs. We have interest rate exposure on
borrowings under our revolving line of credit and equipment line of credit which
bear interest at variable rates based on the prime interest rate. We have no
interest rate exposure on our convertible debentures and notes payable to a
financial institution, as the interest rates on these obligations are fixed.
The table below presents principal amounts by year of maturity and related
weighted-average interest rates for our debt obligations as of December 31,
1998.
<TABLE>
<CAPTION>
FAIR
1999 2000 THEREAFTER TOTAL VALUE
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Notes payable
Fixed rate amounts..... $436,000 $442,000 -- $ 878,000 $ 878,000
Average rate........... 14.50% 14.50%
Convertible debentures
Fixed rate amounts..... -- -- $8,250,000 $8,250,000 $8,250,000
Average rate........... 10.0%
Line of credit
Variable rate
amounts............. $333,000 $333,000 $ 334,000 $1,000,000 $1,000,000
Average rate........... 8.25% 8.34%
</TABLE>
We have no derivative financial instruments in our cash and cash
equivalents. We invest our cash and cash equivalents in investment grade, highly
liquid investments, consisting of money market instruments and bank certificates
of deposit. We anticipate investing our net proceeds from this offering in
similar investment grade and highly liquid investments pending their use as
described in this prospectus.
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<PAGE> 31
We are exposed to market risk from fluctuations in foreign currency
exchange rates. We manage exposure to variability in foreign currency exchange
rates primarily through the use of natural hedges, as both liabilities and
assets are denominated in the local currency. However, different durations in
our funding obligations and assets may expose us to the risk of foreign exchange
rate fluctuations. We have not entered into any derivative instrument
transactions to manage this risk. Based on our overall foreign currency rate
exposure at June 30, 1999, we do not believe that a hypothetical 10% change in
foreign currency rates would materially adversely affect our financial position.
YEAR 2000 READINESS
Many currently installed computer systems and software products
electronically store dates using only the last two digits of the calendar year.
As a result, these systems may not be able to distinguish whether "00" means
1900 or 2000, which may cause system failures or erroneous results. This problem
is generally referred to as the "year 2000 issue."
State of readiness. We have completed our assessment of the potential
overall impact of the impending century change on our business. Based on our
current assessment, we believe current and prior versions of our software
products are year 2000 compliant. By year 2000 compliant, we mean that the use
or occurrence of dates on or after January 1, 2000 will not materially affect
the performance of our software products or the ability of our products to
correctly create, store, process and output data involving dates, provided that
all other products, such as hardware and software used with our products, are
also year 2000 compliant. However, our products are generally integrated into,
and process data extracted from, other enterprise systems involving
sophisticated hardware and complex software products that we cannot adequately
evaluate for year 2000 compliance. We may face claims based on year 2000
problems in other companies' products, or issues arising from the integration of
multiple products within an overall system even if our products are otherwise
year 2000 compliant.
Utilizing a combination of an external consulting firm and our information
systems department personnel, we have completed an assessment of our internal
management information systems and other computer systems' readiness for year
2000 issues. As part of this effort, we have communicated with the external
vendors that supply us with our software and information systems and with our
significant suppliers to determine their products' and organization's year 2000
compliance. We received a written response from a small percentage of the
external vendors and significant suppliers that were contacted indicating that
their systems are year 2000 compliant. Those who have not responded have
statements on their web sites indicating that their systems are year 2000
compliant.
The results of these readiness assessment initiatives indicate that, with
the exception of our accounting system and software on a few of the computers
used by our sales representatives to demonstrate our products, virtually all of
our internal information technology systems and other internal operating systems
are currently year 2000 compliant. For those non-compliant internal information
systems, we are in the process of obtaining the necessary compliance upgrades.
We plan to implement the necessary upgrades to these systems by September 30,
1999.
Costs. To date, costs directly associated with our year 2000 compliance
efforts have not been material, amounting to less than $20,000. These costs
consist of fees paid to an external consulting firm assisting us with our year
2000 readiness assessment initiatives as well as costs incurred for consultants
to assist in our remediation efforts. In addition, we have incurred expenses in
amounts that are not material associated with our salaried employees who have
devoted some of their time to our year 2000 assessment and remediation efforts.
We do not expect the total cost of year 2000 problems to be material to our
business. However, during
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<PAGE> 32
the months prior to the century change, we will continue to evaluate new
versions of our software products, new software and information systems provided
to us by third parties and any new infrastructure systems that we acquire, to
determine whether they are year 2000 compliant. Despite our current assessment,
we may not identify and correct all significant year 2000 problems on a timely
basis. Year 2000 compliance efforts may involve significant time and expense and
unremediated problems could seriously harm our business. We currently have no
contingency plans in place to address the risks associated with unremediated
year 2000 problems but we are currently developing these plans and expect to
have them in place in the third quarter of 1999.
Risks. We are not currently aware of any year 2000 compliance problems
relating to our products that would seriously harm our business. We may discover
year 2000 compliance problems in our products that will require substantial
revision and could subject us to liability claims. Our products operate in
complex network environments and directly or indirectly interact with a number
of other hardware and software systems that we cannot adequately evaluate for
year 2000 compliance. In addition, technology developed by others and
incorporated in our products could have year 2000 problems. We may face claims
based on year 2000 problems in other companies' products, or issues arising from
the integration of multiple products within an overall system even if our
products are otherwise year 2000 compliant. Our failure to fix or replace our
internally developed proprietary software or third-party software, hardware or
services on a timely basis could result in lost revenue, increased operating
costs, the loss of customers and other business interruptions, any of which
could seriously harm our business. Moreover, our failure to adequately address
year 2000 compliance issues in our internally developed proprietary software
could result in claims of mismanagement, misrepresentation or breach of contract
and related litigation, which could be costly and time-consuming to defend. In
particular, if we fail to complete in a timely manner the compliance upgrades to
our accounting systems and certain of the computers used to demonstrate our
products, our operations would be disrupted as a result of a lack of
availability of our accounting systems and an inability of certain of our sales
representatives to engage in demonstration of our products.
In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and others outside of our control may
not be year 2000 compliant. The failure of these entities to be year 2000
compliant could result in a systemic failure beyond our control, such as a
prolonged Internet, telecommunications or electrical failure, which could also
prevent us from delivering our services to our customers, decrease the use of
the Internet or prevent users from accessing websites.
Although we have not been a party to any litigation or arbitration
proceeding involving our products related to year 2000 compliance issues, we may
in the future be required to defend our products or services in these
proceedings, or to negotiate resolutions of claims based on year 2000 issues.
Defending and resolving year 2000-related disputes, regardless of the merits of
these disputes, and any liability we have for year 2000-related damages,
including consequential damages, could be expensive and could seriously harm our
business.
We may experience reduced sales of products as customers and potential
customers put a priority on correcting year 2000 problems and therefore defer
purchases of our products. Accordingly, demand for our products may be
particularly volatile and unpredictable for the remainder of 1999 and early
2000. To the extent year 2000 issues cause a significant delay in, or
cancellation of, decisions to purchase our products or services, our business
would be seriously harmed.
Contingency plan. As discussed above, we have conducted a year 2000
assessment but have not yet implemented any contingency plans. However, we are
currently developing these plans and expect to have them in place in the third
quarter of 1999. The results of our year
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<PAGE> 33
2000 simulation testing and the responses received from third-party vendors and
service providers are being taken into account in determining the nature and
extent of any contingency plans we adopt.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires
companies to capitalize certain qualifying computer software costs which are
incurred during the application development stage and amortize them over the
software's estimated useful life. Broadbase was required to adopt SOP 98-1
effective January 1, 1999. The adoption of SOP 98-1 did not have a material
impact on Broadbase's consolidated financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 was effective beginning on January 1, 1999
and requires that start-up costs capitalized prior to January 1, 1999, be
written off, and any future start-up costs be expensed as incurred. The adoption
of SOP 98-5 did not have a material impact on Broadbase's consolidated financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 establishes methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Broadbase will be required to
adopt FAS 133 for its year ending December 31, 2001. However, because Broadbase
does not utilize derivative financial instruments, it does not believe the
impact of FAS 133 will be material to its consolidated financial position or
results of operations.
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<PAGE> 34
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in such
forward-looking statements.
Broadbase develops and markets software that integrates and analyzes
customer information from Internet and traditional business channels, enabling
businesses to improve their customer acquisition, retention and profitability.
Broadbase EPM integrates information from numerous points of customer
interaction, or touch points, by pulling information from multiple data sources
and transforming it into a standard format that can be analyzed. Broadbase EPM
then analyzes this reformatted information to provide a comprehensive
understanding of the customer lifecycle from initial identification through
acquisition and retention. Our products then allow businesses to translate this
analysis into specific actions such as targeting profitable customers,
personalizing customer interactions and identifying opportunities to sell
complementary or higher-end products and services. By integrating, analyzing and
acting on valuable customer information, our products enable businesses to build
long-lasting and profitable customer relationships.
Broadbase EPM consists of a suite of applications that are built on
EPM/Foundation, our software platform that provides comprehensive analytic
capabilities. Broadbase EPM integrates information that has traditionally been
isolated in separate systems designed to support specific types of customer
interactions, such as customer service and Internet-based sales. It provides
decision-makers in sales, marketing, customer service and e-commerce business
functions with a more comprehensive view of the customer. Each application
provides these decision-makers with analysis of customer information that is
specifically designed for their particular business function. Our solutions can
generally be deployed in less than 30 days, allowing our customers to quickly
capture revenue opportunities and achieve rapid return on investment. To date,
over 80 end user customers have licensed our products from us and our
distributors and resellers. Traditional "bricks and mortar" customers include
ADP, Boeing, Fidelity Investments, Hewlett-Packard, Inprise, Plymouth Rock,
Rockwell, The Sharper Image and United Airlines, each of which has licensed
products and purchased services totaling at least $150,000. In addition, we have
licensed our new e-business applications to two Internet-only companies, InsWeb
and Mercata.
INDUSTRY BACKGROUND
The recent emergence and acceptance of the Internet as a medium for
commerce is fundamentally changing the way companies communicate, obtain
information, purchase goods and transact business with their customers. The
Internet offers a number of compelling benefits that are causing increasing
numbers of companies to transact business online, including opportunities to
increase revenue, reduce operating costs and improve customer retention. As a
result, the Internet has become an important new channel for both traditional
"bricks and mortar" and Internet-only businesses to interact with and market and
sell to customers. Both types of companies are adapting many of their business
activities for the Internet, defining a new category of enterprise called the
e-business. Forrester Research estimates that the number of U.S. companies with
5,000 or more employees using the Internet as a channel for e-commerce will
increase from 20% in 1998 to 92% in 2002. Across companies of all sizes,
Forrester Research estimates that online business-to-business and
business-to-consumer transactions will grow from $127 billion in 1999 to over
$1.4 trillion in 2003.
This rise of the Internet as a primary business channel has created a
highly competitive environment with low barriers to entry for new competitors
and insignificant switching costs for customers. Because customers have a
growing number of easily accessible choices both on and off the Internet,
e-businesses face a constant battle for customer loyalty. For example,
travelers,
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once limited to traditional travel agents, can now also choose among numerous
online providers at the click of a mouse. In this rapid paced Internet
environment, existing enterprise applications that automate processes and reduce
costs are no longer sufficient to build long lasting and profitable customer
relationships. In order to create these relationships, e-businesses must target,
convert and retain customers by differentiating their products and services to
meet each customer's individual requirements.
PROLIFERATION OF CUSTOMER TOUCH POINTS
As a result of this competitive environment, enterprises need to develop
customer-focused business models founded on a comprehensive understanding of
individual customer relationships. Traditionally, businesses have managed these
relationships by functional departments, such as marketing, sales and customer
support, and customer information has been isolated within these departments. In
contrast, e-businesses must integrate customer information across functional
departments to maximize the value of the entire customer lifecycle, from initial
identification through acquisition and retention. E-businesses need to analyze
and act on customer information gathered from all sources, including direct
sales organizations, storefronts, catalogs and websites. By using real time and
historic customer intelligence to personalize business relationships, successful
e-businesses can maximize loyalty and profitability throughout the customer
lifecycle.
With the emergence of the Internet as a primary business channel, the
number of points of customer interaction, or touch points, has increased
dramatically. Internet sales systems, online customer service solutions, website
logs and e-mail management systems have multiplied the massive amounts of
customer interaction data already generated by conventional front office systems
such as sales force automation systems, telesales and customer support call
centers, marketing automation systems, and customer and field service
applications. In addition, traditional back office systems such as billing,
manufacturing and human resource systems, capture large volumes of important
customer and operational data. This increase in data sources makes the challenge
of integrating and analyzing the information generated throughout the customer
lifecycle more difficult. The sheer volume and variety of customer data creates
a competitive opportunity for businesses that can effectively integrate, analyze
and act on this information.
NEED FOR COMPREHENSIVE E-BUSINESS ANALYTIC SOLUTIONS
Traditionally, businesses tried to analyze this valuable data by piecing
together generic technologies -- point tools -- that address narrow and discrete
analytical needs. These point tools include data extraction tools to access
data, online analytical processing tools to analyze and model data, data mining
technologies to identify patterns in data, and report generators to present the
information. Piecing together these point tools to create a patchwork system
typically requires significant custom programming and takes a long time to
complete. In addition, these patchwork systems are very difficult and costly to
maintain. Because patchwork systems are inflexible and costly to maintain, they
are poorly suited to the rapidly changing business and technology requirements
of e-businesses.
Moreover, patchwork systems and point tools cannot provide e-businesses
with a comprehensive understanding of the entire customer lifecycle. Instead,
they generally offer limited analysis based on a single element of a customer's
interaction with a business, focusing on a single channel, customer touch point
or period of time. For example, today's website monitoring tools completely
ignore historical customer activity across other channels, such as call centers
or traditional storefronts. As a result, these tools would not indicate that a
customer used the Internet to gather information about a product, purchased the
product at a physical store and later contacted customer support.
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Finally, patchwork systems and point tools do not enable e-businesses to
act quickly on data generated by customer interactions. These tools were not
designed for specific functions such as e-commerce or customer service, or their
unique underlying business processes. Because the data and reports generated by
point tools cannot be quickly translated into concrete actions, they cannot
unleash one of the most powerful potentials of e-business -- the ability to
personalize customer interactions and differentiate product offerings in real
time.
Both multi-channel "bricks and mortar" and Internet-only businesses require
solutions that integrate, analyze and act on information from all customer touch
points. These analytic solutions must create a comprehensive view of the
customer lifecycle by integrating information from e-commerce and Internet-based
systems, front office systems, back office applications and external information
sources. They also must provide business users in different functional areas
with packaged applications that analyze this information using industry
benchmarks, business logic and guided decision-making capabilities. Finally,
e-businesses require solutions that enable them to move quickly from analysis to
action, enhancing customer relationships both online and offline.
OUR SOLUTION
Our Broadbase EPM -- E-Business Performance Management -- solution consists
of two components: the EPM/Foundation software platform and the Broadbase EPM
suite of analytic applications. EPM/Foundation is a robust and extensible
software platform that integrates and analyzes customer interactions and
operational data from multiple sources. Our Broadbase EPM applications provide
decision-makers within various business functions with analysis of this
information to improve customer targeting, acquisition, conversion and
retention. Broadbase EPM applications are designed for the specific and changing
analytic needs of decision makers in e-commerce, online publishing and
advertising, marketing, sales and customer service functions. Our solutions are
designed to enable businesses to target customer segments, personalize marketing
promotions and campaigns, differentiate product and service offerings and
leverage operational resources, resulting in more loyal and profitable
customers.
We believe our solutions represent an innovative and comprehensive approach
to analyzing and optimizing e-business customer interactions by providing the
following benefits:
UNDERSTAND THE ENTIRE CUSTOMER LIFECYCLE
Our Broadbase EPM solution integrates information from multiple customer
touch points to provide a comprehensive view of the entire customer lifecycle,
from initial identification through acquisition and retention. EPM/Foundation
transforms, cleanses, loads and integrates large volumes of customer and
operational data, such as previous purchases, responses to promotions and
service requests. The Broadbase EPM applications then use this integrated
information to deliver analysis that is designed to address the needs of
specific business departments.
IMPROVE CUSTOMER ACQUISITION, CONVERSION AND RETENTION RATES
E-businesses that deploy our solutions use analysis of the entire customer
lifecycle to target, personalize and differentiate all aspects of online and
offline customer interactions -- moving beyond the simple automation of customer
transactions. For instance, businesses use our solutions to increase customer
acquisition by targeting higher value customers, to improve conversion rates by
personalizing web content and advertising, and to enhance customer retention by
streamlining customer service bottlenecks. In doing so, our solutions enable
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e-businesses to use both the Internet and traditional business channels to build
profitable, long-lasting customer relationships.
IDENTIFY AND TARGET MOST PROFITABLE CUSTOMERS
Our Broadbase EPM solution enables e-businesses to identify their most
profitable customers and to tailor promotions and marketing campaigns, sales
efforts, product offerings and customer service based on individual buying
habits and demographics. In doing so, it allows companies to maintain and
enhance the value of their most profitable customers as well as to increase the
profitability of other customer segments.
RESPOND RAPIDLY TO OPPORTUNITIES AND RISKS
Our Broadbase EPM solution allows business decision makers to respond
rapidly and effectively to new opportunities and risks by providing timely
information, measuring results against industry targets and suggesting actions.
These capabilities help close the loop between a customer interaction and the
business response -- that is, they help the business react to information
generated from previous customer interactions. Examples of these capabilities
include utilizing prior customer behavior to personalize web content or
identifying opportunities to sell complementary products, or "cross-sell," and
to sell higher-end products, or "up-sell." In addition, our solutions
incorporate business logic to monitor performance, identify exceptions and alert
users to key events such as ineffective promotions or service backlogs.
ACHIEVE FAST RETURN ON INVESTMENT THROUGH RAPID IMPLEMENTATION
Because our Broadbase EPM solution can generally be deployed in less than
30 days, businesses can rapidly begin to realize the increased revenue resulting
from personalized customer interactions, without suffering the delays associated
with the creation of in-house patchwork systems and consulting services-based
approaches. In addition, our packaged adapters for integration with Internet and
enterprise systems, and our pre-built applications, support rapid implementation
with a lower investment than applications developed in-house.
REDUCE TOTAL COST OF OWNERSHIP
Our Broadbase EPM solution requires fewer resources than the development
and implementation of alternatives such as in-house patchwork systems and
consulting services-based approaches. In addition, our applications are
specifically designed to be easily used by business decision makers, minimizing
training and support costs. Finally, because we offer an open platform,
businesses can easily adapt and extend our open modular solutions to meet their
changing business and technical requirements with minimal additional investment.
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CASE STUDIES
The following case studies illustrate the use of our Broadbase EPM solution
by an Internet-only company as well as a traditional "bricks and mortar"
business. Mercata is one of the two Internet-only companies that have licensed
our new e-business applications. Plymouth Rock is a traditional "bricks and
mortar" company whose use of our products is representative of how many
companies use our products to improve customer acquisition, retention and
profitability. The revenues we have derived from both Mercata and Plymouth Rock
together represent less than 5% of our total revenues to date. We continue to
provide software upgrades and technical support to both Mercata and Plymouth
Rock under maintenance agreements we have with these companies.
MERCATA
Mercata is a web-based retailer that offers an online group buying system
through which groups of buyers can exercise volume purchasing power and drive
prices lower. As its e-commerce activity increases, Mercata must analyze and
optimize content, promotions and specific group purchases, as well as improve
customer targeting.
Mercata has licensed our Broadbase EPM solution to analyze the traffic and
buying habits of its users by integrating our product with BroadVision, which is
Mercata's e-commerce system. By analyzing their users' habits, Mercata can
discover trends and patterns, such as how often consumers make offers and how
much they raise their offers. In addition, Broadbase EPM will analyze the
optimal product mix, price and length of each group purchase. Mercata can then
use this information to customize and personalize its content to attract new
users and retain current ones. In addition, our Broadbase EPM solution will
enable Mercata to understand and determine the growing purchasing leverage of
Mercata's e-consumer community. Mercata also plans to use our Broadbase EPM
solution to integrate and analyze data from Mercata's customer service call
center, its enterprise resource planning system and its e-mail management
system.
PLYMOUTH ROCK
The Plymouth Rock Company is a property, casualty and auto insurance
company headquartered in New England. Since the state of Massachusetts sets
automobile insurance rates and prohibits insurers from denying coverage to any
driver, Plymouth faces the challenge of providing coverage to high risk drivers
while minimizing costs and claims.
Plymouth selected Broadbase EPM to help it reduce insurance claim expenses.
By generating an enterprise-wide, customer-focused view of Plymouth's lines of
business, and by analyzing data about customers' insurance claims, Plymouth can
target low risk customers. In addition, Plymouth is incorporating sales to low
risk customers as a compensation criterion for its agents, and will automate
this process by integrating Broadbase EPM and its payroll applications.
Broadbase EPM is currently used by more than 100 employees at Plymouth and over
150 of its external insurance agents.
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OUR STRATEGY
Our objective is to be the leading provider of customer-focused e-business
solutions. To achieve this objective, we have adopted the following strategies:
EXPAND OUR PRODUCT OFFERINGS IN THE E-BUSINESS ANALYTIC SOLUTIONS MARKET
Our underlying product architecture enables us to develop new products and
enhancements rapidly. We will continue to invest significantly in research and
development to expand our product offerings in the e-business analytic solutions
market. We utilize a customer-driven development cycle, focused on identifying
current and future e-business requirements, through frequent customer meetings
and customer programs. We also work closely with other application, technology
and system integration companies to identify other opportunities to expand our
product offerings.
TARGET MULTI-CHANNEL COMPANIES AND INTERNET-ONLY BUSINESSES
We believe that both traditional multi-channel companies and emerging,
Internet-only businesses need our integrated e-business solutions. We also
believe that both categories of businesses will continue to invest heavily in
e-business solutions, such as those offered by Broadbase, in order to
differentiate their product and service offerings, leverage the Internet as a
primary business channel and develop lasting relationships with their customers.
Accordingly, we will continue to target both multi-channel companies and
Internet-only businesses.
BROADEN PRODUCT ADOPTION THROUGH MARKETING AND TECHNOLOGY RELATIONSHIPS
We believe that marketing and technology relationships with a strong
network of companies will broaden our product adoption, increase our market
presence and enhance our ability to deliver complete solutions to our customers.
Our marketing and technology relationships with these companies provide value to
both parties. For example, our marketing and technology relationships with
application vendors enhance the value of their products by allowing their
customers to access, analyze and act upon the data within these products. We
plan to continue to invest in jointly integrating, marketing and selling our
solutions and services with these companies. We plan to form new relationships
with additional e-commerce software vendors whose customers require e-business
analysis. We also intend to continue to build relationships with major systems
integrators and consulting service providers.
EXPAND PROFESSIONAL SERVICES CAPABILITIES
We believe that our professional services group is important to ensure our
customers' success and to drive increased sales. Our professional services group
assists businesses in developing innovative ways to implement our solution,
leading to increased adoption of our products. We plan to continue to expand our
professional services group.
EXTEND OUR GLOBAL PRESENCE
We believe that there will continue to be significant international
opportunities for our solutions. We currently have offices in Germany, Japan,
the Netherlands and the United Kingdom, and distributors in Japan. We plan to
continue to invest in our sales infrastructure in order to support a growing
global sales force in both the United States and in international markets,
particularly Asia-Pacific and Europe.
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BROADBASE PRODUCTS AND SERVICES
OVERVIEW OF BROADBASE EPM
Broadbase EPM is a suite of e-business software solutions designed to
provide business decision-makers in sales, marketing, customer service and
e-commerce with analysis of customer information that is specifically designed
for their business function. This suite is built on EPM/Foundation, our software
platform that provides comprehensive analytic capabilities. We introduced
EPM/Foundation in the fourth quarter of 1997, and began offering our analytic
applications designed for specific business functions in the third quarter of
1998. In May 1999, we expanded our suite by introducing new applications
designed for e-business, as well as new versions of our existing applications.
Our Broadbase EPM applications may be licensed individually or in any
combination. A license for any one or more of our Broadbase EPM applications
also includes a license for EPM/Foundation and adapters to interface with the
customers' existing data sources. While we have derived most of our license
revenue from our EPM/Foundation product to date, we anticipate that an
increasing portion of our license revenue will be derived from our Broadbase EPM
applications.
Each Broadbase EPM application incorporates its own data model and business
logic. The data models organize the relevant data through EPM/Foundation into
consistent formats that can support dynamic and interactive analysis. The
business logic used in each application then analyzes this data using the rules
that typically govern the decision making process within each specific business
function. It can identify risks and opportunities and suggest actions for
specific processes. For example, our E-Personalize application organizes
profiles of website visitors, analyzes the content of the website, links
information about visitors and content and suggests types of content or products
that should be presented to the customer. Organizations can customize the data
models and business logic to support their specific and changing needs.
EPM/Foundation is the software platform upon which each of our applications
is built. It enables the applications to extract data from multiple sources,
transform this data into a consistent format and store this data in widely used
databases such as Microsoft SQL Server and Oracle. This data can include both
real time and historic data from Internet-based systems, such as websites,
e-mail and online service, front-office applications such as sales, marketing
and customer support systems, back-office applications such as finance,
manufacturing and human resources and sources of demographic data.
EPM/Foundation's analytic engine provides the capabilities that allow the
Broadbase EPM applications to perform complex analysis.
Broadbase EPM incorporates browser-based interface that enables business
users to take advantage of all of its capabilities with minimal training. This
intuitive interface guides business users through the analysis process, while
providing sophisticated users with more extensive functionality.
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The following graphic illustrates the architecture of Broadbase EPM:
GRAPHICS
BROADBASE EPM APPLICATIONS
Each Broadbase EPM application is designed specifically to address critical
business functions. The Broadbase EPM applications analyze, measure and evaluate
information from numerous customer touch points by extracting the information,
reformatting it, performing various calculations and identifying customer
patterns that are useful for each specific business function. For example, the
E-Marketing application collects and analyzes customer information extracted
from a company's order processing system, its website and external demographic
data sources. It then performs calculations on the information to identify
patterns and trends, such as historical purchasing patterns of customers, and
uses this analysis to provide information, such as identifying customers that
are likely to purchase a particular product. The marketing organization can use
this information to tailor its marketing campaigns to those customers most
likely to purchase the product.
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The Broadbase EPM applications are:
<TABLE>
<S> <C> <C>
-------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BROADBASE EPM
APPLICATION DESCRIPTION
<S> <C> <C>
-------------------------------------------------------------------------------------------------
Customer Service - Analyzes service costs and case queues
- Measures workforce readiness and service level management
- Prioritizes support cases and recommends resource
allocation
-------------------------------
Sales - Measures profitability and bookings, billings and backlog
- Analyzes sales leads, pipeline, forecasting accuracy and
competitive wins/losses
- Evaluates the productivity of sales representatives and
distribution channels
-------------------------------
E-Marketing - Recommends cross-selling and up-selling opportunities
- Analyzes return on investment of campaigns and promotions
- Profiles customers and generates lists for campaign
management
-------------------------------
E-Commerce - Analyzes customer purchasing behavior and online shopping
processes, profitability of specific distribution channels
and order fulfillment
- Analyzes the performance of website content and identifies
impact of content changes
- Measures commerce website statistics and online user
activity
-------------------------------
E-Personalize - Analyzes business rules for personalization of web
content, product and service offerings
- Features personalization engine that creates content
personalization rules based on usage patterns, user
interests and demographics (not included in current
version; anticipated in next release)
- Also will provide input of rules into e-commerce systems,
such as BroadVision, to "close the loop" by enabling these
systems to personalize the customer's experience based on
analysis of prior interactions (not included in current
version; anticipated in next release)
-------------------------------
E-Procurement - Analyzes buying behavior throughout the company to help it
(anticipated to be released negotiate better volume discounts
in the fourth quarter of - Quantifies external interactions with existing suppliers
1999). including price/performance scoring
- Analyzes supplier performance
-------------------------------
</TABLE>
39
<PAGE> 43
Our Customer Service, Sales and E-Marketing applications were first
released in July 1998, and the most recent versions of each were released in May
1999. Our E-Commerce and our E-Personalize applications were first released in
May 1999. We anticipate releasing our E-Procurement application and a new
version of our E-Personalize application in the fourth quarter of 1999. Actual
features and release dates for new applications and versions could differ
materially from those projected as a result of a variety of factors, some or all
of which may be beyond our control. See "Risk Factors -- We may be unable to
attract new customers if we do not develop new products and enhancements."
EPM/FOUNDATION
Broadbase EPM applications are built on EPM/Foundation, a comprehensive
software platform that provides analytic capabilities. EPM/Foundation has the
following features:
Adapters for internal and external enterprise systems. EPM/Foundation
features adaptable and robust data extraction, transformation and loading
capabilities that extract and transform data from key data sources and load that
data into Broadbase EPM. The extraction, transformation and loading layer
includes adapters for integration with key enterprise systems and sources. Using
adapters, EPM/Foundation integrates with:
- e-commerce systems such as those offered by Allaire, BroadVision,
InterWorld, Kana, Microsoft, Open Market and Vignette;
- customer interaction systems such as those offered by Aurum, Baan,
Clarify, ONYX, Oracle, Pivotal, Rubric, Saratoga Systems, Scopus, Siebel
and Vantive;
- enterprise resource planning applications that manage and integrate data
from business operations, such as those offered by Baan, JD Edwards,
Oracle, PeopleSoft and SAP;
- custom, legacy and homegrown applications and systems;
- demographic and other data from external providers such as Acxiom and Dun
& Bradstreet; and
- leading data warehouses, or enterprise-wide systems that store, retrieve
and manage data such as those offered by IBM, Informix/Red Brick, NCR,
Oracle and Sybase.
The extraction, transformation and loading layer also provides businesses with
the flexibility to integrate other data sources and systems as their
requirements change.
Open, scalable architecture. EPM/Foundation runs on leading databases, such
as Microsoft SQL Server and Oracle. EPM/Foundation is composed of industry
standard SQL and Java components and utilizes the Microsoft Data Warehouse
Framework, including SQL Server's OLAP Services and the Microsoft Metadata
Repository. Our applications operate on Windows NT and access data stored on
both Windows NT and UNIX platforms.
Application server and analytic engine. EPM/Foundation features a powerful
analytic engine, with capabilities including hybrid online analytical
processing, data mining, statistical analysis and ad hoc analysis. In addition,
EPM/Foundation contains an extendable library of reusable application
components, such as profitability calculations, that facilitate the management
and customization of analytical applications.
Information delivery server. EPM/Foundation supports a completely
Internet-based, publish-and-subscribe information delivery model with security
features for individuals or groups of users. In addition, alerts and triggers
can be set to automatically deliver information only when and where needed.
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<PAGE> 44
Integrated graphical application management. EPM/Foundation features an
integrated graphical management environment for complete system administration
and management of both EPM/Foundation and the Broadbase EPM applications.
SERVICE OFFERINGS
Our professional services group helps businesses define, design and
implement e-business analysis solutions. Our customers benefit from the
accumulated expertise of our professional services group including its
experience in developing, deploying and implementing analytic applications,
enterprise applications and data warehouses. In addition, our professional
services group has built expertise in key functional areas including e-commerce,
customer relationship management and direct marketing. Moreover, our
professional services group has specific expertise in the systems with which our
solution is integrated and assists in the development of our adapters. We
generally charge for our services on a time and materials basis and provide them
worldwide through offices in the United States, Europe and Japan. Our
professional services include:
- project planning and management;
- system implementation;
- software integration;
- user training; and
- ongoing customer support.
In a typical application license transaction, our professional services
group connects our products to the customer's systems and data sources. The
actual connection process can often be completed in approximately two to four
weeks.
The goals of our professional services group are to rapidly deliver
solution value and meet the specific business needs of our customers. We will
continue to work closely with our network of systems integration partners and
expand our training capabilities both in the United States and internationally.
We believe that our professional services group can assist businesses in
developing innovative ways to implement our solutions, leading to increased
product adoption.
CUSTOMERS
To date, over 80 end user customers have licensed our products from us and
from our indirect sales channel, which includes our distributors and companies
that sell our products as part of an integrated solution with their own
offerings. These end user customers include both traditional "bricks and mortar"
companies and Internet-only companies. As of July 31, 1999, we had licensed
products and sold services totaling at least $50,000 to the following end user
41
<PAGE> 45
customers. This list does not include end users which license our products under
an agreement with another party.
<TABLE>
<S> <C> <C>
FINANCIAL SERVICES MANUFACTURING ENERGY INDUSTRIES
Automatic Data Processing Baxter IV Systems Boston Edison
BankBoston Bell & Howell Chevron
CommerzBank Boeing Commercial Airplanes Idaho Power
Fidelity Investments Group Los Alamos National Labs
Plymouth Rock Assurance Canon Computer New Century Energy
PMA Group Eastman Kodak Omaha Public Power
Putnam Investments Honda
Oakley
Rockwell Automation
INTERNET AND
COMMUNICATION SERVICES TECHNOLOGY OTHER
InsWeb Computer Hardware DSC Logistics
Mercata Maintenance Co. Harvard Pilgrim Health Care
NECX Direct DG Systems PreVision Marketing
NTT Hewlett Packard Shikishima Baking Company
Pointcast Inprise Tokai
WebTV/Microsoft Kana Communications United Airlines
Thomson Technology
Services
Vantive
RETAIL
Catalog Marketing Services
Ginza Cozy Corner
Golden Books
The Sharper Image
Travers Tool
United Natural Foods
</TABLE>
Hewlett-Packard represented 10.1% of our net revenue in 1998 and 6.6% in
the first six months of 1999.
LICENSING
Currently, businesses that license our products generally license one or
more Broadbase EPM applications, together with EPM/Foundation and adapters to
interface with their existing data sources. Customers generally receive
nonexclusive, perpetual licenses to use our products for a specified number of
servers and named concurrent users. After the initial license, they may purchase
licenses for additional servers and users as needed. In addition, customers
often purchase professional services from us, including training services,
although they may use other consulting organizations. Customers that license our
products also usually purchase maintenance contracts, which provide software
upgrades and technical support over a stated term, typically 12 months.
MARKETING AND TECHNOLOGY RELATIONSHIPS
We establish marketing and technology relationships to assist in the
marketing, selling and implementation of our solutions, as well as to increase
the interoperability of our solutions with our partners' complementary products.
42
<PAGE> 46
TYPES OF RELATIONSHIPS
We have five types of marketing and technology relationships:
SYSTEM INTEGRATORS AND CONSULTING FIRMS
To ensure the successful implementation of our solutions, we have
established relationships with a number of leading system integrators and
consulting firms. These firms implement our products, provide related business
consulting, and often assist us in our sales process. In the United States, we
have relationships with Andersen Consulting, Cambridge Technology Partners,
Condor/DST, Ernst & Young, Renaissance Worldwide, Technology Solutions Company
and US Web/CKS. In addition, we have relationships with Internet-focused
professional services firms and regional system integrators.
E-COMMERCE AND INTERNET SOFTWARE VENDORS
To enhance our software, and to identify potential customers, we have
formed relationships with leading vendors of e-commerce and Internet solutions,
such as BroadVision and Kana. We jointly integrate, market and sell our
complementary solutions with BroadVision. We have also been featured at
BroadVision's user group meetings, internal sales meetings and on their website.
We are engaged in joint marketing and integration of our solutions with Kana's
e-mail management solution.
FRONT AND BACK OFFICE SOFTWARE VENDORS
To enable our solutions to integrate data from as many customer touch
points as possible, and to target the installed customer base of these
applications, we have formed relationships with leading enterprise applications
vendors. We currently have marketing and technology relationships with Clarify,
Genesys, ONYX, Rubric, Saratoga Systems and Vantive. These software vendors
highlight Broadbase's applications in their sales cycle, at their user group
meetings or on their websites. For each of these vendors, Broadbase provides
adapters that enable integration between our complementary systems.
TECHNOLOGY AND PLATFORM VENDORS
To ensure that our products are based on industry standards and to take
advantage of new and emerging technologies, we have formed relationships with
key technology and platform vendors. As part of our relationship with Microsoft,
we have joined the Microsoft Data Warehouse Alliance, whose members support the
Microsoft Data Warehouse Framework. In addition, we support Windows NT, Internet
Information Server and Office 2000.
DEMOGRAPHIC DATA PROVIDERS
To provide more effective customer and marketing analysis, our solutions
allow businesses to integrate external demographic data with their customer
data. We have entered into joint marketing agreements with Acxiom and Dunn and
Bradstreet and are integrating our products with their products to enable our
customers to access and analyze the demographic data of these companies.
TERMS OF AGREEMENTS
Our marketing and technology relationships are generally not documented in
writing, or are governed by agreements that can be terminated by either party
with little or no notice. These agreements generally provide for the parties to
cooperate to make joint press releases, do joint
43
<PAGE> 47
marketing and where appropriate to integrate their products or make them
compatible with each other. These agreements may also specify that payments are
to be made by us to these companies for providing us with qualifying customer
leads. The generation of leads to date by these companies has not generally
satisfied the specified criteria and therefore payments for leads have been
immaterial in amount.
SALES AND MARKETING
We license our software through both our direct sales force and indirect
sales channels. As of June 30, 1999, our sales group consisted of 40 employees,
in ten locations -- six offices in the United States and four offices
internationally, which are located in Germany, Japan, the Netherlands and the
United Kingdom. Our direct sales force consists of sales representatives as well
as sales personnel who provide pre-sales technical support and other support
personnel. We plan to expand our direct sales force significantly. Our corporate
sales organization is responsible for collecting inbound leads, performing
initial qualification and introducing each prospective customer to a direct
sales representative. We sell to companies at the departmental level, targeting
directors and executives in e-commerce, sales, marketing, customer service and
information technology.
Our indirect sales channel includes companies such as Baan, Datamedica and
Indus, which sell our products as part of an integrated solution with their own
offerings. Indus selected EPM/Foundation as the platform on which to build its
Indus Knowledge Warehouse solution, which it licenses to its customers in the
utility and energy industries. Indus represented 18.4% of our revenue in 1998
and 11.0% of our revenue in the first six months of 1999. Baan selected
EPM/Foundation as the platform on which to build its Enterprise Decision Manager
decision support suite. We also have distributors in Japan, which include Beacon
Information Technology, Compaq Computer K.K., Oki Electric Industry, Sharp
System Products and Teijin Systems Technology.
Our distribution relationships are generally governed by agreements that
can be terminated by either party with little or no prior notice. These
agreements generally grant nonexclusive licenses to distribute our products, are
not subject to minimum purchase requirements and provide for certain discounts
on the purchase prices of our products. We entered into our distribution
agreement with Indus, which contains similar provisions, on June 2, 1998. This
agreement is effective until June 30, 2001 and will automatically renew for
additional one year terms unless it is terminated earlier by either party with
30 days written notice prior to the date of the automatic renewal.
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 direct mail and e-mail
campaigns, press relations and industry analyst briefings, speaking engagements,
attendance at partners' user group meetings and industry trade shows, and
participation in sales and marketing programs of companies with whom we have
marketing relationships.
INTERNATIONAL OPERATIONS
International sales represented approximately 5.1% of our total net revenue
for 1998 and 23.6% of our total net revenue in the first six months of 1999, all
of which consisted of sales of EPM/Foundation to customers in Japan and the
Netherlands. We first recognized revenue from international sales in the last
quarter of 1998. The growth in our international sales from 1998 to the first
six months of 1999 reflects the establishment of our international sales
efforts, particularly increased sales through our Japanese distributors. We
currently conduct our international sales primarily through direct sales offices
in Germany, the Netherlands and the
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<PAGE> 48
United Kingdom, and through distributors in Japan. Our products are sold
internationally both individually and as part of integrated solutions with the
product offerings of certain companies, such as Baan. Our relationships with our
Japanese distributors are generally governed by agreements that are similar to
those described under "Sales and Marketing," above. The end user companies that
license our products internationally span many industries. We believe that there
will continue to be significant international opportunities for our integrated
e-business solutions. As a result, we intend to expand our international
operations and to continue to invest in our sales infrastructure in order to
support a growing global sales force in international markets, particularly
Asia-Pacific and Europe.
The expansion of our existing international operations and entry into
additional international markets will require significant management attention
and financial resources. In particular, we must develop local versions of our
products for foreign markets and must recruit and train an international staff.
Currently, we have only limited experience in localizing our products and in
marketing, selling and supporting our products and services overseas.
RESEARCH AND DEVELOPMENT
Our research and development organization is comprised of separate groups
responsible for core product development, application development and product
strategy and management. The core product development group is responsible for
ongoing development of EPM/Foundation. Our application development group is
responsible for developing new Broadbase EPM applications and enhancing existing
applications. Our product strategy and management group is responsible for
prioritizing customer requirements and defining the resources and timelines
necessary to deliver products. Our current research and development efforts are
focused on the development of additional applications and other enhancements
that extend the e-business functionality of our solutions.
Our research and development expenditures were $928,000 in the period from
November 28, 1995 (inception) to December 31, 1996, $2.0 million in 1997, $3.7
million in 1998 and $2.8 million in the six months ended June 30, 1999. We
expect that we will continue to commit significant resources to research and
development in the future. The market for our products and services is
characterized by rapid technological change, frequent new product introductions
and enhancements, evolving industry standards, and rapidly changing customer
requirements. Our future success will depend in part on our ability to
anticipate changes, enhance our current products, develop and introduce new
products that keep pace with technological advancements and address the
increasingly sophisticated needs of our customers. See "Risk Factors -- We may
be unable to attract new customers if we do not develop new products and
enhancements."
COMPETITION
Our competitors vary in company size, and in the scope and breadth of their
products and services. We have three primary sources of competition:
- providers of consulting services-based analysis solutions, such as
E.piphany;
- vendors of point technologies that provide website analysis such as
Accrue, Andromedia and Net Perceptions; and
- in-house development efforts by potential customers using traditional and
generic decision support tools.
In addition, we face potential competition from vendors of other enterprise
applications as they expand the functionality of their product offerings. These
vendors may include Oracle, SAP, Siebel, other vendors of software designed for
decision support or management of
45
<PAGE> 49
customer relationships or of organizations' operational information. They also
may include vendors of database applications.
Principal competitive factors include:
- quality, breadth and depth of application offerings;
- product robustness and extensibility;
- openness of technology architecture;
- ease of deployment and maintenance;
- quality of services and customer support; and
- price.
Although we believe that our solutions compete favorably with respect to
these factors, our market is new and rapidly evolving. We may not be able to
maintain our competitive position against current and potential competitors. See
"Risk Factors -- We face intense competition which could make it difficult to
acquire and retain customers."
We face the same sources of competition and the same competitors both
domestically and internationally. However, we face additional challenges in
selling our products and services internationally in that we must develop local
versions of our products for foreign markets and must recruit and train an
international staff.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology. We rely on a combination
of trademark, trade secret and copyright law and contractual restrictions to
protect the proprietary aspects of our technology. We have no patents. We seek
to protect our source code for our software, documentation and other written
materials under trade secret and copyright laws. We license our software under
signed license agreements, which impose restrictions on the licensee's ability
to utilize the software. Finally, we seek to avoid disclosure of our
intellectual property by requiring employees and consultants with access to our
proprietary information to execute confidentiality agreements with us and by
restricting access to our source code. 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. Our
success and ability to compete are also dependent on our ability to operate
without infringing upon the proprietary rights of others. See "Risk
Factors -- We depend on our intellectual property, and litigation regarding our
intellectual property could harm our business."
We currently rely on software that we have licensed from a number of
suppliers. These licenses may not continue to be available to us on commercially
reasonable terms or at all. If these licenses cease to be available, we believe
we could license equivalent software on commercially reasonable terms. In the
future, we expect to license other third party technologies to enhance our
products, meet evolving customer needs or adapt to changing technology
standards. Failure to license, or the loss of any license of necessary
technologies could result in delays or reductions of shipments of our products
until equivalent software is identified, licensed and integrated or developed by
us.
EMPLOYEES
As of June 30, 1999, we had 105 full-time employees, including 40 in sales
and four in marketing, 33 in research and development, 14 in administrative,
nine in professional services and five in customer support. Our future success
will depend in part on our ability to attract,
46
<PAGE> 50
train, retain, integrate and motivate highly qualified sales, technical and
management personnel, for whom competition is intense. From time to time we also
employ independent contractors to support our services, product development,
sales and marketing departments. Our employees are not represented by any
collective bargaining unit, and we have never experienced a work stoppage. We
believe our relations with our employees are good.
FACILITIES
Our principal office occupies approximately 21,000 square feet in Menlo
Park, California under a lease that expires on July 31, 2002. In addition, we
also lease sales and support offices in the United States in the metropolitan
areas of Atlanta, Chicago, Dallas, New York and Oakland, and internationally in
the metropolitan areas of Amsterdam, Frankfurt, London and Tokyo.
LEGAL PROCEEDINGS
On July 21, 1999, Timeline, Inc. filed a complaint against us in the United
States District Court for the Western District of Washington, alleging
infringement by us of U.S. Patent No. 5,802,511 held by Timeline. Timeline
alleges that we directly and indirectly infringe its patent claims by making,
using, selling and offering to sell software products, both alone and in
combination with third party software products, and further alleges that we
induce infringement of the Timeline patent claims. Timeline has requested
permanent injunctions prohibiting us from directly or indirectly infringing the
Timeline patent, and seeks damages, exemplary damages, costs and attorneys'
fees. Timeline has further disclosed to us patent claims of a pending related
patent application that Timeline expects to be issued and to be added to the
present case.
Based on our investigation of this matter to date, we believe that we do
not infringe any valid claims of the Timeline patent or of the pending patent
application, and that we have other meritorious defenses to all claims made by
Timeline. Accordingly, we intend to defend this suit vigorously. Nevertheless,
it is possible that we could be found liable for infringing the Timeline patent.
See "Risk Factors -- We depend on our intellectual property, and litigation
regarding our intellectual property could harm our business."
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<PAGE> 51
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table shows the name, age and position of each of our
executive officers and directors as of the date of this prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark Kremer.................. 43 President, Chief Executive Officer and Chairman of the
Board of Directors
Chuck Bay.................... 42 Chief Financial Officer, General Counsel, Executive Vice
President of Operations and Corporate Secretary
Thomas Doyle................. 49 Executive Vice President of Sales
Brian Kelly.................. 34 Executive Vice President of Applications and Engineering
Anil Gupta................... 40 Vice President of Marketing
Kevin Harvey................. 35 Director
Paul Levy.................... 43 Director
Nancy Schoendorf............. 44 Director
</TABLE>
MARK KREMER is the founder of Broadbase and has served as President, Chief
Executive Officer and Chairman of the Board of Directors of Broadbase since its
inception in November 1995. From January 1994 to November 1995, Mr. Kremer
served as a Director of Product Development for Oracle Corporation, a software
company. Mr. Kremer holds a B.S. degree in computer engineering from the
Technion Israel Institute of Technology.
CHUCK BAY joined Broadbase in January 1998 and currently serves as Chief
Financial Officer, General Counsel, Executive Vice President of Operations and
Corporate Secretary. From July 1997 to January 1998, Mr. Bay served as Chief
Financial Officer and General Counsel for Reasoning, Inc., a software company.
From January 1995 to August 1997, Mr. Bay served as Chief Financial Officer and
General Counsel for Pure Atria Software, Inc., a software company. From April
1994 to January 1995, Mr. Bay served as President and Chief Financial Officer of
Software Alliance Corporation, a software company. Mr. Bay holds a B.S. degree
in business administration from Illinois State University and a J.D. degree from
the University of Illinois.
THOMAS DOYLE joined Broadbase in May 1999 as Executive Vice President of
Sales. From October 1996 to April 1999, Mr. Doyle served as Senior Vice
President of Worldwide Sales at Reasoning, Inc., a software company. From May
1984 to September 1996, Mr. Doyle held numerous sales and sales management
positions at Tandem Computers, a computer manufacturer. Mr. Doyle holds a B.S.
degree in finance from the University of Missouri.
BRIAN KELLY joined Broadbase in December 1998 as Executive Vice President
of Applications and Engineering. From June 1998 to December 1998, Mr. Kelly
served as Director of Product Strategy, Analytic Applications at PeopleSoft,
Inc., a software company. From June 1996 to June 1998, Mr. Kelly served as Vice
President of Product Strategy at Intrepid Systems, Inc., a software company.
From December 1992 to June 1996, Mr. Kelly was President of Kelly Information
Systems, a software company. Mr. Kelly holds a B.S. degree in computer science
from the University of Cincinnati.
ANIL GUPTA joined Broadbase in August 1999 as Vice President of Marketing.
From January 1999 to August 1999, Mr. Gupta served as Vice President of
Marketing at Niku Corporation, a software company. From May 1995 to December
1998, Mr. Gupta held various marketing positions at Baan, a software company,
including Vice President of Marketing for the Baan Supply Chain Solutions. From
June 1993 to May 1995, Mr. Gupta served as Director of Industry Marketing at
Oracle, a software company. Mr. Gupta holds a B.S. degree in Electrical
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<PAGE> 52
Engineering from The Birla Institute of Technology and Science in Pilani, India
and an M.B.A. degree from Santa Clara University.
KEVIN HARVEY has served as a member of Broadbase's Board of Directors since
January 1996. Mr. Harvey has been a General Partner of Benchmark Capital, a
venture capital firm, since January 1995. From July 1993 to January 1995, Mr.
Harvey served as General Manager for Lotus Development Corporation, a software
company. Mr. Harvey is also a director of Silicon Gaming, Inc., an entertainment
and gaming technology company, Critical Path, Inc., an e-mail hosting services
company, and several privately held companies. Mr. Harvey holds a B.S.E.E.
degree from Rice University.
PAUL LEVY has served as a member of Broadbase's Board of Directors since
May 1999. In 1981, Mr. Levy co-founded Rational Software Corporation, a software
company, and he currently serves as its Chairman of the Board of Directors. From
1981 to April 1999, Mr. Levy served as Chairman of the Board of Directors and
Chief Executive Officer of Rational Software Corporation. Mr. Levy also serves
as a director of Genesys Telecommunications Laboratories, Inc. Mr. Levy holds a
B.S. degree from the United States Air Force Academy and an M.S. degree in
engineering from Stanford University.
NANCY SCHOENDORF has served as a member of Broadbase's Board of Directors
since February 1997. Ms. Schoendorf has been a General Partner of Mohr, Davidow
Ventures, a venture capital firm, since 1994 and a Managing Partner since 1997.
Ms. Schoendorf currently serves as a director of Actuate Software Corporation
and several privately held companies. Ms. Schoendorf holds a B.S. degree in
computer science and mathematics from Iowa State University and an M.B.A. degree
from Santa Clara University.
Our Board of Directors is currently comprised of four directors. Prior to
the closing of the offering, the holders of our Series A preferred stock and
Series B preferred stock, each voting as a separate series, were each entitled
to elect one director. Kevin Harvey and Nancy Schoendorf served on our Board of
Directors pursuant to these rights. In addition, the holders of our common
stock, voting as a separate class, were entitled to elect one director. Mark
Kremer served on our Board of Directors pursuant to this right. Finally, the
holders of the preferred stock and common stock, voting together as a single
class, are entitled to elect any remaining directors. Upon the closing of the
offering, these Board representation rights will terminate and no stockholders
will have any special rights with respect to Board representation. Directors are
elected by the stockholders at each annual meeting of stockholders and serve for
one year or until their successors are duly elected and qualified. However, our
certificate of incorporation and bylaws provide, following the offering, that
our Board of Directors will be divided into three classes as nearly equal in
size as possible with staggered three-year terms. The term of office of our
Class I directors will expire at the annual meeting of stockholders to be held
in 2000; the term of office of our Class II directors will expire at the annual
meeting of stockholders to be held in 2001; and the term of office of our Class
III directors will expire at the annual meeting of stockholders to be held in
2002. At each annual meeting of stockholders, beginning with the 2000 annual
meeting, the successors to the directors whose terms will then expire will be
elected to serve from the time of their election and qualification until the
third annual meeting following their election or until their successors have
been duly elected and qualified, or until their earlier resignation or removal.
Mr. Harvey has been designated as a Class I director; Ms. Schoendorf has been
designated as a Class II director; and Mr. Kremer and Mr. Levy have been
designated as Class III directors. The classification of our Board of Directors
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, control of Broadbase.
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<PAGE> 53
BOARD COMMITTEES
Our Board of Directors has a compensation committee and an audit committee.
Compensation committee. The current members of our compensation committee
are Mr. Harvey and Ms. Schoendorf. The compensation committee reviews and makes
recommendations to our Board of Directors concerning salaries and incentive
compensation for our officers and employees. The compensation committee also
administers our 1996 Equity Incentive Plan and will administer our 1999 Equity
Incentive Plan and 1999 Employee Stock Purchase Plan.
Audit committee. The current members of our audit committee are Mr. Harvey
and Ms. Schoendorf. Our audit committee reviews and monitors our financial
statements and accounting practices, makes recommendations to our Board of
Directors regarding the selection of independent auditors and reviews the
results and scope of the audit and other services provided by our independent
auditors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee has at any time since our
formation been an officer or employee of Broadbase. No executive officer of
Broadbase currently serves, or in the past has served, as a member of the Board
of Directors or compensation committee of any entity that has one or more
executive officers serving on our Board of Directors or compensation committee.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable and necessary expenses in
attending board and committee meetings.
Each non-employee director who is or becomes a member of our Board of
Directors on or after the date of this offering and who has not previously
received shares or options in Broadbase will be granted an option to purchase
10,000 shares of our common stock under the 1999 Equity Incentive Plan.
Immediately following each annual meeting of our stockholders, each non-employee
director will automatically be granted an additional option to purchase 10,000
shares under that plan if the director has served continuously as a member of
our Board of Directors since the date of the director's initial grant. Each
option will have an exercise price equal to the fair market value of our common
stock on the date of grant and will have a ten-year term. Each of these options
will be immediately exercisable and fully vested.
In May 1999, we granted to Paul Levy, one of our directors, an option to
purchase 96,750 shares of common stock at an exercise price of $0.73 per share.
Mr. Levy exercised this option in full in May 1999. This option vests as to
12,094 shares in November 1999 and vests as to 1/48 of the original number of
shares subject to the option each month thereafter. Broadbase has the right to
repurchase the unvested shares of this option if Mr. Levy ceases to provide
services as a director of Broadbase.
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EXECUTIVE COMPENSATION
The following table shows all compensation awarded to, earned by or paid
for services rendered to Broadbase in all capacities during 1998 by our chief
executive officer and our other executive officers or former executive officers
who earned at least $100,000 in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY BONUS OPTIONS
---------------------------- -------- -------- ------------
<S> <C> <C> <C>
Mark Kremer, President, Chief Executive Officer and
Chairman of the Board of Directors................. $205,000 $ 25,000(1) --
Chuck Bay, Chief Financial Officer, General Counsel,
Executive Vice President of Operations and
Corporate Secretary................................ 143,269 40,000(1) 259,000
Bruce Armstrong, Vice President of Sales(2).......... 160,000 112,000(3) --
</TABLE>
- -------------------------
(1) Represent bonuses earned in 1998 but paid in January 1999 to Mr. Kremer and
Mr. Bay.
(2) Mr. Armstrong ceased to be an employee of Broadbase on June 30, 1999.
(3) Includes $92,000 paid to Mr. Armstrong as commissions.
Brian Kelly was hired as Executive Vice President of Applications and
Engineering in December 1998 and is compensated at an annual rate of $150,000
with bonuses of up to $30,000. Thomas Doyle was hired as Executive Vice
President of Sales in May 1999 and is compensated at an annual rate of $225,000
with a targeted commission of $100,000. Mr. Doyle's commission is dependent upon
his level of performance. If Mr. Doyle achieves 100% of the annual sales target
established by Broadbase, he would earn $100,000 in commission income. If Mr.
Doyle exceeds the sales target, he would earn more than $100,000 in commission
income. If Mr. Doyle fails to meet the sales target, his commission income would
be reduced to the percentage of $100,000 that actual sales represent of the
sales target. By way of example, if Mr. Doyle achieves 80% of the sales target,
he would earn $80,000 in commission income. Anil Gupta was hired as Vice
President of Marketing in August 1999 and is compensated at an annual rate of
$150,000 with bonuses of up to $40,000 per year.
OPTION GRANTS IN 1998
The following table shows information about each stock option grant during
1998 to the officers named in the Summary Compensation Table above.
All options included in the following table are immediately exercisable and
are incentive stock options. We have a right to repurchase the shares issued on
exercise of these options upon termination of the optionee's employment. This
right lapses over a four-year period and will lapse as to 50% of the 173,000
shares upon a change of control of Broadbase. All options were granted at an
exercise price equal to the fair market value of our common stock, as determined
by our Board of Directors on the date of grant.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SHARES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED IN 1998 PER SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Chuck Bay............... 173,000 13.79% $0.25 01/21/08 $27,200 $ 68,929
86,000 6.85 0.73 12/23/08 39,482 100,055
</TABLE>
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<PAGE> 55
The 5% and 10% assumed annual rates of compounded stock price appreciation
in the table above are required by rules of the Securities and Exchange
Commission and do not represent our estimates or projections of our future stock
prices.
See "Employment Agreements" for discussion of information regarding option
grants made to Brian Kelly, Thomas Doyle and Anil Gupta in 1999.
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
The following table provides information concerning stock option exercises
by each of the executive officers named in the Summary Compensation Table above
that exercised options during the fiscal year ended December 31, 1998 and
information concerning unexercised options held by these officers at the end of
1998. We have a right to repurchase the shares issued upon exercise of these
options upon termination of the optionee's employment. Our right to repurchase
the shares lapses over a four-year period from the date of grant. In the
following table, the heading "exercisable" refers to shares that were
exercisable although our right to repurchase unvested shares had not lapsed.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT DECEMBER 31, 1998 DECEMBER 31, 1998
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Chuck Bay............... 173,000 $-- 86,000 -- -- --
Bruce Armstrong(1)...... -- -- 202,500 202,500 38,092 $35,045
</TABLE>
- ---------------
(1) We entered into a Separation Agreement, effective April 14, 1999, with our
former Vice President of Sales, Bruce Armstrong. The Separation Agreement
provides for termination of Mr. Armstrong's employment as of June 30, 1999,
payment of salary and benefits by the Company to Mr. Armstrong through June
30, 1999, the continuation of vesting of Mr. Armstrong's options through
June 30, 1999 and the repurchase of all 119,581 unvested shares held by Mr.
Armstrong as of June 30, 1999.
EMPLOYEE BENEFIT PLANS
1996 EQUITY INCENTIVE PLAN
We adopted our 1996 Equity Incentive Plan in April 1996. As of June 30,
1999, there were outstanding options to purchase a total of 2,013,249 shares of
common stock under this plan, and 572,443 shares remained available for future
grants of options under this plan. This plan will terminate immediately prior to
this offering, and no further options will be granted under this plan after this
offering. However, the termination of this plan will not affect any outstanding
options, which will remain outstanding until they are exercised or until they
terminate or expire.
1999 EQUITY INCENTIVE PLAN
We intend to adopt the 1999 Equity Incentive Plan and intend to reserve
3,500,000 shares of common stock for issuance under this plan. The number of
shares reserved for issuance under this plan will be increased to include any
shares reserved under our 1996 Equity Incentive Plan not issued or subject to
outstanding grants on the date of this prospectus and any shares issued under
our 1996 Equity Incentive Plan that are forfeited or repurchased by us at the
original purchase price or that are issuable upon exercise of options granted
under our 1996 Equity Incentive Plan that expire or become unexercisable for any
reason without having been exercised in full. Thereafter the number of shares
reserved under this plan will be increased
52
<PAGE> 56
automatically on January 1, 2000 and each anniversary thereafter, by an amount
equal to 5% of the total outstanding shares as of the immediately preceding
December 31st. Our 1999 Equity Incentive Plan will become effective on the date
of this prospectus and will serve as the successor to our 1996 Equity Incentive
Plan. The following shares will be available for grant and issuance under our
1999 Equity Incentive Plan:
- shares subject to issuance upon exercise of an option granted under our
1999 Equity Incentive Plan that cease to be subject to that option for
any reason other than exercise of the option;
- shares issued pursuant to the exercise of an option granted under our
1999 Equity Incentive Plan that are subsequently forfeited or repurchased
by us at the original purchase price;
- shares subject to awards granted pursuant to restricted stock purchase
agreements under our 1999 Equity Incentive Plan that are subsequently
forfeited or repurchased by us at the original issue price; and
- shares subject to stock bonuses granted under our 1999 Equity Incentive
Plan that terminate without shares being issued.
Our 1999 Equity Incentive Plan will terminate in 2009, unless sooner
terminated in accordance with the terms of the plan.
Our 1999 Equity Incentive Plan authorizes the award of options, restricted
stock awards and stock bonuses. Our non-employee directors are entitled to
receive automatic annual grants of fully vested options to purchase 10,000
shares of our common stock, as described under "Management -- Director
Compensation." Additionally, our non-employee directors are eligible to receive
discretionary awards under our 1999 Equity Incentive Plan. Our 1999 Equity
Incentive Plan is administered by the compensation committee of our Board of
Directors, which currently consists of Mr. Harvey and Ms. Schoendorf, both of
whom are "non-employee directors" under applicable federal securities laws and
"outside directors" as defined under applicable federal tax laws. The committee
has the authority to construe and interpret this plan and any agreement made
thereunder, grant awards and make all other determinations necessary or
advisable for the administration of this plan.
Our 1999 Equity Incentive Plan provides for the grant of both incentive
stock options that qualify under Section 422 of the Internal Revenue Code and
nonqualified stock options. Incentive stock options may be granted only to
employees. Nonqualified stock options, and all other awards other than incentive
stock options, may be granted to employees, officers, directors, consultants,
independent contractors and advisors of Broadbase or any parent or subsidiary of
Broadbase. However, consultants, independent contractors and advisors are only
eligible to receive awards if they render bona fide services not in connection
with the offer and sale of securities in a capital-raising transaction. The
exercise price of incentive stock options must be at least equal to the fair
market value of our common stock on the date of grant. The exercise price of
incentive stock options granted to 10% stockholders must be at least equal to
110% of that value. The exercise price of nonqualified stock options must be at
least equal to 85% of the fair market value of the our common stock on the date
of grant.
The maximum term of options granted under our 1999 Equity Incentive Plan is
ten years. Awards other than nonqualified stock options granted under this plan
may not be transferred in any manner other than by will or by the laws of
descent and distribution and may be exercised during the lifetime of the
optionee only by the optionee. The plan allows exceptions to this restriction
with respect to awards that are nonqualified stock options. Options granted
under our 1999 Equity Incentive Plan generally expire three months after the
termination of the
53
<PAGE> 57
optionee's service to Broadbase or a parent or subsidiary of Broadbase. In the
event of a "change in control" transaction, outstanding awards may be assumed or
substituted by the successor corporation. The compensation committee may also
accelerate the vesting of awards upon a change of control transaction.
1999 EMPLOYEE STOCK PURCHASE PLAN
We intend to adopt the 1999 Employee Stock Purchase Plan prior to
completion of this offering, and to reserve a total of 500,000 shares of common
stock for issuance under this plan. On each January 1, the aggregate number of
shares reserved for issuance under our 1999 Employee Stock Purchase Plan will be
increased automatically by a number of shares equal to 1% of our outstanding
shares on the preceding December 31. Our compensation committee will administer
our 1999 Employee Stock Purchase Plan. The plan will become effective on the
first day on which price quotations are available for our common stock on the
Nasdaq National Market.
Employees generally will be eligible to participate in our 1999 Employee
Stock Purchase Plan if they are employed 10 days before the beginning of the
applicable offering period and they are customarily employed by Broadbase or its
parent or any subsidiaries that Broadbase designates for more than 20 hours per
week and more than five months in a calendar year. Employees are not eligible to
participate in our 1999 Employee Stock Purchase Plan if they are 5%
stockholders, or would become 5% stockholders as a result of their participation
in this plan.
Under our 1999 Employee Stock Purchase Plan, eligible employees will be
able to acquire shares of our common stock through payroll deductions. Eligible
employees may select a rate of payroll deduction between 2% and 10% of their
cash compensation and are subject to certain maximum purchase limitations.
Participation in this plan will end automatically upon termination of employment
for any reason.
Each offering period under our 1999 Employee Stock Purchase Plan will be
for two years and will consist of four six-month purchase periods. The first
offering period is expected to begin on the first business day on which price
quotations for Broadbase's common stock are available on the Nasdaq National
Market. The first purchase period may be more or less than six months long.
Offering periods and purchase periods thereafter will begin on January 1 and
July 1.
The purchase price for common stock purchased under our 1999 Employee Stock
Purchase Plan will be 85% of the lesser of the fair market value of our common
stock on the first day of the applicable offering period or the last day of each
purchase period. The compensation committee will have the power to change the
duration of offering periods. Our 1999 Employee Stock Purchase Plan is intended
to qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code. The plan will terminate in 2009, unless it is terminated
earlier pursuant to its terms.
401(k) PLAN
We sponsor a defined contribution plan intended to qualify under Section
401(k) of the Internal Revenue Code. All employees are generally eligible to
participate and may enter the 401(k) plan as of the first day of each month.
Participants may make pre-tax contributions to the plan of up to 20% of their
eligible pay, subject to a statutorily prescribed annual limit. Participants are
fully vested in their contributions and the investment earnings. Individual
participants may direct the trustee to invest their accounts in authorized
investment alternatives.
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<PAGE> 58
EMPLOYMENT AGREEMENTS
In August 1999, we executed an offer letter to Anil Gupta, our Vice
President of Marketing. This offer letter establishes Mr. Gupta's annual base
salary at $150,000. In addition, the offer letter provides for bonuses of up to
$40,000 per year. Under the offer letter, Mr. Gupta was granted an option to
purchase 170,000 shares of common stock at an exercise price of $4.56 per share.
This option vests as to 12.5% of the shares on February 4, 2000 and 2.083% of
the shares each month thereafter. In the event of a change in control of
Broadbase and termination of Mr. Gupta's position, 50% of the then unvested
shares issuable upon exercise of this option will immediately vest. Broadbase
will provide Mr. Gupta the health, holiday, vacation and other benefits
available to all its employees. Mr. Gupta's employment is considered an
"at-will" agreement. Mr. Gupta or Broadbase may terminate the employment
relationship at any time for any reason.
In April 1999, we executed an offer letter to Thomas Doyle, our Executive
Vice President of Sales. This offer letter establishes Mr. Doyle's annual base
salary at $225,000 and a commission of $100,000, which can increase or decrease
if sales are above or below an established sales target. The letter also
provides for a sign-on bonus of $250,000 to be paid on his first day of
employment and an additional bonus of $250,000 payable on July 1, 1999. Each
bonus is subject to repayment if he voluntarily terminates his employment less
than 18 months after the payment of that bonus and describes his eligibility for
benefits. Under this offer letter, Mr. Doyle was granted options to purchase
240,000 shares of common stock at an exercise price of $0.73 per share, vesting
over a four year period. An option to purchase 60,000 of these shares will
become exercisable only if a specified sales target is achieved. In the event of
a change of control of Broadbase and Mr. Doyle's involuntary termination, 50% of
his unvested shares will immediately vest. Broadbase will provide Mr. Doyle the
health, holiday, vacation and other benefits available to all its employees. Mr.
Doyle's employment is considered an "at-will" agreement. Mr. Doyle or Broadbase
may terminate the employment relationship at any time for any reason.
In November 1998, we executed an offer letter to Brian Kelly, our Executive
Vice President of Applications and Engineering. This offer letter establishes
Mr. Kelly's annual base salary at $150,000. In addition, the offer letter
provides for bonuses of up to $30,000 a year. Under this offer letter, Mr. Kelly
was granted an option to purchase 135,000 shares of common stock at an exercise
price of $0.73 per share. This option was immediately exercisable in full and
Broadbase has a right to repurchase the shares issued upon exercise of this
option upon termination of Mr. Kelly's employment. This repurchase right lapses
over a four-year period. In addition, the agreement provided for the grant of an
option to purchase an additional 20,000 shares to Mr. Kelly under certain
circumstances. On May 27, 1999, Mr. Kelly was granted options to purchase
115,000 shares of our common stock at an exercise price of $0.73 per share. Of
these options, 20,000 shares vest as to 12.5% of the shares on June 1, 1999 and
2.083% each month thereafter and 95,000 shares vest as to 12.5% of the shares on
June 1, 1999 and 4.16% each month thereafter. In the event of a change of
control, 50% of the shares issued upon exercise of the option to purchase 20,000
shares will immediately vest. Broadbase will provide Mr. Kelly the health,
holiday, vacation and other benefits available to all its employees. Mr. Kelly's
employment is considered an "at-will" agreement. Mr. Kelly or Broadbase may
terminate the employment relationship at any time for any reason.
In January 1998, we executed an offer letter to Chuck Bay, our Chief
Financial Officer, General Counsel, Executive Vice President of Business
Development and Corporate Secretary. This offer letter establishes Mr. Bay's
annual base salary at $150,000. In addition, the offer letter provided for
bonuses of up to $40,000 a year. Under this offer letter, Mr. Bay was granted an
option to purchase 173,000 shares of common stock at an exercise price of $0.25
per share. This option was immediately exercisable in full, and Broadbase has a
right to
55
<PAGE> 59
repurchase the shares issued upon exercise of this option upon termination of
Mr. Bay's employment. This repurchase right lapses over a four-year period. In
the event of a change of control, 50% of the shares issued upon exercise of this
option will immediately vest. Broadbase will provide Mr. Bay the health,
holiday, vacation, 401(k) and other benefits available to all its employees. Mr.
Bay's employment is considered an "at-will" agreement. Mr. Bay or Broadbase may
terminate the employment relationship at any time for any reason.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation limits the liability of our directors to
the maximum extent permitted by Delaware law. Delaware law provides that a
director of a corporation will not be personally liable for monetary damages for
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to Broadbase or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Delaware law regarding unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
As permitted by Delaware law, our bylaws provide that:
- we must indemnify our directors and executive officers to the fullest
extent permitted by Delaware law, provided that each indemnified officer
and director acted in good faith and in a manner that the officer or
director reasonably believed to be in or not opposed to Broadbase's best
interests;
- we may indemnify our other employees and agents; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions.
In addition to the indemnification required in our certificate of
incorporation and bylaws, we intend to enter into indemnification agreements
with each of our current directors and executive officers, prior to the
completion of this offering. We also intend to obtain directors' and officers'
insurance to cover our directors, officers and some of our employees for certain
liabilities. We believe that these indemnification provisions and agreements and
this insurance are necessary to attract and retain qualified directors and
officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. They
may also reduce the likelihood of derivative litigation against directors and
officers, even though an action, if successful, might benefit us and other
stockholders. Furthermore, a stockholder's investment may be adversely affected
to the extent we pay the costs of settlement and damage awards against directors
and officers as required by these indemnification provisions.
Presently, there is no pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
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<PAGE> 60
CERTAIN TRANSACTIONS
Other than the transactions described in "Management" and the transactions
described below, since the incorporation of Broadbase on November 28, 1995,
there has not been nor is there currently proposed any transaction or series of
similar transactions to which we were or will be a party:
- in which the amount involved exceeded or will exceed $60,000; and
- in which any director, executive officer, holder of more than 5% of our
common stock or any member of his or her immediate family had or will
have a direct or indirect material interest.
TRANSACTIONS WITH PROMOTER
On November 30, 1995, in connection with the formation and initial
financing of Broadbase, Mark Kremer purchased 1,282,500 shares of our common
stock for an aggregate purchase price of $2,565. Mr. Kremer is our President,
Chief Executive Officer and Chairman of the Board of Directors, and may be
considered to be a promoter of Broadbase. Broadbase retained the right to
repurchase 1,154,250 of these shares, at his initial purchase price, if Mr.
Kremer ceased to be employed by Broadbase. This repurchase right lapses at a
rate of 24,046 shares per month.
PREFERRED STOCK FINANCINGS IN WHICH 5% STOCKHOLDERS PARTICIPATED
In December 1995, April 1996 and June 1996, we sold a total of 2,384,999
shares of Series A preferred stock at a purchase price of $0.667 per share. In
December 1996 and March 1997, we sold a total of 1,923,223 shares of Series B
preferred stock at a purchase price of $2.683 per share. In February and April
1998, we sold a total of 2,166,055 shares of Series C preferred stock at a
purchase price of $5.54 per share. In June 1999, we sold a total of 2,188,812
shares of Series E preferred stock at a purchase price of $9.1325 per share.
Certain purchasers of our Series E preferred stock have a contractual right to
purchase, at the initial public offering price, up to an aggregate of 384,644
shares of the common stock offered in this offering, subject to compliance with
applicable laws. Upon the closing of this offering, each of the outstanding
shares of preferred stock will convert into common stock on a one-for-one basis.
Purchasers of our preferred stock include, among others, the following
holders of more than 5% of our outstanding stock:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES E
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
STOCKHOLDER PURCHASED PURCHASED PURCHASED PURCHASED
----------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Entities affiliated with
Benchmark Capital.............. 2,249,999 559,070 526,173 109,500
Entities affiliated with Mohr,
Davidow Ventures............... -- 1,304,510 286,101 --
Entities affiliated with Accel
Partners....................... -- -- 902,527 27,375
Entities affiliated with Charter
Growth Capital................. -- -- -- 218,999
</TABLE>
Our director Kevin Harvey is a general partner of Benchmark Capital, and
our director Nancy Schoendorf is a managing partner of Mohr, Davidow Ventures.
57
<PAGE> 61
DEBENTURE FINANCINGS IN WHICH 5% STOCKHOLDERS PARTICIPATED
In December 1998 and April 1999, we sold debentures in the aggregate
principal amount of $9,525,000, which principal amount is convertible into a
total of 1,313,793 shares of Series D preferred stock at a conversion price of
$7.25 per share. Unless earlier converted by their terms into stock of
Broadbase, $8,250,000 in principal amount of the debentures must be repaid on
December 9, 2003, and $1,275,000 in principal amount must be repaid on April 15,
2004. Charter Growth Capital and certain of its affiliated funds purchased
$8,000,000 of the debentures. These funds would hold more than 5% of our
outstanding stock if these debentures were converted into stock. These
debentures are convertible into 1,103,448 shares of Series D preferred stock.
Upon the closing of this offering, the debentures will be converted into an
equal number of shares of common stock. None of our executive officers,
directors or other holders of more than 5% of our outstanding common stock
purchased any of the debentures.
INDEBTEDNESS OF MANAGEMENT
Mark Kremer. In April 1998, we lent $400,000 to Mark Kremer, our President
and Chief Executive Officer, secured by a pledge of all shares of Mr. Kremer's
Broadbase common stock. The loan accrues interest at a rate of 5.51% and is
payable on or before April 29, 2000. As of June 30, 1999, the total amount
outstanding, including accrued interest, was $426,378.
Chuck Bay. In February 1998 and March 1999, Chuck Bay, our Chief Financial
Officer, executed promissory notes in the principal amounts of $43,250 and
$62,780 in connection with the exercise of stock options. These notes are
secured by a pledge of Mr. Bay's Broadbase common stock, bear interest at rates
of 8.5% and 7.5%, respectively, and are payable on or before March 19, 2000. As
of June 30, 1999, the total amount outstanding, including accrued interest, was
$112,321.
Brian Kelly. In March 1999, Brian Kelly, our Executive Vice President of
Applications and Engineering, executed a promissory note in the principal amount
of $98,550 in connection with the exercise of a stock option. This note is
secured by a pledge of Mr. Kelly's Broadbase common stock, bears interest at the
rate of 7.5% and is payable on or before March 19, 2000. As of June 30, 1999,
the total amount outstanding, including accrued interest, was $100,641.
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<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table presents information as to the beneficial ownership of
our common stock as of June 30, 1999, and as adjusted to reflect the sale of the
common stock in this offering by:
- each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
- each of our directors;
- each executive officer listed in the Summary Compensation Table above;
and
- all current executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
SHARES BENEFICIALLY OWNED
NUMBER OF SHARES --------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
Kevin Harvey(1).................................. 3,444,742 26.1% 20.0%
c/o Benchmark Capital
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Nancy Schoendorf(2).............................. 1,590,611 12.0 9.2
c/o Mohr, Davidow Ventures
2775 Sand Hill Road, Suite 240
Menlo Park, CA 94025
Entities affiliated with Charter Growth
Capital(3)..................................... 1,322,447 10.0 7.2
525 University Avenue, Suite 1500
Palo Alto, CA 94301
Mark Kremer(4)................................... 1,222,500 9.2 7.1
Entities affiliated with Accel Partners(5)....... 929,902 7.0 5.4
428 University Avenue
Palo Alto, CA 94301
Chuck Bay(6)..................................... 259,000 1.9 1.5
Bruce Armstrong(7)............................... 253,125 1.9 1.4
Paul Levy(8)..................................... 96,750 * *
All eight current directors and executive
officers as a group(9)......................... 7,103,603 53.8 41.2
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Represents 3,063,891 and 380,851 shares of common stock held of record by
Benchmark Capital Partners, L.P. and Benchmark Founders Fund, L.P. Mr.
Harvey, a director of Broadbase, is a general partner of Benchmark. Mr.
Harvey disclaims beneficial ownership of shares held by Benchmark except to
the extent of his pecuniary interest arising from his interest in Benchmark.
(2) Represents 1,524,126 and 66,485 shares of common stock held of record by
Mohr, Davidow Ventures IV, L.P. and MDV IV Entrepreneurs' Network Fund, L.P.
Ms. Schoendorf, a director of Broadbase, is a general partner of Mohr,
Davidow Ventures. Ms. Schoendorf disclaims beneficial ownership of shares
held by Mohr, Davidow Ventures except to the extent of her pecuniary
interest arising from her interest in Mohr, Davidow Ventures.
(3) Includes 810,345, 275,862 and 17,241 shares of common stock into which the
principal amounts of debentures held of record by Charter Growth Capital
Co-Investment Fund, Charter Growth Capital, L.P. and CGC Investors, L.L.C.
are convertible within 60 days of June 30, 1999. Does not include up to
384,644 shares that may be purchased, subject to
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<PAGE> 63
compliance with applicable laws, at the initial public offering price upon
exercise of contractual rights to purchase shares in this offering.
(4) Includes 70,000 shares held by the Mark Kremer 1999 Annuity Trust, of which
Mr. Kremer is trustee, 70,000 shares held by the Anat Kremer 1999 Annuity
Trust, of which Mr. Kremer and his wife are trustees. In addition, the table
includes 120,230 shares subject to a repurchase right that lapses at a rate
of 24,046 shares per month until November 30, 1999. Mr. Kremer is our
President and Chief Executive Officer.
(5) Includes 729,974, 96,710, 44,635, 38,125 and 20,458 shares of common stock
held of record by Accel V L.P., Accel Internet/Strategic Technology Fund
L.P., Accel Investors '97 L.P. Accel Keiretsu V L.P. and Ellmore C.
Patterson Partners.
(6) Includes 111,729 shares subject to a repurchase right that lapses at a rate
of 3,604 shares per month until January 2002, and 75,250 shares subject to a
repurchase right that lapses at a rate of 1,791 shares per month until
December 2002. Mr. Bay is our Chief Financial Officer, General Counsel,
Executive Vice President of Operations and Corporate Secretary.
(7) Mr. Armstrong was Broadbase's Vice President of Sales and ceased to be an
employee of Broadbase on June 30, 1999.
(8) Includes 96,750 shares subject to a repurchase right that lapses as to
12,094 shares in November 1999, and thereafter at a rate of 2.083% per month
until April 2003. Mr. Levy is a director of Broadbase.
(9) Includes 218,750 shares that are subject to a repurchase right which lapses
as to 15,625 shares per month until March 2001 and as to an additional 5,208
shares per month thereafter until December 2002. Also includes 240,000
shares that are subject to a repurchase right which lapses as to 30,000
shares in October 1999 and as to an additional 2.083% per month thereafter
until April 2003.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated above, to our knowledge, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Percentage ownership is based on 13,203,690 shares outstanding
as of June 30, 1999, assuming conversion of all outstanding preferred stock and
convertible debentures into common stock. Shares of common stock subject to
options that are currently exercisable or exercisable within 60 days of June 30,
1999, and shares of preferred stock subject to debentures that are currently
convertible or convertible within 60 days of June 30, 1999, are deemed to be
outstanding and to be beneficially owned by the person holding the options or
debentures for the purpose of computing the percentage ownership of such person
but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. Unless indicated above, the address for each
beneficial owner of more than 5% of our common stock is Broadbase Software,
Inc., 172 Constitution Drive, Menlo Park, CA 94025.
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DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, the authorized capital
stock of Broadbase will consist of 90,000,000 shares of common stock, $0.001 par
value per share, and 15,154,046 shares of preferred stock, $0.001 par value per
share, of which 5,000,000 shares will be available for future issuance. As of
June 30, 1999, and assuming the conversion of all outstanding preferred stock
and convertible debentures into common stock upon the closing of this offering,
there were outstanding 13,203,690 shares of common stock held of record by
approximately 150 stockholders, and options to purchase 2,013,249 shares of
common stock and warrants to purchase 36,764 shares of common stock.
Before the closing of this offering, Broadbase will reincorporate in the
State of Delaware. Following the closing of this offering, we intend to amend
and restate our certificate of incorporation to reflect the conversion of our
preferred stock to common stock.
COMMON STOCK
Dividend rights. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts as our Board of Directors may from time to time
determine.
Voting rights. Each common stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.
No preemptive or similar rights. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
Right to receive liquidation distributions. Upon a liquidation, dissolution
or winding-up of Broadbase, the holders of common stock are entitled to share
ratably with holders of any participating preferred stock in all assets
remaining after payment of all liabilities and the liquidation preferences of
any outstanding preferred stock. Each outstanding share of common stock is, and
all shares of common stock to be outstanding upon completion of this offering
will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of preferred
stock will be converted into shares of common stock. See Note 5 of Notes to
Consolidated Financial Statements for a description of this preferred stock.
Following the offering, Broadbase will be authorized, subject to the limits
imposed by Delaware law, to issue preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series
and to fix the rights, preferences and privileges of the shares of each wholly
unissued series and any of its qualifications, limitations or restrictions. Our
Board of Directors can also increase or decrease the number of shares of any
series, but not below the number of shares of any series then outstanding,
without any further vote or action by the stockholders.
Our Board of Directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of the common stock. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, have the effect of
delaying, deferring or preventing a change in control of Broadbase and may
adversely affect the market price of the common stock and the voting and other
rights of the holders of
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<PAGE> 65
common stock. We have no current plan to issue any shares of preferred stock
after the offering.
WARRANTS
As of June 30, 1999, we had outstanding the following warrants to purchase
our stock:
<TABLE>
<CAPTION>
TOTAL NUMBER OF
SHARES SUBJECT EXERCISE PRICE
TYPE OF STOCK TO WARRANTS PER SHARE EXPIRATION DATE
------------- --------------- -------------- -----------------
<S> <C> <C> <C>
Series A preferred stock.............. 12,537 $1.675 November 30, 2003
Series B preferred stock.............. 24,227 2.683 July 31, 2004
</TABLE>
After the closing of this offering, all of these warrants will become
exercisable for a like number of shares of common stock.
REGISTRATION RIGHTS
The holders of approximately 9,961,882 shares of common stock have the
right to require us to register their shares with the Securities and Exchange
Commission so that those shares may be publicly resold or to include their
shares in any registration statement we file.
DEMAND REGISTRATION RIGHTS
At any time more than six months after the closing of this offering, the
holders of at least 30% of the shares having registration rights have the right
to demand that we file a registration statement so that they can publicly sell
their shares, so long as the value of the securities to be sold in that
registration exceeds $7,500,000. In addition, if we are eligible to file a
registration statement on Form S-3, the holders of at least 20% of the shares
having registration rights have the right to demand that we file a registration
statement on Form S-3, so long as the amount of securities to be sold in that
registration exceeds $500,000.
PIGGYBACK REGISTRATION RIGHTS
If we register any securities for public sale, these stockholders will have
the right to include their shares in the registration statement. The
underwriters of any underwritten offering will have the right to limit the
number of shares to be included in that registration statement.
EXPENSES OF REGISTRATION
We generally will pay all of the expenses relating to any demand or
piggyback registration.
EXPIRATION OF REGISTRATION RIGHTS
The registration rights described above will expire five years after this
closing of this offering. The registration rights will terminate earlier with
respect to a particular stockholder if that holder owns less than 1% of our
outstanding securities, that holder can resell all of its securities in a
three-month period under Rule 144 of the Securities Act and we are subject to
the reporting requirements of the Securities Exchange Act of 1934.
ANTI-TAKEOVER PROVISIONS
Certain provisions of Delaware law, our certificate of incorporation and
bylaws described below may have the effect of delaying, deferring or
discouraging another person from acquiring control of our company.
DELAWARE LAW
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations from engaging, under limited circumstances, in a "business
combination," which includes a merger or
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sale of more than 10% of the corporation's assets, with any "interested
stockholder," or a stockholder who owns 15% or more of the corporation's
outstanding voting stock, as well as affiliates and associates of such
stockholder, for three years following the date that stockholder becomes an
"interested stockholder" unless:
- the transaction is approved by the board prior to the date the
"interested stockholder" attained that status;
- upon the closing of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced; or
- on or subsequent to such date the "business combination" is approved by
the board and authorized at an annual or special meeting of stockholders
by at least two-thirds of the outstanding voting stock that is not owned
by the "interested stockholder."
This provision could prohibit or delay mergers or other takeover or
change-in-control attempts and, accordingly, may discourage attempts to acquire
us.
CHARTER AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws provide for the division of our
Board of Directors into three classes as nearly equal in size as reasonably
possible with staggered three-year terms. Our stockholders are unable to fill
any vacancy on our Board of Directors. Any action required or permitted to be
taken by our stockholders at an annual meeting or a special meeting of the
stockholders may only be taken if it is properly brought before that meeting and
may not be taken by written consent. Our stockholders are limited in their
ability to remove any director or the entire Board of Directors without cause.
Our bylaws provide that special meetings of the stockholders may be called at
any time by the Board of Directors, and must be called upon the request of the
chairman of the Board of Directors, the chief executive officer, the president,
stockholders that are entitled to cast not less than a majority of the total
number of votes entitled to be cast by all stockholders at that special meeting,
or by a majority of the members of the Board of Directors. These provisions of
our certificate of incorporation and bylaws are intended to enhance the
likelihood of continuity and stability in the composition of the Board of
Directors and to discourage transactions that may involve an actual or
threatened change of control of Broadbase. These provisions are designed to
reduce the vulnerability of Broadbase to an unsolicited acquisition proposal
and, accordingly, could discourage potential acquisition proposals and could
delay or prevent a change in control of Broadbase. These provisions are also
intended to discourage tactics that may be used in proxy fights but could have
the effect of discouraging others from making tender offers for our shares and,
consequently, might also inhibit fluctuations in the market price of our shares
that could result from actual or rumored takeover attempts. These changes may
also have the effect of preventing changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock
Transfer Corporation. The address of our transfer agent and registrar is 1745
Gardena Avenue, Glendale, California 91204-2991, and its telephone number at
this location is (818) 502-1404.
LISTING
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "BBSW."
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, you could not buy or sell our common stock on a
public market. An active public market for our common stock may not develop or
be sustained after this offering. Future sales of substantial amounts of common
stock, including shares issued upon exercise of outstanding options or warrants,
in the public market after this offering could adversely affect the prevailing
market price of our common stock and could impair our ability to raise equity
capital in the future. In addition, since few shares will be available for sale
immediately after this offering due to the contractual and legal restrictions on
resale described below, sales of substantial amounts of our common stock in the
public market after the restrictions lapse could adversely affect the prevailing
market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 17,203,690
shares of common stock based on shares outstanding at June 30, 1999, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants. Of this amount, the 4,000,000 shares sold in
this offering will be freely tradable in the public market without restriction
or further registration under the Securities Act, unless those shares are
purchased by any of our affiliates. An affiliate of Broadbase is a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, Broadbase. Our current
affiliates include the individuals and entities that holds more than 10% of our
stock listed under "Principal Stockholders" as well as our other executive
officers and directors. The remaining 13,203,690 shares held by existing
stockholders are subject to various resale restrictions. Of these shares, all
shares are subject to lock-up agreements with the underwriters or directly with
us, under which all of our directors and officers and stockholders have agreed
not to transfer or dispose of, directly or indirectly, any shares of common
stock or any securities convertible into or exercisable or exchangeable for
shares of common stock, for a period of 180 days after the date of this
prospectus. Deutsche Bank Securities Inc., in some instances together with us,
may release the shares subject to the lock-up agreements in whole or in part at
any time with or without notice. After expiration or release of the lock-up
agreements, 10,449,061 of the shares held by our existing stockholders will be
eligible for sale in the public market under Rule 144 or Rule 701 beginning 180
days after the date of this prospectus, although 8,862,440 of these shares will
be subject to volume limitations. The remaining 2,754,629 shares held by our
existing stockholders will become eligible for public sale, subject in most
cases to volume limitations, on subsequent dates.
RULE 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, stockholders of Broadbase that have beneficially owned their shares
for at least one year, but less than two years, and affiliates of Broadbase that
have beneficially owned their shares for any period of more than one year, would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, equal to
approximately 172,036 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice of sale with the SEC.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
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RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except one of our affiliates, is
entitled to sell those shares without complying with the volume limitation or
the manner of sale, public information or notice provisions of Rule 144.
RULE 701
In general, under Rule 701 of the Securities Act, any of our employees,
officers, directors, consultants or advisors who purchased shares from us in
connection with a compensatory stock or option plan or other written agreement
is eligible to resell those shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period contained in Rule 144. However, all
shares issued pursuant to Rule 701 are subject to lock-up agreements and will
only become eligible for sale at the earlier of the expiration of the 180-day
lock-up agreements or obtaining the prior written consent of Deutsche Bank
Securities Inc.
REGISTRATION RIGHTS
At any time more than six months after the closing of this offering, the
holders of 9,991,146 shares of our common stock and warrants to acquire common
stock, or their transferees, will be entitled to rights to register their shares
under the Securities Act. See "Description of Capital Stock--Registration
Rights." After registration, these shares could be sold without restriction
under the Securities Act.
STOCK OPTIONS
Promptly following this offering, we will file a registration statement
under the Securities Act covering all shares of common stock subject to
outstanding options or reserved for issuance under our 1996 Equity Incentive
Plan, our 1999 Equity Incentive Plan and our 1999 Employee Stock Option Plan.
Based on the number of shares subject to options outstanding or reserved for
issuance under these plans, at June 30, 1999 this registration statement would
cover approximately 10,523,249 shares. The registration statement will
automatically become effective upon filing. Accordingly, shares registered under
the registration statement will, subject to Rule 144 volume limitations
applicable to our affiliates, be available for sale in the open market
immediately after the 180-day lock-up agreements expire.
WARRANTS
As of June 30, 1999, we had outstanding warrants to purchase 36,764 shares
of common stock. When these warrants are exercised and the exercise price is
paid in cash the shares must be held for one year before they can be sold under
Rule 144. These warrants also contain "net exercise provisions." These
provisions allow a holder to exercise the warrant for a lesser number of shares
of common stock in lieu of paying cash. The shares of common stock issued in a
"net exercise" could be publicly sold under Rule 144 immediately after exercise,
subject to the 180-day lock-up period.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, Thomas
Weisel Partners LLC and E*OFFERING Corp., have severally agreed to purchase from
Broadbase the following respective number of shares of common stock at a public
offering price less the underwriting discounts and commissions set forth on the
cover page of this prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Deutsche Bank Securities Inc. ..............................
Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated..............................................
Thomas Weisel Partners LLC..................................
E*OFFERING Corp.............................................
---------
Total............................................. 4,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per share
under the public offering price. The underwriters may allow, and these dealers
may re-allow, a concession of not more than $ per share to other dealers.
After the initial public offering, representatives of the underwriters may
change the offering price and other selling terms.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 600,000 additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered hereby. To the extent that
the underwriters exercise this option, each of the underwriters will become
obligated, subject to conditions, to purchase approximately the same percentage
of additional shares of common stock as the number of shares of common stock to
be purchased by it in the above table bears to the total number of shares of
common stock offered hereby. We will be obligated, pursuant to the option, to
sell these additional shares of common stock to the underwriters to the extent
the option is exercised. If any additional shares of common stock are purchased,
the underwriters will offer the additional shares on the same terms as those on
which the 4,000,000 shares are being offered.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is currently expected to be approximately 7.0% of
the initial public offering price. We have agreed
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to pay the underwriters the following fees, assuming either no exercise or full
exercise by the underwriters of the underwriters' over-allotment option:
<TABLE>
<CAPTION>
TOTAL FEES
----------------------------------------
WITHOUT EXERCISE WITH FULL EXERCISE
FEE PER OF OVER-ALLOTMENT OF OVER-ALLOTMENT
SHARE OPTION OPTION
------------- ----------------- -------------------
<S> <C> <C> <C>
Fees paid by Broadbase...................
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $1,055,000.
We have agreed to indemnify the underwriters against some specified types
of liabilities, including liabilities under the Securities Act and to contribute
to payments the underwriters may be required to make in respect of any of these
liabilities.
Each of our officers, directors, stockholders and holders of options and
warrants to purchase our stock, has agreed not to offer, sell, contract to sell
or otherwise dispose of, or enter into any transaction that is designed to, or
could be expected to, result in the disposition of any portion of our common
stock held by these persons prior to this offering or common stock issuable upon
exercise of options or warrants held by these persons for a period of 180 days
after the effective date of the registration statement of which this prospectus
is a part without the prior written consent of Deutsche Bank Securities Inc.
This consent may be given at any time without public notice. We have entered
into a similar agreement with the representatives of the underwriters.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
A prospectus in electronic format is being made available on Internet
websites maintained by E*OFFERING Corp. and E*TRADE Securities, Inc. Internet
purchases of the common stock offered by this prospectus will be available only
to registered customers of E*TRADE who possess sufficient net worth and
investment experience. All eligible accounts may submit a conditional offer to
E*TRADE to purchase shares. If demand exceeds availability, E*TRADE will
randomly allocate shares to applicants in 100 share lots in a round-robin
fashion, meaning that no applicant will receive a second lot until all
applicants have received one lot and so forth, until all shares available to
E*TRADE have been distributed. The common stock offered by this prospectus will
not be directed to any additional Internet customers other than the registered
customers of E*TRADE mentioned above.
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At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 150,000 shares for friends and family members of
our executive officers and other persons that are affiliated with companies with
whom we have a business relationship, such as executives of companies that
market, sell or otherwise promote our products. None of these shares will be
subject to lock-up agreements.
Certain current stockholders also have rights under pre-existing contracts
to purchase up to 384,644 shares in this offering, subject to compliance with
applicable laws. None of these shares will be subject to lock-up agreements. The
sales of these shares will only be made pursuant to this prospectus. The
stockholders who hold these pre-existing contractual rights are Attractor
Offshore Ltd., Attractor Institutional LP, Attractor Ventures LLC, Attractor LP,
Spinnaker Clipper Fund, L.P., Spinnaker Founders Fund, L.P., Spinnaker Offshore
Founders Fund Cayman Limited, Axa U.S. Growth Fund LLC, Parallel Capital I LLC,
Parallel Capital II LLC, Almanori Limited, Multinvest LLC, Charter Growth
Capital, L.P., Charter Growth Capital Co-Investment Fund, L.P. and CGC
Investors, L.P.
The number of shares of our common stock available for sale to the general
public will be reduced to the extent these reserved shares are purchased. Any
reserved shares that are not purchased by these persons will be offered by the
underwriters to the general public on the same basis as the other shares in this
offering.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 56
filed public offerings of equity securities, of which 31 have been completed,
and has acted as a syndicate member in an additional 27 offerings of equity
securities. Thomas Weisel Partners LLC does not have any material relationship
with us or any of our officers, directors or other controlling persons, except
with respect to its contractual relationship with us pursuant to the
underwriting agreement entered into in connection with this offering.
In December 1998, DRW Investors LLC, an affiliate of Dain Rauscher Wessels,
purchased debentures in the principal amount of $250,000, which are convertible
into 34,482 shares of our Series D preferred stock at a conversion price of
$7.25 per share. DRW Investors purchased these debentures on the same terms as
the other investors in this private placement.
In June 1999, we sold shares of our Series E preferred stock in a private
placement at a price of $9.1325 per share. Each of the shares of Series E
preferred stock is convertible at the option of the holder into one share of our
common stock. In this private placement, BT Investment Partners, Inc., an
affiliate of Deutsche Bank Securities Inc., purchased 109,263 shares of Series E
preferred stock for an aggregate purchase price of $997,844. BT Investment
Partners, Inc. purchased the Series E preferred stock on the same terms as the
other investors in the private placement. In addition, three individuals
associated with Thomas Weisel Partners LLC purchased an aggregate of 6,570
shares of our Series E preferred stock in the private placement. The aggregate
number of shares of Series E preferred stock purchased by BT Investment
Partners, Inc. and Thomas Weisel Partners LLC affiliates equals 115,833 shares.
Upon conversion of these shares into common stock, based upon an assumed initial
public offering price of $11.00, the value of these shares is $1,274,163. The
difference between the amount that BT Investment Partners, Inc. and Thomas
Weisel Partners LLC affiliates originally paid for the Series E preferred stock
and the value of the Series E preferred stock based upon the assumed initial
public offering price equals $216,318.13. The National Association of Securities
Dealers, Inc. may deem this $216,318.13 to be additional underwriting
compensation received in connection with this offering. If this is deemed to be
underwriting compensation, the shares of Series E preferred stock, and common
stock issued upon conversion thereof, could not be sold, transferred, assigned,
pledged or hypothecated by any person for a period of one
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year after the effective date of this offering, except to officers or partners
of the underwriters and members of the selling group and their officers or
partners.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiation among us and the representatives of the
underwriters. Among the primary factors to be considered in determining the
public offering price will be:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and stages of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and
- estimates of our business potential.
The estimated initial public offering price range set forth on the cover of this
preliminary prospectus is subject to change as a result of market conditions and
other factors.
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus.
Investment partnerships comprised of certain partners of Fenwick & West LLP own
32,379 shares of our common stock. Morrison & Foerster LLP, Irvine, California,
will pass upon certain legal matters in connection with this offering for the
underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1997 and 1998, and for the
period from November 28, 1995 (inception) to December 31, 1996 and for each of
the two years in the period ended December 31, 1998, as set forth in their
report. We've included our consolidated financial statements and schedule in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
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WHERE YOU CAN FIND 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.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedule filed as part of the
registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedule filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
are not necessarily complete. If a contract or document has been filed as an
exhibit to the registration statement, we refer you to the copy of the contract
or document that has been filed. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. The registration statement, including exhibits and schedule, may
be inspected without charge at the principal office of the Securities and
Exchange Commission in Washington, D.C., and copies of all or any part of it may
be obtained from that office after payment of fees prescribed by the Securities
and Exchange Commission. The Securities and Exchange Commission maintains a
website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission at http://www.sec.gov.
We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and to
make available to our stockholders quarterly reports containing unaudited
financial data for the first three quarters of each year.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets
As of December 31, 1997 and 1998 and June 30, 1999
(unaudited)............................................... F-3
Consolidated Statements of Operations
Period from November 28, 1995 (Inception) to December 31,
1996 and the Years Ended December 31, 1997 and 1998 and
the Six Months Ended June 30, 1998 and 1999 (unaudited)... F-4
Consolidated Statements of Cash Flows
Period from November 28, 1995 (Inception) to December 31,
1996 and the Years Ended December 31, 1997 and 1998 and
the Six Months Ended June 30, 1998 and 1999 (unaudited)... F-5
Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency)
Period from November 28, 1995 (Inception) to December 31,
1996 and the Years Ended December 31, 1997 and 1998 and
the Six Months Ended June 30, 1999 (unaudited)............ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 75
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Broadbase Software, Inc.
We have audited the accompanying consolidated balance sheets of Broadbase
Software, Inc. as of December 31, 1997 and 1998, and the related consolidated
statements of operations, cash flows, and stockholders' equity (net capital
deficiency) for the period from November 28, 1995 (inception) to December 31,
1996 and for each of the two years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Broadbase
Software, Inc. at December 31, 1997 and 1998, and the results of its operations
and its cash flows for the period from November 28, 1995 (inception) to December
31, 1996 and for the each of the two years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
San Jose, California
March 5, 1999
F-2
<PAGE> 76
BROADBASE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA AT
DECEMBER 31, JUNE 30, JUNE 30,
------------------ ----------- ------------
1997 1998 1999 1999
------- -------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,153 $ 13,990 $ 27,981 $ 27,981
Accounts receivable, net of allowances of $0, $50,000, and
$50,000 at December 31, 1997 and 1998 and June 30, 1999,
respectively............................................ -- 1,072 1,718 1,718
Prepaid expenses and other current assets................. 180 326 953 953
------- -------- -------- --------
Total current assets................................ 1,333 15,388 30,652 30,652
Property and equipment, net................................. 702 1,610 1,796 1,796
Other assets................................................ 78 175 113 113
------- -------- -------- --------
Total assets........................................ $ 2,113 $ 17,173 $ 32,561 $ 32,561
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 486 $ 395 $ 863 $ 863
Accrued compensation...................................... 173 922 1,751 1,751
Accrued expenses.......................................... 242 1,142 2,345 2,345
Current portion of capital lease obligations.............. 24 30 15 15
Current portion of bank line of credit and notes
payable................................................. 347 768 740 740
Deferred revenue.......................................... -- 3,330 3,581 3,581
------- -------- -------- --------
Total current liabilities........................... 1,272 6,587 9,295 9,295
Capital lease obligations................................... 38 -- -- --
Bank line of credit and notes payable....................... 878 1,110 777 777
Convertible debentures...................................... -- 8,250 9,525 --
------- -------- -------- --------
Total liabilities................................... 2,188 15,947 19,597 10,072
Commitments and contingencies
Stockholders' equity (net capital deficiency):
Convertible preferred stock: par value $0.001 per share;
15,154,046 shares authorized and issuable in series:
Series A: 2,398,000 shares designated, 2,384,999 shares
issued and outstanding at December 31, 1997 and 1998
and June 30, 1999, and none pro forma; aggregate
liquidation preference at December 31, 1998 and June
30, 1999 of $1,590.................................... 2 2 2 --
Series B: 2,000,000 shares designated, 1,923,223 shares
issued and outstanding at December 31, 1997 and 1998
and June 30, 1999, and none pro forma; aggregate
liquidation preference at December 31, 1998 and June
30, 1999 of $5,160.................................... 2 2 2 --
Series C: 2,166,065 shares designated, none issued and
outstanding at December 31, 1997, 2,166,055 shares
issued and outstanding at December 31, 1998 and June
30, 1999, and none pro forma; aggregate liquidation
preference at December 31, 1998 and June 30, 1999 of
$12,000............................................... -- 2 2 --
Series D: 1,400,000 shares designated, none issued and
outstanding at December 31, 1997 and 1998 and June 30,
1999, and none pro forma.............................. -- -- -- --
Series E: 2,189,981 shares designated, none outstanding
at December 31, 1997 and 1998, 2,188,812 shares issued
and outstanding at June 30, 1999, and none pro forma;
aggregate liquidation preference at June 30, 1999 of
$19,989............................................... -- -- 2 --
Common stock: par value $0.001 per share; 90,000,000
shares authorized; 2,492,825, 2,707,300 and 3,226,808
shares issued and outstanding at December 31, 1997 and
1998 and June 30, 1999, respectively, and 13,203,690
shares issued and outstanding pro forma................. 2 2 3 12
Additional paid-in capital................................ 6,712 22,171 53,513 63,037
Deferred stock compensation............................... -- (2,338) (10,907) (10,907)
Notes receivable from shareholders........................ (34) (476) (626) (626)
Accumulated other comprehensive loss...................... -- (37) (38) (38)
Accumulated deficit....................................... (6,759) (18,102) (28,989) (28,989)
------- -------- -------- --------
Total stockholders' equity (net capital
deficiency)....................................... (75) 1,226 12,964 22,489
------- -------- -------- --------
Total liabilities and stockholders' equity (net
capital deficiency)............................... $ 2,113 $ 17,173 $ 32,561 $ 32,561
======= ======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 77
BROADBASE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED SIX MONTHS
NOVEMBER 28, 1995 DECEMBER 31, ENDED JUNE 30,
(INCEPTION) TO ------------------- -------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------ ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue:
License.................................... $ -- $ -- $ 2,996 $ 1,349 $ 2,693
Maintenance and professional services...... -- -- 443 98 846
------- ------- -------- ------- --------
Total net revenue.................... -- -- 3,439 1,447 3,539
Cost of revenue:
License.................................... -- -- 713 366 428
Maintenance and professional services...... -- -- 254 83 932
------- ------- -------- ------- --------
Total cost of revenue................ -- -- 967 449 1,360
------- ------- -------- ------- --------
Gross margin................................. -- -- 2,472 998 2,179
Operating expenses:
Sales and marketing........................ 130 2,851 7,888 3,641 6,495
Research and development................... 928 1,980 3,738 1,665 2,800
General and administrative................. 215 744 1,165 522 932
Amortization of deferred stock
compensation............................. -- -- 1,133 328 2,472
------- ------- -------- ------- --------
Total operating expenses............. 1,273 5,575 13,924 6,156 12,699
------- ------- -------- ------- --------
Loss from operations......................... (1,273) (5,575) (11,452) (5,158) (10,520)
Interest income.............................. 30 154 335 158 194
Interest expense............................. (29) (66) (226) (100) (561)
------- ------- -------- ------- --------
Net loss..................................... $(1,272) $(5,487) $(11,343) $(5,100) $(10,887)
======= ======= ======== ======= ========
Basic and diluted net loss per share......... $ (4.30) $ (6.19) $ (8.85) $ (4.58) $ (6.30)
======= ======= ======== ======= ========
Weighted-average shares used in computing
basic and diluted net loss per share....... 296 887 1,281 1,114 1,728
======= ======= ======== ======= ========
Pro forma basic and diluted net loss per
share...................................... $ (1.51) $ (1.16)
======== ========
Weighted-average shares used in computing pro
forma basic and diluted net loss per
share...................................... 7,536 9,383
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 78
BROADBASE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED SIX MONTHS
NOVEMBER 28, 1995 DECEMBER 31, ENDED JUNE 30,
(INCEPTION) TO ------------------ ------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss............................................... $(1,272) $(5,487) $(11,343) $(5,100) $(10,887)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................... 37 149 507 191 451
Write-off of note receivable from shareholder...... -- -- -- -- 7
Amortization of deferred stock compensation........ -- -- 1,133 328 2,472
Changes in balance sheet items:
Accounts receivable................................ -- -- (1,072) (829) (646)
Prepaid expenses and other current assets.......... (46) (212) (243) (455) (565)
Accounts payable................................... 30 456 (91) (116) 468
Accrued expenses................................... 88 327 1,649 864 2,032
Deferred revenue................................... -- -- 3,330 741 251
------- ------- -------- ------- --------
Net cash used in operating activities............ (1,163) (4,767) (6,130) (4,376) (6,417)
------- ------- -------- ------- --------
Investing activities:
Purchases of property and equipment.................... (148) (661) (1,415) (628) (637)
------- ------- -------- ------- --------
Net cash used in investing activities............ (148) (661) (1,415) (628) (637)
------- ------- -------- ------- --------
Financing activities:
Net proceeds from issuance of convertible preferred
stock................................................ 6,521 133 11,906 11,902 19,979
Proceeds from issuance of common stock................. 2 10 41 8 176
Proceeds from notes payable............................ 300 1,000 -- -- --
Payments to repurchase unvested common stock........... -- -- -- -- (8)
Payments on shareholders' notes receivable............. -- 3 1 -- --
Issuance of notes receivable to shareholder............ -- -- (400) -- --
Payments on notes payable.............................. -- (77) (347) (851) (194)
Principal payments on capital lease obligations........ -- -- (32) -- (15)
Principal payments on equipment line of credit......... -- -- -- -- (167)
Borrowings on equipment line of credit................. -- -- 1,000 642 --
Proceeds from issuance of convertible debt............. -- -- 8,250 -- 1,275
------- ------- -------- ------- --------
Net cash provided by (used in) financing
activities..................................... 6,823 1,069 20,419 11,701 21,046
Effect of foreign exchange rate changes on cash and
cash equivalents..................................... -- -- (37) (11) (1)
------- ------- -------- ------- --------
Net increase (decrease) in cash and cash equivalents... 5,512 (4,359) 12,837 6,686 13,991
Cash and cash equivalents:
Beginning of period.................................... -- 5,512 1,153 1,153 13,990
------- ------- -------- ------- --------
End of period.......................................... $ 5,512 $ 1,153 $ 13,990 7,839 27,981
======= ======= ======== ======= ========
Supplemental disclosure of cash flow information:
Cash paid for interest................................. $ 13 $ 82 $ 227 $ 84 $ 541
Supplemental schedule of noncash investing and financing
activities:
Issuance of convertible preferred stock
for services......................................... $ 15 $ -- $ -- $ -- $ --
Purchase of equipment under capital leases............. $ -- $ 64 $ -- $ -- $ --
</TABLE>
See accompanying notes.
F-5
<PAGE> 79
BROADBASE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE
------------------ ------------------ PAID-IN STOCK FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION SHAREHOLDERS
--------- ------ --------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of restricted common stock
to founder at $0.002 per share in
November 1995 in exchange for
cash.............................. -- $-- 1,282,500 $ 1 $ 1 $ -- $ --
Issuance of Series A convertible
preferred stock at $0.67 per share
in December 1995 and April 1996
for cash, net of $31 issuance
costs, and in June 1996 for
services.......................... 2,384,999 2 -- -- 1,557 -- --
Issuance of Series B convertible
preferred stock at $2.68 per share
in December 1996 for cash, net of
$23 issuance costs................ 1,863,580 2 -- -- 4,975 -- --
Issuance of common stock upon
exercise of options............... -- -- 1,409,225 1 46 -- (47)
Comprehensive income (loss):....... -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- --
Comprehensive loss................. -- -- -- -- -- -- --
--------- --- --------- --- ------- -------- -----
Balance at December 31, 1996....... 4,248,579 $ 4 2,691,725 $ 2 $ 6,579 $ -- $ (47)
Issuance of Series B convertible
preferred stock at $2.68 per share
in March 1997 for cash, net of $27
issuance costs.................... 59,643 -- -- -- 133 -- --
Issuance of common stock upon
exercise of options............... -- -- 7,350 -- 10 -- --
Repurchase of common stock......... -- -- (206,250) -- (10) -- 10
Payments of notes receivable from
stockholders...................... -- -- -- -- -- -- 3
Comprehensive income (loss):....... -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- --
Comprehensive loss................. -- -- -- -- -- -- --
--------- --- --------- --- ------- -------- -----
Balance at December 31, 1997....... 4,308,222 $ 4 2,492,825 $ 2 $ 6,712 $ -- $ (34)
Issuance of Series C preferred
stock, at $5.54 per share in
February and March 1998 for cash,
net of $94 issuance costs......... 2,166,055 2 -- -- 11,904 -- --
Deferred stock compensation related
to certain options granted to
employees......................... -- -- -- -- 3,471 (3,471) --
Amortization of deferred stock
compensation...................... -- -- -- -- -- 1,133 --
Issuance of common stock upon
exercise of options............... -- -- 293,889 -- 87 -- (46)
Repurchase of common stock......... -- -- (79,414) -- (3) -- 3
Payments of notes receivable from
stockholders...................... -- -- -- -- -- -- 1
Note receivable from stockholder... -- -- -- -- -- -- (400)
Comprehensive income (loss):....... -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- --
Foreign currency translation
adjustment...................... -- -- -- -- -- -- --
Comprehensive loss................. -- -- -- -- -- -- --
--------- --- --------- --- ------- -------- -----
Balance at December 31, 1998....... 6,474,277 $ 6 2,707,300 $ 2 $22,171 $ (2,338) $(476)
Issuance of Series E preferred
stock, at $9.13 per share in June
1999 for cash, net of $10 of
issuance costs (unaudited)........ 2,188,812 2 -- -- 19,977 -- --
Deferred stock compensation related
to certain options granted to
employees (unaudited)............. -- -- -- -- 11,041 (11,041) --
Amortization of deferred stock
compensation (unaudited).......... -- -- -- -- -- 2,472 --
Issuance of common stock upon
exercise of options (unaudited)... -- -- 665,862 1 336 -- (161)
Repurchase of common stock
(unaudited)....................... -- -- (146,354) -- (8) --
Note receivable from stockholder
(unaudited)....................... -- -- -- -- (4) -- 11
Comprehensive income (loss):....... -- -- -- -- -- -- --
Net loss (unaudited).............. -- -- -- -- -- -- --
Foreign currency translation
adjustment (unaudited).......... -- -- -- -- -- -- --
-----
Comprehensive loss (unaudited)..... -- -- -- -- -- -- --
--------- --- --------- --- ------- -------- -----
Balance at June 30, 1999
(unaudited)....................... 8,663,089 $ 8 3,226,808 $ 3 $53,513 $(10,907) $(626)
========= === ========= === ======= ======== =====
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
COMPREHENSIVE OTHER EQUITY
INCOME COMPREHENSIVE ACCUMULATED (NET CAPITAL
(LOSS) LOSS DEFICIT DEFICIENCY)
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Issuance of restricted common stock
to founder at $0.002 per share in
November 1995 in exchange for
cash.............................. $ -- $ -- $ -- $ 2
Issuance of Series A convertible
preferred stock at $0.67 per share
in December 1995 and April 1996
for cash, net of $31 issuance
costs, and in June 1996 for
services.......................... -- -- -- 1,559
Issuance of Series B convertible
preferred stock at $2.68 per share
in December 1996 for cash, net of
$23 issuance costs................ -- -- -- 4,977
Issuance of common stock upon
exercise of options............... -- -- -- --
Comprehensive income (loss):....... -- -- -- --
Net loss.......................... (1,272) -- (1,272) (1,272)
--------
Comprehensive loss................. $ (1,272) -- -- --
======== ---- -------- --------
Balance at December 31, 1996....... -- $ -- $ (1,272) $ 5,266
Issuance of Series B convertible
preferred stock at $2.68 per share
in March 1997 for cash, net of $27
issuance costs.................... -- -- -- 133
Issuance of common stock upon
exercise of options............... -- -- -- 10
Repurchase of common stock......... -- -- -- --
Payments of notes receivable from
stockholders...................... -- -- -- 3
Comprehensive income (loss):....... -- -- -- --
Net loss.......................... (5,487) -- (5,487) (5,487)
--------
Comprehensive loss................. $ (5,487) -- -- --
======== ---- -------- --------
Balance at December 31, 1997....... -- $ -- $ (6,759) $ (75)
Issuance of Series C preferred
stock, at $5.54 per share in
February and March 1998 for cash,
net of $94 issuance costs......... -- -- -- 11,906
Deferred stock compensation related
to certain options granted to
employees......................... -- -- -- --
Amortization of deferred stock
compensation...................... -- -- -- 1,133
Issuance of common stock upon
exercise of options............... -- -- -- 41
Repurchase of common stock......... -- -- -- --
Payments of notes receivable from
stockholders...................... -- -- -- 1
Note receivable from stockholder... -- -- -- (400)
Comprehensive income (loss):....... -- -- -- --
Net loss.......................... (11,343) -- (11,343) (11,343)
Foreign currency translation
adjustment...................... (37) (37) -- (37)
--------
Comprehensive loss................. $(11,380) -- -- --
======== ---- -------- --------
Balance at December 31, 1998....... $(37) $(18,102) $ 1,226
Issuance of Series E preferred
stock, at $9.13 per share in June
1999 for cash, net of $10 of
issuance costs (unaudited)........ -- -- -- 19,979
Deferred stock compensation related
to certain options granted to
employees (unaudited)............. -- -- -- --
Amortization of deferred stock
compensation (unaudited).......... -- -- -- 2,472
Issuance of common stock upon
exercise of options (unaudited)... -- -- -- 176
Repurchase of common stock
(unaudited)....................... -- -- -- (8)
Note receivable from stockholder
(unaudited)....................... -- -- -- 7
Comprehensive income (loss):....... -- -- --
Net loss (unaudited).............. (10,887) -- (10,887) (10,887)
Foreign currency translation
adjustment (unaudited).......... (1) (1) -- (1)
Comprehensive loss (unaudited)..... $(10,888) -- -- --
======== ---- -------- --------
Balance at June 30, 1999
(unaudited)....................... $(38) $(28,989) $ 12,964
==== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 80
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Broadbase Software, Inc. (the "Company") was incorporated on November 28,
1995 and develops and markets software that integrates and analyzes customer
information from Internet and traditional business channels, enabling businesses
to improve their customer acquisition, retention, and profitability. Through
December 31, 1997, the Company was in the development stage. During 1998, the
Company sold its first product and, accordingly, is no longer classified as a
development stage company. The Company has incurred operating losses to date,
including a net loss of $11,343,000 for the year ended December 31, 1998. The
Company's activities have been financed primarily through private placements of
equity and debt securities. Management recognizes the need for additional
financing and will pursue various funding options including both private and
public equity and debt financings. In the longer term, the Company plans to
finance operations with revenues from product sales.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. The Company has export sales from the United
States and has operations in Japan and the United Kingdom. All significant
intercompany transactions and balances have been eliminated.
The Company intends to reincorporate in Delaware prior to the initial
public offering. The consolidated financial statements reflect a Delaware
corporation.
INTERIM FINANCIAL INFORMATION
The financial information as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 is unaudited but includes all adjustments, consisting of
only normal recurring adjustments, that in the opinion of management is
necessary for a fair presentation of the Company's financial position, operating
results, and cash flows for such periods. Operating results for the six month
period ended June 30, 1999 are not necessarily indicative of results to be
expected for the full fiscal year of 1999 or any future period.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"), as amended by Statement of Position 98-4, "Deferral
of the Effective Date of a Provision of SOP 97-2" ("SOP 98-4"). The Company
derives revenue from the sale of
F-7
<PAGE> 81
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
software licenses, post-contract support ("maintenance"), and other professional
services. Maintenance includes telephone technical support, bug fixes and rights
to upgrades and enhancements on a when-and-if available basis. Professional
services include training and basic post-implementation consulting to meet
specific customer needs.
Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant company
obligations with regard to installation or implementation of the software
remain, the fee is fixed or determinable and collectibility is probable. Revenue
on arrangements with customers that are not the ultimate end users (primarily
resellers) is recognized upon receipt of a reseller report of the sale and the
Company's shipment of the licensed software. Advance payments are recorded as
deferred revenue until the products are shipped, services are delivered or
obligations are met. The Company's products do not require significant
customization.
Revenue related to maintenance is recognized on a straight-line basis over
the period maintenance is provided and revenue allocable to professional
services is recognized as the services are performed.
In December 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions" ("SOP 98-9"). SOP
98-9 requires use of the "residual method" for recognition of revenue when
vendor-specific objective evidence exists for undelivered elements but does not
exist for delivered elements of a software arrangement. The Company will be
required to comply with the provisions of SOP 98-9 for transactions entered into
beginning January 1, 2000. The Company has not yet determined the effect of the
adoption of SOP 98-9 on its financial position or operating results. However,
SOP 98-9 may require more revenue to be deferred for certain types of
transactions.
CONCENTRATIONS OF CREDIT RISK AND CREDIT EVALUATIONS
Financial instruments which subject the Company to concentrations of credit
risk primarily consist of cash, cash equivalents and accounts receivable. The
Company maintains its cash and cash equivalents principally in domestic
financial institutions of high credit standing. The Company's accounts
receivables are derived primarily from sales of software products and services.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral.
A limited number of customers has accounted for a substantial portion of
the Company's revenues. The Company had no revenue for the year ended December
31, 1997. One customer accounted for 18% and 11%, of total revenue for the year
ended December 31, 1998 and the six months ended June 30, 1999, respectively.
Another customer accounted for 10% of total revenue for the year ended December
31, 1998. Sales of the Company's products will vary as a result of fluctuations
in market demand for such products and technology. Further, the markets in which
the Company competes are characterized by rapid technological change and intense
competition.
F-8
<PAGE> 82
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
CASH AND CASH EQUIVALENTS
Cash equivalents consist of money market funds. The Company considers all
highly liquid investments with an original maturity date of three months or less
to be cash equivalents. The fair value, based on quoted market prices, of the
cash equivalents is approximately equal to their carrying value at December 31,
1997 and 1998 and June 30, 1999.
SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based upon the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between the establishment of
technological feasibility and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such costs to research and development expenses in the accompanying
statements of operations.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"), which requires the use of the liability method in accounting for income
taxes. Under FAS 109, deferred tax assets and liabilities are measured based on
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees under the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and has adopted
the disclosure-only alternative of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").
ADVERTISING EXPENSES
The Company expenses advertising costs in the period in which they are
incurred. Advertising expenses for 1997, 1998, and the six months ended June 30,
1999 were approximately $0, $57,000 and $1,000, respectively.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's wholly-owned foreign subsidiaries
are translated from their functional currencies at exchange rates in effect at
the balance sheet date, and revenues and expenses are translated at average
exchange rates prevailing during the year. Resulting translation adjustments are
reflected as a separate component of shareholders' equity
F-9
<PAGE> 83
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(net capital deficiency). Foreign currency transaction gains and losses, which
have not been material, are included in results of operations.
NET LOSS PER SHARE
Basic and diluted net loss per share are presented in conformity with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS
128") for all periods presented. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin No. 98, common stock and convertible preferred stock
issued or granted for nominal consideration prior to the anticipated effective
date of the Company's initial public offering must be included in the
calculation of basic and diluted net loss per share as if they had been
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration. In accordance with FAS 128, basic
and diluted net loss per share has been computed using the weighted-average
number of shares of common stock outstanding during the period, less shares
subject to repurchase.
PRO FORMA NET LOSS PER SHARE AND PRO FORMA STOCKHOLDERS' EQUITY
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of convertible preferred stock and convertible debentures not
included above that will automatically convert or which management intends to
convert upon the completion of the Company's initial public offering (using the
if-converted method) from the original date of issuance. If the offering
contemplated by this prospectus is consummated, all of the convertible preferred
stock and convertible debentures outstanding as of June 30, 1999 will be
converted into an aggregate of 8,663,089 and 1,313,793 shares, respectively, of
common stock. Pro forma stockholders' equity at June 30, 1999, as adjusted for
conversion of the convertible preferred stock and convertible debentures, is
disclosed on the accompanying balance sheet. Historical and pro forma basic and
diluted net loss per share are as follows:
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
NOVEMBER 28, 1995 YEARS ENDED ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------ ------------------
1996 1997 1998 1998 1999
----------------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Historical:
Net loss.......................... $(1,272) $(5,487) $(11,343) $(5,100) $(10,887)
======= ======= ======== ======= ========
Basic and diluted shares:
Weighted-average shares of common
stock outstanding............... 1,339 2,689 2,615 2,570 2,754
Less weighted-average shares
subject to repurchase........... (1,043) (1,802) (1,334) (1,456) (1,026)
------- ------- -------- ------- --------
Weighted-average shares of common
stock outstanding used in
computing basic and diluted net
loss per share.................. 296 887 1,281 1,114 1,728
------- ------- -------- ------- --------
Basic and diluted net loss per
share........................... $ (4.30) $ (6.19) $ (8.85) $ (4.58) $ (6.30)
======= ======= ======== ======= ========
</TABLE>
F-10
<PAGE> 84
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
NOVEMBER 28, 1995 YEARS ENDED ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------ ------------------
1996 1997 1998 1998 1999
----------------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Pro forma:
Net loss.......................... $(11,343) $(10,887)
======== ========
Weighted-average shares of common
stock outstanding used in
computing basic and diluted net
loss per share.................. 1,281 1,728
Adjusted to reflect the assumed
conversion of convertible
preferred stock and convertible
debentures from the date of
issuance........................ 6,255 7,655
-------- --------
Weighted-average shares used in
computing pro forma basic and
diluted net loss per share...... 7,536 9,383
-------- --------
Pro forma basic and diluted net
loss per share.................. $ (1.51) $ (1.16)
======== ========
</TABLE>
If the Company had reported net income, diluted net income per share would
have included the shares used in the computation of pro forma net loss per share
as well as approximately 661,914, 1,278,889 and 2,050,013 common equivalent
shares related to outstanding options and warrants to purchase common stock not
included above for the years ended December 31, 1997 and 1998 and for the six
months ended June 30, 1999, respectively. The common equivalent shares from
options and warrants would be determined on a weighted-average basis using the
treasury stock method.
COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS
130 establishes new rules for the reporting and display of comprehensive income
and its components, requiring foreign currency translation adjustments, which
currently are reported in shareholders' equity (net capital deficiency), to be
included in other comprehensive income along with net income (loss). For the
years ended December 31, 1997 and 1998 total other comprehensive loss was
approximately $0 and $37,000, respectively, and for the six months ended June
30, 1999 other comprehensive loss totaled $1,000. Other comprehensive income
(loss) consisted solely of foreign currency translation adjustments.
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). FAS 131 changes the way
companies report selected segment information in annual financial statements and
requires companies to report selected segment information in interim financial
reports to shareholders. FAS 131 is effective beginning in the
F-11
<PAGE> 85
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
Company's year ended December 31, 1998. The Company operates solely in one
segment, the development and marketing of customer-centric analytic software
products, and therefore there is no impact to the Company's financial statements
of adopting FAS 131. The Company did not have revenue in the year ended December
31, 1997. For the year ended December 31, 1998, revenue from customers outside
of the United States was approximately $175,000. This revenue was from customers
in Japan.
PROPERTY AND EQUIPMENT
The Company records property and equipment at cost and calculates
depreciation using the straight-line method over the estimated useful lives of
the assets, generally three to five years. Equipment held under capital leases
is amortized on a straight-line basis over the shorter of the lease term or the
lives of the respective assets, generally three to five years.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
----- ------
(IN THOUSANDS)
<S> <C> <C>
Computer hardware and software.......................... $ 411 $1,407
Office furniture and fixtures........................... 462 881
----- ------
873 2,288
Less accumulated depreciation and amortization.......... (171) (678)
----- ------
$ 702 $1,610
===== ======
</TABLE>
As of December 31, 1998, property and equipment include amounts held under
capital leases of $60,941 and related accumulated amortization of $30,584.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires
companies to capitalize certain qualifying computer software costs that are
incurred during the application development stage and amortize them over the
software's estimated useful life. The Company adopted SOP 98-1 effective January
1, 1999. The adoption of SOP 98-1 did not have a material affect on the
Company's consolidated financial position, results of operations, or cash flows.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 is effective beginning on January 1, 1999,
and requires that start-up costs, capitalized prior to January 1, 1999, be
written off and any future start-up costs be expensed as incurred. The adoption
of SOP 98-5 did not have a material impact on the Company's financial position,
results of operations, or cash flows.
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 establishes methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. The
F-12
<PAGE> 86
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
Company will be required to adopt FAS 133 for its year ending December 31, 2001.
However, because the Company does not utilize derivative financial instruments
the Company does not believe the impact of FAS 133 will be material to its
financial position, results of operations, or cash flows.
2. BANK LINE OF CREDIT AND NOTES PAYABLE
Notes payable and line of credit borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) --------------- JUNE 30,
1997 1998 1999
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable............................... $1,225 $ 878 $ 684
Bank line of credit......................... -- 1,000 833
------ ------ ------
1,225 1,878 1,517
Less current portion........................ (347) (768) (740)
------ ------ ------
Noncurrent portion.......................... $ 878 $1,110 $ 777
====== ====== ======
</TABLE>
During 1996 and 1997, the Company secured financing under the terms of
$300,000 and $1,000,000 three-year notes payable, respectively. The notes bear
interest at a rate of 15% and 14%, respectively. Principal and interest
installments are payable monthly and the notes are secured by the tangible
assets of the Company. Of the $684,000 in principal amount of notes payable
outstanding at June 30, 1999, $242,000 is due in 1999 and $442,000 is due in
2000. The carrying value of these note obligations approximates their fair
value.
In connection with the issuance of the notes, the Company issued warrants
to purchase 12,537 and 24,227 shares of Series A and Series B preferred stock at
prices of $1.67 and $2.68 per share, respectively. These warrants are
immediately exercisable and expire in November 2003 and July 2004, respectively.
At the date of grant, the value ascribed to these warrants was immaterial for
financial statement purposes.
In July 1998, the Company entered into a loan and security agreement with a
financial institution. The agreement provides for a line of credit not to exceed
$2,000,000 and an equipment line of credit not to exceed $1,000,000. Borrowings
under the line of credit bear interest at the institution's prime lending rate
(7.75% at December 31, 1998), and any borrowings under the equipment line of
credit bear interest at the institution's prime lending rate plus 0.5% (8.25% at
December 31, 1998). All borrowings under this agreement are secured by certain
assets of the Company. As of December 31, 1998, no borrowings were outstanding
and $2,000,000 remained available under the line of credit, and $1,000,000, the
full amount available, has been borrowed under the equipment line of credit. The
equipment line of credit borrowings are due in 36 equal monthly installments of
principal, plus accrued interest, beginning in January 1999 and ending in
December 2001. The carrying value of borrowings under the equipment line of
credit approximates their fair value. The agreement also includes terms
requiring satisfaction of certain financial ratios, and a minimum tangible net
worth requirement, and restricts the Company from paying cash dividends. The
Company was in compliance with these financial covenants at December 31, 1998
and June 30, 1999.
F-13
<PAGE> 87
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
3. CONVERTIBLE DEBENTURES
In December 1998 and April 1999, the Company issued to investors an
aggregate of $8,250,000 and $1,275,000 respectively, principal amount of
unsecured convertible debentures bearing interest of 10.0% per annum. Interest
on the notes is payable quarterly commencing on January 4, 1999 and July 1,
1999, respectively. The debentures are due on December 9, 2003 and are
convertible, at the holders' option, into shares of the Series D preferred stock
anytime prior to the maturity date. As of December 31, 1998, the difference
between the carrying value and the fair value of the convertible debentures was
immaterial based upon the minimal change in interest rates from the date of
issuance to fiscal year end.
In the event the Company completes a qualified underwritten public offering
of its common stock with aggregate proceeds of at least $10,000,000, the Company
may, at its option, convert the debentures into shares of Series D preferred
stock. Upon conversion, the investors are entitled to the number of shares of
Series D preferred stock determined by dividing the aggregate amount of each
debenture to be converted by a conversion price of $7.25, subject to certain
future adjustments. As of December 31, 1998 and June 30, 1999, no debentures
have been converted into Series D preferred stock.
4. COMMITMENTS
LEASES
The Company leases its principal office under a noncancelable operating
lease agreement that expires in July 2002.
The gross rental payments under all operating leases were approximately
$114,000, $230,000 and $496,000 for the years ended December 31, 1997 and 1998,
and the six months ended June 30, 1999, respectively. Rental expense, net of
reimbursements from sublessees, was approximately $114,000, $73,000 and $316,000
in 1997 and 1998 and the six months ended June 30, 1999, respectively.
As of December 31, 1998, minimum lease payments under all noncancelable
lease agreements were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Year ending December 31,
1999.................................................. $ 34 $ 401
2000.................................................. -- 629
2001.................................................. -- 753
2002.................................................. -- 429
---- ------
Total minimum lease payments.................. 34 $2,212
======
Less amount representing interest....................... (4)
----
Present value of minimum lease payments................. 30
Less current portion.................................... (30)
----
Long-term capital lease obligations..................... $ --
====
</TABLE>
F-14
<PAGE> 88
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
Included in the above minimum operating lease payments are future
reimbursements from sublessees under noncancellable subleases, which amount to
$317,000 in 1999, $96,000 in 2000, and $0 in 2001 and 2002.
5. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock consisted of the following at June 30, 1999:
<TABLE>
<CAPTION>
SHARES ISSUED AGGREGATE
SHARES AND LIQUIDATION
DESIGNATED OUTSTANDING PREFERENCE
---------- ------------- -----------
<S> <C> <C> <C>
Series A.............................. 2,398,000 2,384,999 $ 1,590,000
Series B.............................. 2,000,000 1,923,223 5,160,000
Series C.............................. 2,166,065 2,166,055 12,000,000
Series D.............................. 1,400,000 -- --
Series E.............................. 2,189,981 2,188,812 19,989,325
---------- --------- -----------
10,154,046 8,663,089 $38,739,325
========== ========= ===========
</TABLE>
Each share of Series A, B, C, D and E preferred stock is convertible at any
time into common stock at the exchange rate in effect at the time of conversion,
currently one-for-one, and is subject to appropriate adjustment for common stock
splits, stock dividends, and similar transactions. Conversion is automatic upon
the closing of an initial public offering of common stock in which the aggregate
gross proceeds to the Company are at least $10,000,000 and the offering price is
at least $10.00 per share.
Each holder of Series A, B, C and D preferred stock is entitled to the
number of votes equal to the number of shares of common stock into which such
preferred stock is convertible.
Each holder of preferred stock is entitled to receive, when and as declared
by the Board of Directors, noncumulative dividends at the annual rate of $0.05,
$0.21, $0.44, $0.58 and $0.73 per share of Series A, B, C, D and E preferred
stock, respectively, payable in preference and priority to any payment of any
dividend on common stock.
In the event of liquidation, the holders of preferred stock are entitled to
a liquidation preference equal to the original purchase price of their preferred
stock plus an amount equal to all accrued but unpaid dividends on such shares.
COMMON STOCK
In November 1995, 1,282,500 shares of common stock were issued to the
Company's founder at $0.002 per share in exchange for cash. These shares are
subject to certain transfer restrictions. These shares are also subject to
repurchase at the issuance price upon the occurrence of certain events,
including termination of employment. The Company's right of repurchase expires
over four years. At December 31, 1997 and 1998 and June 30, 1999, 553,078,
264,516 and 120,230 shares, respectively, remained subject to repurchase.
F-15
<PAGE> 89
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
STOCK OPTION PLAN
During 1996, the Company adopted the 1996 Equity Incentive Plan (the
"Plan"). Under the Plan, up to 4,030,000 shares of the Company's common stock
may be granted to eligible participants. Under the Plan, options to purchase
common stock may be granted at no less than 85% of the fair value on the date of
the grant (110% of fair value in certain instances), as determined by the board
of directors. Options generally vest over a 48-month period and have a maximum
term of 10 years.
As discussed in Note 1, the Company has elected to follow APB 25 and
related interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FAS
123 requires use of option valuation models that were not developed for use in
valuing employee stock options.
Under APB 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income is required by FAS 123, which
also requires that the information be determined as if the Company has accounted
for its employee stock options granted subsequent to December 31, 1994 under the
fair value method of that Statement. The fair value of these options was
estimated at the date of grant using the minimum value method option pricing
model with the following weighted-average assumptions for the period from
November 28, 1995 (inception) to December 31, 1996, the years ended December 31,
1997 and 1998 and the six months ended June 30, 1999: risk-free interest rate of
6%; a dividend yield of 0%; and a weighted-average expected life of the option
of four years.
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED
NOVEMBER 28, 1995 DECEMBER 31,
(INCEPTION) TO ------------------ SIX MONTHS
DECEMBER 31, 1996 1997 1998 ENDED JUNE 30, 1999
------------------ ------- -------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Pro forma net loss.......... $(1,274) $(5,496) $(11,702) $(11,739)
Pro forma basic and diluted
net loss per share........ $ (4.30) $ (6.20) $ (9.14) $ (6.79)
</TABLE>
F-16
<PAGE> 90
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
A summary of activity under the Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------
SHARES AVAILABLE WEIGHTED-AVERAGE
FOR GRANT NUMBER OF SHARES EXERCISE PRICE
---------------- ---------------- ----------------
<S> <C> <C> <C>
Authorized.............................. 3,030,000 -- $ --
Granted................................. (1,457,225) 1,457,225 0.03
Exercised............................... -- (1,409,225) 0.03
---------- ---------- -----
Balance at December 31, 1996.............. 1,572,775 48,000 0.03
Granted................................. (694,000) 694,000 0.25
Exercised............................... -- (7,350) 0.22
Canceled................................ 109,500 (109,500) 0.20
Repurchased............................. 206,250 -- 0.03
---------- ---------- -----
Balance at December 31, 1997.............. 1,194,525 625,150 0.24
Authorized.............................. 1,000,000 -- --
Granted................................. (1,254,110) 1,254,110 0.47
Exercised............................... -- (293,889) 0.33
Canceled................................ 343,246 (343,246) 0.43
Repurchased............................. 79,414 -- 0.03
---------- ---------- -----
Balance at December 31, 1998.............. 1,363,075 1,242,125 0.40
Authorized (unaudited).................. 500,000 -- --
Granted (unaudited)..................... (1,860,607) 1,860,607 0.72
Exercised (unaudited)................... -- (665,862) 0.51
Canceled (unaudited).................... 423,621 (423,621) 0.59
Repurchased (unaudited)................. 146,354 -- 0.08
---------- ---------- -----
Balance at June 30, 1999 (unaudited)...... 572,443 2,013,249 $0.62
========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS VESTED AND EXERCISABLE
-------------------------------------------------
1997 1998
----------------------- -----------------------
WEIGHTED- WEIGHTED-
OPTIONS AVERAGE PRICE OPTIONS AVERAGE PRICE
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Vested and exercisable at end of year....... 25,023 $0.19 219,116 $0.26
======= ===== ======= =====
</TABLE>
The weighted-average fair value of options granted during the period from
November 28, 1995 (inception) to December 31, 1996, and the years ended December
31, 1997 and 1998, with an exercise price equal to the fair value of the
Company's common stock on the date of grant was $0.01, $0.06, and $0.10,
respectively. The weighted-average fair value of options granted during 1998
with an exercise price below the deemed fair value of the Company's common stock
on the date of grant was $2.86.
Exercise prices for options outstanding as of December 31, 1998 ranged from
$0.03 to $0.73. The weighted-average remaining contractual life of those options
is 9.0 years. Options subject to repurchase by the Company total 890,393 and
810,486 at December 31, 1997 and 1998, respectively.
F-17
<PAGE> 91
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
In connection with the grant of certain options to employees during the
year ended December 31, 1998 and the six months ended June 30, 1999, the Company
recorded deferred stock compensation of approximately $3,471,000 and
$11,041,000, respectively, based on the difference between the exercise prices
of those options at their respective grant dates and the deemed fair value for
accounting purposes of the shares of common stock subject to such options. Such
amounts are included as a reduction of stockholders' equity and are being
amortized on a graded vesting method. The compensation expense of $1,133,000 and
$2,472,000 during 1998 and the six months ended June 30, 1999, respectively,
relate to options awarded to employees in all operating expense categories, as
well as employees in professional services. These amounts have not been
separately allocated between operating expense categories.
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1998 and June 30, 1999, the Company has reserved common
shares for issuance as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
Stock options:
Outstanding.......................................... 1,242,125 2,013,249
Available for grant.................................. 1,363,075 572,443
Upon conversion of:
Preferred stock warrants outstanding................. 36,764 36,764
Preferred stock outstanding.......................... 6,474,277 8,663,089
Convertible debentures outstanding................... 1,137,931 1,313,793
---------- ----------
10,254,172 12,599,338
========== ==========
</TABLE>
6. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan which stipulates that all full-time employees
can elect to contribute to the 401(k) plan, subject to certain limitations, up
to 20% of their salary on a pre-tax basis. The Company has the option to provide
matching contributions but has not done so to date.
7. INCOME TAXES
The Company's income tax provision (benefit) differs from the income tax
(benefit) determined by applying the U.S. federal statutory rate to the net loss
as follows:
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED
NOVEMBER 28, 1995 DECEMBER 31,
(INCEPTION) TO ------------------
DECEMBER 31, 1996 1997 1998
----------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision (benefit) at U.S. statutory rate... $(432) $(1,866) $(3,857)
Valuation allowance for deferred tax assets...... 432 1,866 3,857
----- ------- -------
Tax provision (benefit).......................... $ -- $ -- $ --
===== ======= =======
</TABLE>
F-18
<PAGE> 92
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
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
the Company's deferred tax assets and liabilities for federal and state income
taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................ $ 2,670 $ 5,800
Tax credit carryforwards.................................... 230 400
Deferred revenue............................................ 0 214
Other accruals and reserves not deductible for tax
purposes.................................................. 0 86
------- -------
Total gross deferred tax assets............................. 2,900 6,500
Less valuation allowance.................................... (2,900) (6,500)
------- -------
Net deferred tax assets................................ $ -- $ --
======= =======
</TABLE>
Realization of deferred tax assets is dependent on future earnings, if any,
the timing and amount of which are uncertain. Accordingly, a valuation allowance
in an amount equal to the net deferred tax assets as of December 31, 1997 and
1998 has been established to reflect these uncertainties. The valuation
allowance increased by $2,400,000 and $3,600,000 during the years ended December
31, 1997 and 1998, respectively.
As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $15,400,000 and $10,700,000, respectively.
The Company also had federal and state research and development tax credit
carryforwards of approximately $300,000 and $200,000, respectively. The net
operating loss and tax credit carryforwards will expire at various dates
beginning in 2004, if not utilized.
Utilization of the net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating loss and tax
credit carryforwards before utilization.
8. RELATED PARTY TRANSACTION
In April 1998, the Company provided a $400,000 loan to an officer, who is
also a shareholder, in exchange for a nonrecourse promissory note which is
secured by security interest in common stock. The loan is due in April 2000 and
bears interest at 5.51%.
9. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT (UNAUDITED)
INITIAL PUBLIC OFFERING
In July 1999, the Company filed a registration statement with the
Securities and Exchange Commission that would permit the Company to sell shares
of the its common stock in connection with a proposed initial public offering
("IPO"). If the offering is consummated under the terms presently anticipated,
all of the outstanding shares of the Company's convertible
F-19
<PAGE> 93
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
preferred stock, including those shares of convertible preferred stock into
which outstanding debentures are convertible, will convert into shares of common
stock on a one-for-one basis upon closing of the proposed IPO. The conversion of
the convertible preferred stock and debentures has been reflected in the
accompanying unaudited pro forma consolidated balance sheet.
1999 EQUITY INCENTIVE PLAN
On July 2, 1999, the Board of Directors approved the adoption of the
Company's 1999 Equity Incentive Plan (the "1999 Incentive Plan"), subject to
shareholder approval. A total of 3,500,000 shares of common stock has been
reserved for issuance under the 1999 Incentive Plan, plus, commencing on January
1, 2000, annual increases equal to 5% of the outstanding shares on the preceding
December 31. The number of shares authorized for issuance under the 1999
Incentive Plan will be increased to include any shares reserved under the 1996
Equity Incentive Plan not issued or subject to outstanding grants on the date of
the Company's initial public offering and any shares issued under the 1996
Equity Incentive Plan that are forfeited or repurchased by the Company at the
original purchase price or that expire or become unexercisable for any reason
without having been exercised in full. The types of awards that may be made
under the 1999 Incentive Plan are options to purchase shares of common stock,
restricted stock and stock bonuses. The exercise price for incentive stock
options may not be less than 100% of the fair market value of the Company's
common stock on the date of grant (85% for nonstatutory options). In the event
of a change in control of the Company, an option or award under the 1999
Incentive Plan may be assumed or substituted by the successor corporation. The
Company's compensation committee may also accelerate the vesting of awards upon
a change of control transaction.
1999 EMPLOYEE STOCK PURCHASE PLAN
On July 2, 1999, the Board of Directors approved the adoption of the
Company's 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan"), subject
to shareholder approval. A total of 500,000 shares of common stock has been
reserved for issuance under the 1999 Purchase Plan, plus, commencing on January
1, 2000, annual increases equal to 1% of the Company's outstanding common shares
on the preceding December 31. The 1999 Purchase Plan permits eligible employees
to acquire shares of the Company's common stock through periodic payroll
deductions of up to 10% of their cash compensation, subject to certain maximum
purchase limitations. Each offering period will have a maximum duration of 24
months and will consist of four six-month purchase periods. The price at which
the common stock may be purchased is 85% of the lesser of the fair market value
of the Company's common stock on the first day of the applicable offering period
or the last day of each respective purchase period. This initial offering period
will begin on the first business day on which price quotations for the Company's
common stock are available on the Nasdaq National Market after the effectiveness
of the initial public offering.
LEGAL PROCEEDINGS
On July 21, 1999, Timeline, Inc. filed a complaint against the Company in
the United States District Court for the Western Division of Washington,
alleging infringement by the Company of
F-20
<PAGE> 94
BROADBASE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
one of Timeline's patents. The complaint alleges that the Company directly and
indirectly infringes Timeline's patent claims by making, using, selling and
offering to sell software products, both alone and in combination with third
party software products, and further alleges that the Company induces
infringement of the Timeline patent claims. Timeline has requested permanent
injunctions prohibiting the Company from directly or indirectly infringing the
Timeline patent, and seeks damages, exemplary damages, costs and attorneys'
fees. Timeline has further disclosed to the Company patent claims of a pending
related patent application that Timeline expects to be issued and to be added to
the present case. Based on the Company's investigation of this matter to date,
the Company believes its products do not infringe any valid claims of the
Timeline patent or of the pending patent application, and that it has other
meritorious defenses to all claims made by Timeline. Accordingly, the Company
intends to defend this suit vigorously and does not believe the resolution of
this matter will have a material adverse impact on the Company's financial
position, results of operations, or cash flows.
F-21
<PAGE> 95
[Description of Graphics on Inside Front Cover]
At the center of this graphic is a circle labeled "Web Sites" which
contains the image of a computer screen. Arranged concentrically around this
circle is a series of six additional circles. The first circle, directly above
the "Web Sites" graphic, is labeled "E-Mail" and contains the image of an
envelope and a computer that is shaped in the form of a mailbox. Clockwise from
the "E-Mail" graphic, the second circle is labeled "Online Service" and contains
the image of a mouse sitting on a mouse pad. The third circle is labeled "Direct
Sales" and contains the image of a man in a suit holding a briefcase. The fourth
circle is labeled "Direct Mail" and contains the image of three envelopes. The
fifth circle is labeled "Call Centers" and contains the image of an individual
wearing headphones and facing a computer screen. The sixth circle is labeled
"Store Fronts" and contains the image of a store front. Above this graphic, the
text reads "You can touch your customers in many ways..." Below this graphic the
text reads "...Are you making the most of it?" At the bottom right corner of the
graphic is the Broadbase logo.
<PAGE> 96
DESCRIPTION OF GRAPHICS
[Description of Graphics on Gatefold]
This graphic is entitled, "E-business Analytic Solutions." In the center of the
page, a circle is labeled "Broadbase EPM." Below the circle is a column entitled
"Personalize," followed by five bullet points. The first point reads, "All
customer interactions with closed loop optimization." The second point reads,
"Recommend cross sells and up sells." The third point reads, "Adjust web content
& offerings." The fourth point reads, "Differentiate offerings." The fifth point
reads, "Target profitable customers." To the right of the circle, a
double-headed arrow moves straight to the right of the circle to a graphic of a
cloud labeled, from top-to-bottom, "Internet," "Intranets" and "Extranets."
Forming a semi-circle outside the image of the cloud is a series of circular
graphics entitled "Business Users" and labeled as follows: "Sales,"
"E-commerce," "Marketing" and "Customer Service." Below the cloud and the
circular graphics is the Broadbase logo. Above the cloud and the circular
graphics is a column entitled "Analyze," followed by three bullet points. The
first point reads, "With logic and best practices." The second point reads, "For
users in specific business areas." The third point reads, "Guided
decision-making & customer analysis." From the graphic of the cloud, an arrow
moves clockwise through the "Personalize" column to the left of the "Broadbase
EPM" circle to a series of circular graphics labeled "Customer touch points." In
the center of this series of graphics is a circle labeled "Web Sites" which
contains the image of a computer screen. Arranged concentrically around this
circle is a series of six additional circles. The first circle, directly above
the "Web Sites" graphic, is labeled "E-Mail" and contains the image of an
envelope and a computer that is shaped in the form of a mailbox. Clockwise from
the "E-Mail" graphic, the second circle is labeled "Online Service" and contains
the image of a mouse sitting on a mouse pad. The third circle is labeled "Direct
Sales" and contains the image of a man in a suit holding a briefcase. The fourth
circle is labeled "Direct Mail" and contains the image of three envelopes. The
fifth circle is labeled "Call Centers" and contains the image of an individual
wearing headphones and facing a computer screen. The sixth circle is labeled
"Store Fronts" and contains the image of a store front. Above the "Customer
touch points" graphic is a column entitled "Integrate," followed by three bullet
points. The first point reads, "Comprehensive customer data." The second point
reads "Historic and real time data." The third point reads, "From multiple
customer touch points." A double-headed arrow moves straight from the "Customer
touch points" graphic to the "Broadbase EPM" circle. A second arrow moves
clockwise through the "Integrate" column from the "Customer touch points"
graphic to the space above the "Broadbase EPM" circle. A third arrow moves
clockwise from the head of the second arrow through the "Analyze" column to the
graphic of the cloud. On the left edge of the gatefold, a rectangle runs from
the top to the bottom of the page with the heading "Broadbase EPM Customers" and
a column of text reading, from top-to-bottom, "Automatic Data Processing,"
"BankBoston," "Baxter IV Systems," "Bell & Howell," "Boeing Commercial Airplanes
Group," "Boston Edison," "Canon Computer," "Catalog Marketing Services,"
"Chevron," "CommerzBank," "Computer Hardware Maintenance Co.," "DG Systems,"
"DSC Logistics," "Eastman Kodak Company," "Fidelity Investments," "Ginza Cozy
Corner," "Golden Books," "Harvard Pilgrim Healthcare," "Hewlett-Packard,"
"Honda," "Idaho Power," "Inprise," and "InsWeb." To the right of the bottom of
this rectangle is an asterisk followed by the words "We have licensed products
and sold services totalling at least $50,000 to the end user customers listed."
On the right edge of the gatefold, a rectangle runs from the top to the bottom
of the page with the heading "Broadbase EPM Customers" and a column of text
reading, from top-to-bottom, "Kana Communications," "Los Alamos National Labs,"
"Mercata," "NECX Direct," "New Century Energy," "NTT," "Oakley," "Omaha Public
Power," "Plymouth Rock Assurance," "PMA Group," "Pointcast," "PreVision
Marketing," "Putnam Investments," "Rockwell Automation," "Shikishima Baking
Company," "The Sharper Image," "Thomson Technology Services," "Tokai," "Travers
Tool," "United Airlines," "United Natural Foods," "Vantive," and
"WebTV/Microsoft."
[Description of Graphics on Page 38]
Graphic depicts a three dimensional rectangle divided vertically from side to
side into four segments. The segments are labelled, from left to right,
"E-Commerce Systems," "Customer Relationship Management Systems," "Enterprise
Resource Planning Systems" and "Demographic Data." To the left of this
vertically-segmented rectangle are the words "Application Data Sources."
Extending across the top of this rectangle is another three-dimensional
rectangle, which is divided horizontally from top to bottom into three segments.
These segments are labelled, from top to bottom, "Information Delivery Server,"
"Application Server & Analytic Engine" and "Data Source Adapters." To the left
of this horizontally-segmented rectangle are the words "EPM/Foundation." On top
of this horizontally-segmented rectangle is a row of six cylinders arranged in a
row. These cylinders are labelled, from left to right, "E-Commerce,"
"E-Personalize," "E-Marketing," "Sales," "Customer Service" and "E-Procurement
(anticipated)." To the left of the cylinder labelled "E-Commerce" are the words
"Broadbase EPM Applications."
<PAGE> 97
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF
COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Special Note Regarding Forward-
Looking Statements and Industry
Data................................ 16
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Consolidated Financial
Data................................ 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 31
Management............................ 48
Certain Transactions.................. 57
Principal Stockholders................ 59
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 64
Underwriting.......................... 66
Legal Matters......................... 69
Experts............................... 69
Where You Can Find Additional
Information......................... 70
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 1999 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE THESE SHARES
OF COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[BROADBASE LOGO]
4,000,000 SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
THOMAS WEISEL PARTNERS LLC
E*OFFERING
PROSPECTUS
, 1999
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by the
Registrant in connection with the sale of the shares of common stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 13,900
NASD filing fee............................................. 6,193
Nasdaq National Market filing fee........................... 17,500
Accounting fees and expenses................................ 275,000
Legal fees and expenses..................................... 425,000
Road show expenses.......................................... 50,000
Printing and engraving expenses............................. 250,000
Blue sky fees and expenses.................................. 5,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous............................................... 7,407
----------
Total............................................. $1,055,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and executive officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act").
As permitted by the Delaware General Corporation Law, the Registrant's
certificate of incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability:
- for any breach of the director's duty of loyalty to the Registrant or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases); or
- for any transaction from which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the Registrant's
bylaws provide that:
- the Registrant is required to indemnify its directors and executive
officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions;
- the Registrant may indemnify its other employees and agents as set forth
in the Delaware General Corporation Law;
- the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding to the
fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions; and
- the rights conferred in the bylaws are not exclusive.
II-1
<PAGE> 99
The Registrant intends to enter into indemnification agreements with each
of its current directors and executive officers to give such directors and
executive officers additional contractual assurances regarding the scope of the
indemnification set forth in the Registrant's certificate of incorporation and
to provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification.
Reference is also made to the Underwriting Agreement, which provides for
the indemnification of officers, directors and controlling persons of the
Registrant against certain liabilities. The indemnification provision in the
Registrant's certificate of incorporation, bylaws and the indemnity agreements
to be entered into between the Registrant and each of its directors and
executive officers may be sufficiently broad to permit indemnification of the
Registrant's directors and executive officers for liabilities arising under the
Securities Act.
The Registrant expects to obtain directors' and officers' liability
insurance that will include coverage for securities matters.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT NUMBER
---------------- ------
<S> <C>
Underwriting Agreement...................................... 1.01
Registrant's Certificate of Incorporation................... 3.01
Registrant's Bylaws......................................... 3.02
Form of Indemnity Agreement................................. 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
the Registrant in the past three fiscal years:
<TABLE>
<CAPTION>
AGGREGATE
CLASS OF NUMBER OF PURCHASE FORM OF
PURCHASERS DATE OF SALE TITLE OF SECURITIES SECURITIES PRICE CONSIDERATION
---------- ------------ ------------------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
2 investors.......... 04/29/96 Series A preferred stock 60,000 $ 40,000 Cash
1 investor........... 06/14/96 Series A preferred stock 22,500 15,000 Settlement of
Claims
17 employees......... 12/13/96 common stock 1,409,225 46,927 Promissory Notes
4 investors.......... 12/16/96 Series B preferred stock 1,863,580 4,999,985 Cash
1 lender............. 12/16/96 Warrant to purchase N/A -- (1) (1)
12,537.30 shares of
Series A preferred stock
2 employees.......... 01/24/97 common stock 6,500 1,625 Services
11 investors......... 03/14/97 Series B preferred stock 59,643 160,022 Cash
1 consultant......... 05/07/97 common stock 2,500 625 Services
1 consultant......... 05/23/97 common stock 2,500 625 Services
2 consultants........ 09/16/97 common stock 850 213 Services
1 lender............. 09/11/97 Warrant to purchase N/A -- (2) (2)
24,227 shares of
Series B Preferred Stock
10 investors......... 02/17/98 Series C preferred stock 1,975,172 10,942,453 Cash
Chuck Bay............ 02/19/98 common stock 173,000 43,250 Promissory Note
1 employee........... 03/31/98 common stock 583 321 Cash
25 investors......... 04/15/98 Series C preferred stock 190,883 1,057,492 Cash
2 employees.......... 04/21/98 common stock 5,000 5,000 Cash
1 employee........... 04/30/98 common stock 12,500 6,875 Cash
</TABLE>
II-2
<PAGE> 100
<TABLE>
<CAPTION>
AGGREGATE
CLASS OF NUMBER OF PURCHASE FORM OF
PURCHASERS DATE OF SALE TITLE OF SECURITIES SECURITIES PRICE CONSIDERATION
---------- ------------ ------------------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
4 consultants........ 06/09/98 common stock 11,610 6,386 Services
1 employee........... 06/30/98 common stock 4,333 2,383 Cash
1 employee........... 07/06/98 common stock 5,416 2,979 Cash
1 employee........... 07/09/98 common stock 2,250 1,238 Cash
1 employee........... 07/27/98 common stock 42,250 23,375 Cash
1 employee........... 08/11/98 common stock 6,250 1,563 Cash
1 employee........... 09/12/98 common stock 3,125 781 Cash
2 employees.......... 09/13/98 common stock 313 153 Cash
1 employee........... 10/01/98 common stock 7,228 1,807 Cash
1 employee........... 11/16/98 common stock 5,000 2,750 Services
2 consultants........ 11/24/98 common stock 5,000 2,750 Services
1 employee........... 12/08/98 common stock 3,323 831 Cash
4 investors.......... 12/09/98 Debentures Convertible (3) 8,250,000 Cash
into Series D preferred
stock
1 employee........... 12/11/98 common stock 1,250 313 Cash
1 employee........... 12/21/98 common stock 5,208 1302 Promissory Note
1 employee........... 01/06/99 common stock 31,919 17,555 Cash
1 employee........... 01/21/99 common stock 21,603 11,882 Cash
1 consultant......... 02/22/99 common stock 5,000 3,650 Services
Chuck Bay............ 03/19/99 common stock 86,000 62,780 Promissory Note
Brian Kelly.......... 03/19/99 common stock 135,000 98,550 Promissory Note
1 employee........... 03/31/99 common stock 4,872 1,449 Cash
1 employee........... 04/01/99 common stock 4,584 2,596 Cash
2 consultants........ 04/01/99 common stock 10,000 7,300 Services
2 investors.......... 04/13/99 Debentures Convertible (4) 1,275,000 Cash
into Series D preferred
stock
1 employee........... 04/17/99 common stock 13,125 3,281 Cash
1 employee........... 04/21/99 common stock 2,167 542 Cash
1 employee........... 04/23/99 common stock 5,664 1,276 Cash
1 consultant......... 04/30/99 common stock 207 151 Cash
1 employee........... 05/27/99 common stock 96,750 70,628 Cash
1 employee........... 06/01/99 common stock 3,696 2,698 Cash
1 employee........... 06/01/99 common stock 12,500 6,875 Cash
1 employee........... 06/04/99 common stock 4,855 550 Cash
1 employee........... 06/05/99 common stock 6,808 3,706 Cash
2 employees.......... 06/08/99 common stock 6,952 2,078 Cash
3 employees.......... 06/10/99 common stock 30,844 7,786 Cash
3 employees.......... 06/22/99 common stock 16,386 9,666 Cash
12 employees......... 06/23/99 common stock 82,488 26,995 Cash
2 employees.......... 06/24/99 common stock 11,416 3,306 Cash
2 employees.......... 06/25/99 common stock 7,844 2,582 Cash
5 employees.......... 06/28/99 common stock 30,026 8,509 Cash
38 investors......... 06/30/99 Series E preferred stock 2,188,812 19,989,325 Cash
1 employee........... 06/30/99 common stock 35,156 8,789 Cash
</TABLE>
Each share of Series A, Series B, Series C, Series D and Series E preferred
stock will convert automatically into one share of common stock, respectively,
upon the closing of this offering.
All sales of common stock set forth in the table were made in reliance on
Rule 701 under the Securities Act or on Section 4(2) of the Securities Act
and/or Rule 506 thereunder. The sales of Series A Preferred Stock relied upon
Section 4(2) of the Securities Act. The sales of Series B Preferred Stock relied
upon Section 4(2) of the Securities Act. The sales of Series C Preferred Stock
relied upon Section 4(2) of the Securities Act. The sales of Series D Preferred
II-3
<PAGE> 101
Stock Convertible Debentures relied upon Rule 506 under Regulation D promulgated
under the Securities Act and on Section 4(2) of the Securities Act. The sales of
Series E Preferred Stock relied upon Rule 506 under Regulation D promulgated
under the Securities Act and on Section 4(2) of the Securities Act. These sales
of preferred stock or convertible debentures were made without general
solicitation or advertising. Each purchaser of preferred stock or convertible
debentures was a sophisticated investor with access to all relevant information
necessary to evaluate the investment and represented to the Registrant that the
shares were being acquired for investment.
- -------------------------
(1) The warrant was issued in connection with debt financing the Registrant
obtained from the warrant holder. The warrant expires on 11/30/03 and has an
exercise price of $1.675 per share.
(2) The warrant was issued in connection with debt financing the Registrant
obtained from the warrant holder. The warrant expires on 07/31/04 and has an
exercise price of $2.683 per share.
(3) The debentures are convertible into 1,137,931 shares of common stock.
(4) The debentures are convertible into 175,862 shares of common stock.
II-4
<PAGE> 102
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C>
1.01 Form of Underwriting Agreement.**
3.01 Registrant's Certificate of Incorporation.*
3.02 Registrant's Bylaws.*
3.03 Registrant's Certificate of Designation.*
4.01 Form of Specimen Certificate for Registrant's common stock.*
4.02 Amended and Restated Investors' Rights Agreement, dated June
30, 1999.*
4.03 Series E Rights Agreement, dated June 30, 1999.*
5.01 Opinion of Fenwick & West LLP regarding legality of the
securities being registered.**
10.01 Form of Indemnity Agreement between Registrant and each of
its directors and executive officers.*
10.02 1996 Equity Incentive Plan and related forms of agreement.*
10.03 1999 Equity Incentive Plan and related forms of agreement.
10.04 1999 Employee Stock Purchase Plan and related forms of
agreement.
10.05 Sublease between SaRonix and Registrant dated June 1, 1998.*
10.06 Offer letter for Brian Kelly dated November 10, 1998.*
10.07 Offer letter for Thomas Doyle dated April 12, 1999.*
10.08 Offer letter for Chuck Bay dated January 18, 1998.*
10.09 Separation Agreement between Registrant and Bruce Armstrong
dated April 14, 1999.
10.10 Broadbase Partner Agreement between Registrant and Indus
International, Inc. dated June 2, 1998, as amended.+*
10.11 Offer Letter for Anil Gupta dated August 3, 1999.*
21.01 List of subsidiaries.*
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).**
23.02 Consent of Ernst & Young LLP, Independent Auditors.
24.01 Power of Attorney.*
27.01 Financial Data Schedule.*
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment has been requested for portions of this agreement
pursuant to an application for confidential treatment sent to the Securities and
Exchange Commission. Such portions have been redacted and marked with an
asterisk. The non-redacted version of this document has been sent to the
Securities and Exchange Commission.
(b) Financial Statement Schedules.
The following financial statement schedule for the period November 28, 1995
(Inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998 should be read in conjunction with the consolidated financial statements of
Broadbase Information Systems, Inc. filed as part of this Registration
Statement:
- Schedule II -- Valuation and Qualifying Accounts
Schedules other than that listed above have been omitted since they are
either not required, not applicable, or because the information required is
included in the financial statements or related notes.
II-5
<PAGE> 103
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to 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 provisions described under Item 14 above, 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 undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Menlo Park, State of
California, on this 29th day of August, 1999.
BROADBASE SOFTWARE, INC.
By: /s/ CHUCK BAY
-----------------------------------------------
Chuck Bay
Chief Financial Officer, General Counsel,
Executive Vice President of Operations
and Corporate Secretary
Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
* Chairman of the Board of August 29, 1999
- ------------------------------------------------ Directors, President and
Mark Kremer Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER:
/s/ CHUCK BAY Chief Financial Officer, August 29, 1999
- ------------------------------------------------ General Counsel, Executive
Chuck Bay Vice President of Operations
and Corporate Secretary
ADDITIONAL DIRECTORS:
* Director August 29, 1999
- ------------------------------------------------
Kevin Harvey
* Director August 29, 1999
- ------------------------------------------------
Paul Levy
* Director August 29, 1999
- ------------------------------------------------
Nancy Schoendorf
*By: /s/ CHUCK BAY
--------------------------------------
Chuck Bay
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 105
BROADBASE INFORMATION SYSTEMS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM NOVEMBER 28, 1995 (INCEPTION) TO
DECEMBER 31, 1996 AND YEARS ENDED
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
AMOUNTS
BALANCE CHARGED TO
AT REVENUE, WRITE-OFFS BALANCE
BEGINNING COSTS OR AND AT END
DESCRIPTION OF PERIOD EXPENSES RECOVERIES OF PERIOD
- -------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Period from November 28, 1995
(Inception) to December 31, 1996....... $-- $ -- $-- $ --
Year Ended December 31, 1997.............. $-- $ -- $-- $ --
Year Ended December 31, 1998.............. $-- $50,000 $-- $50,000
</TABLE>
S-1
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C>
1.01 Form of Underwriting Agreement.**
3.01 Registrant's Certificate of Incorporation.*
3.02 Registrant's Bylaws.*
3.03 Registrant's Certificate of Designation.*
4.01 Form of Specimen Certificate for Registrant's common stock.*
4.02 Amended and Restated Investors' Rights Agreement, dated June
30, 1999.*
4.03 Series E Rights Agreement, dated June 30, 1999.*
5.01 Opinion of Fenwick & West LLP regarding legality of the
securities being registered.**
10.01 Form of Indemnity Agreement between Registrant and each of
its directors and executive officers.*
10.02 1996 Equity Incentive Plan and related forms of agreement.*
10.03 1999 Equity Incentive Plan and related forms of agreement.
10.04 1999 Employee Stock Purchase Plan and related forms of
agreement.
10.05 Sublease between SaRonix and Registrant dated June 1, 1998.*
10.06 Offer letter for Brian Kelly dated November 10, 1998.*
10.07 Offer letter for Thomas Doyle dated April 12, 1999.*
10.08 Offer letter for Chuck Bay dated January 18, 1998.*
10.09 Separation Agreement between Registrant and Bruce Armstrong
dated April 14, 1999.
10.10 Broadbase Partner Agreement between Registrant and Indus
International, Inc. dated June 2, 1998, as amended.+*
10.11 Offer Letter for Anil Gupta dated August 3, 1999.*
21.01 List of subsidiaries.*
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).**
23.02 Consent of Ernst & Young LLP, Independent Auditors.
24.01 Power of Attorney.*
27.01 Financial Data Schedule.*
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment has been requested for portions of this agreement
pursuant to an application for confidential treatment sent to the Securities and
Exchange Commission. Such portions have been redacted and marked with an
asterisk. The non-redacted version of this agreement has been sent to the
Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 10.03
BROADBASE SOFTWARE, INC.
1999 EQUITY INCENTIVE PLAN
As Adopted July 2, 1999
As Amended August 19, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 3,500,000 Shares plus Shares that are subject to:
(a) issuance upon exercise of an Option but cease to be subject to such Option
for any reason other than exercise of such Option; (b) an Award granted
hereunder but are forfeited or are repurchased by the Company at the original
issue price; and (c) an Award that otherwise terminates without Shares being
issued. In addition, any authorized shares not issued or subject to outstanding
grants under the Broadbase Information Systems, Inc. 1996 Equity Incentive Plan
(the "PRIOR PLAN") on the Effective Date (as defined below) and any shares
issued under the Prior Plan that are forfeited or repurchased by the Company or
that are issuable upon exercise of options granted pursuant to the Prior Plan
that expire or become unexercisable for any reason without having been exercised
in full, will no longer be available for grant and issuance under the Prior
Plan, but will be available for grant and issuance under this Plan. In addition,
on January 31, 1999 and each anniversary thereafter, the aggregate number of
Shares reserved and available for grant and issuance pursuant to this Plan will
be increased automatically by a number of Shares equal to 5% of the total
outstanding shares of the Company as of the immediately preceding December 31,
provided that no more than 20,000,000 shares shall qualify as ISOs (as defined
in Section 5 below). At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent or Subsidiary of the Company; provided
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. No person will be eligible to receive more than 2,000,000 Shares in
any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company), who are eligible to receive
up to a maximum of 3,000,000 Shares in the calendar year in which they commence
their employment. A person may be granted more than one Award under this Plan.
<PAGE> 2
Broadbase Software, Inc.
1999 Equity Incentive Plan
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Except for automatic grants
to Outside Directors pursuant to Section 9 hereof, and subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Except
for automatic grants to Outside Directors pursuant to Section 9 hereof, the
Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Except for automatic grants to Outside
Directors pursuant to Section 9 hereof, any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
5. OPTIONS. The Committee may grant Options to eligible persons and will
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and, except as otherwise
required by the terms of Section 9 hereof, will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
2
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Broadbase Software, Inc.
1999 Equity Incentive Plan
5.2 Date of Grant. The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times
or upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth
in the Stock Option Agreement, exercise of an Option will always be subject to
the following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer
time period not exceeding five (5) years as may be determined by
the Committee, with any exercise beyond three (3) months after
the Termination Date deemed to be an NQSO), but in any event, no
later than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after a Termination other than for Cause or because of
Participant's Disability), then Participant's Options may be
exercised only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal representative
or authorized assignee) no later than twelve (12) months after
the Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the Committee,
with any such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason other
than the Participant's death or Disability, or (b) twelve (12)
months after the Termination Date when the Termination is for
Participant's death or
3
<PAGE> 4
Broadbase Software, Inc.
1999 Equity Incentive Plan
Disability, deemed to be an NQSO), but in any event no later
than the expiration date of the Options.
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant,
the Participant's estate nor such other person who may then hold
the Option shall be entitled to exercise any Option with respect
to any Shares whatsoever, after termination of service, whether
or not after termination of service the Participant may receive
payment from the Company or Subsidiary for vacation pay, for
services rendered prior to termination, for services rendered
for the day on which termination occurs, for salary in lieu of
notice, or for any other benefits. In making such determination,
the Board shall give the Participant an opportunity to present
to the Board evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur on
the date when the Company dispatches notice or advice to the
Participant that his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value
of Shares on the date of grant with respect to which ISO are exercisable for the
first time by a Participant during any calendar year exceeds $100,000, then the
Options for the first $100,000 worth of Shares to become exercisable in such
calendar year will be ISO and the Options for the amount in excess of $100,000
that become exercisable in that calendar year will be NQSOs. In the event that
the Code or the regulations promulgated thereunder are amended after the
Effective Date of this Plan to provide for a different limit on the Fair Market
Value of Shares permitted to be subject to ISO, such different limit will be
automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time
4
<PAGE> 5
Broadbase Software, Inc.
1999 Equity Incentive Plan
approve, and will comply with and be subject to the terms and conditions of this
Plan. The offer of Restricted Stock will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full payment for the Shares to the Company within thirty (30) days, then the
offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant
to a Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards
shall be subject to such restrictions as the Committee may impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Restricted Stock Purchase Agreement.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance Periods
may overlap and Participants may participate simultaneously with respect to
Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the
number of Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will: (a) determine the nature, length
and starting date of any Performance Period for each Stock Bonus; (b) select
from among the Performance Factors to be used to measure the performance, if
any; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonuses have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Stock Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and
5
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Broadbase Software, Inc.
1999 Equity Incentive Plan
criteria as may be determined by the Committee. The Committee may adjust the
performance goals applicable to the Stock Bonuses to take into account changes
in law and accounting or tax rules and to make such adjustments as the Committee
deems necessary or appropriate to reflect the impact of extraordinary or unusual
items, events or circumstances to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash
or whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to this Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares); or (2)
were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms
as may be approved by the Committee and bearing interest at a
rate sufficient to avoid imputation of income under Sections 483
and 1274 of the Code; provided, however, that Participants who
are not employees or directors of the Company will not be
entitled to purchase Shares with a promissory note unless the
note is adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD
DEALER") whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the
Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects
to exercise the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
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Broadbase Software, Inc.
1999 Equity Incentive Plan
9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.
9.1 Types of Options and Shares. Options granted under this Plan
and subject to this Section 9 shall be NQSOs.
9.2 Eligibility. Options subject to this Section 9 shall be
granted only to Outside Directors.
9.3 Annual Grants. Each Outside Director who was a member of the
Board before the Effective Date will automatically be granted an Option for
10,000 Shares on the Effective Date, unless such Outside Director received a
grant of Options before the Effective Date. Each Outside Director who first
becomes a member of the Board on or after the Effective Date will automatically
be granted an Option for 10,000 Shares on the date such Outside Director first
becomes a member of the Board. Immediately following each annual meeting of
stockholders, all Outside Directors will automatically be granted an Option for
10,000 Shares, provided the Outside Director is a member of the Board on such
date and has served continuously as a member of the Board for a period of at
least one year since the date when such Outside Director first became a member
of the Board (the "ANNUAL GRANT").
9.4 Vesting. Each Annual Grant shall be 100% vested and
immediately exercisable as of the date of grant.
9.5 Exercise Price. The exercise price of an Annual Grant shall
be the Fair Market Value of the Shares, at the time that the Option is granted.
10. WITHHOLDING TAXES.
10.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
10.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee
11. TRANSFERABILITY.
11.1 Except as otherwise provided in this Section 11, Awards
granted under this Plan, and any interest therein, will not be transferable or
assignable by Participant, and may not be made subject to execution, attachment
or similar process, otherwise than by will or by the laws of descent and
distribution or as determined by the Committee and set forth in the Award
Agreement with respect to Awards that are not ISOs.
11.2 All Awards other than NQSO's. All Awards other than NQSO's
shall be exercisable: (i) during the Participant's lifetime, only by (A) the
Participant, or (B) the Participant's guardian or legal representative; and (ii)
after Participant's death, by the legal representative of the Participant's
heirs or legatees.
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11.3 NQSOs. Unless otherwise restricted by the Committee, an
NQSO shall be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" and (ii) after Participant's death, by the legal representative of
the Participant's heirs or legatees. "Permitted transfer" means, as authorized
by this Plan and the Committee in an NQSO, any transfer effected by the
Participant during the Participant's lifetime of an interest in such NQSO but
only such transfers which are by gift or domestic relations order. A permitted
transfer does not include any transfer for value and neither of the following
are transfers for value: (a) a transfer of under a domestic relations order in
settlement of marital property rights or (b) a transfer to an entity in which
more than fifty percent of the voting interests are owned by Family Members or
the Participant in exchange for an interest in that entity.
12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES..
12.1 Voting and Dividends. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
12.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
12.3 Restrictions on Shares. At the discretion of the Committee,
the Company may reserve to itself and/or its assignee(s) in the Award Agreement
a right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure
8
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Broadbase Software, Inc.
1999 Equity Incentive Plan
the payment of Participant's obligation to the Company under the promissory
note; provided, however, that the Committee may require or accept other or
additional forms of collateral to secure the payment of such obligation and, in
any event, the Company will have full recourse against the Participant under the
promissory note notwithstanding any pledge of the Participant's Shares or other
collateral. In connection with any pledge of the Shares, Participant will be
required to execute and deliver a written pledge agreement in such form as the
Committee will from time to time approve. The Shares purchased with the
promissory note may be released from the pledge on a pro rata basis as the
promissory note is paid. Notwithstanding the foregoing, only Shares that have
been pledged as provided above and/or that are Unvested Shares shall be held in
escrow.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participants, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event such
successor corporation (if any) refuses to assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 18.1,
such Awards will expire on such transaction at such time and on such conditions
as the Committee will determine. [Notwithstanding
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Broadbase Software, Inc.
1999 Equity Incentive Plan
anything in this Plan to the contrary, the Committee may, in its sole discretion
and only on or after the date on which the registration statement filed by the
Company with the SEC under the Securities Act registering the initial public
offering of the Company's Common Stock is declared effective by the SEC, provide
that the vesting of any or all Awards granted pursuant to this Plan will
accelerate upon a transaction described in this Section 18. If the Committee
exercises such discretion with respect to Options, such Options will become
exercisable in full prior to the consummation of such event at such time and on
such conditions as the Committee determines, and if such Options are not
exercised prior to the consummation of the corporate transaction, they shall
terminate at such time as determined by the Committee.
18.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from time
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective
on the date on which the registration statement filed by the Company with the
SEC under the Securities Act registering the initial public offering of the
Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE").
This Plan shall be approved by the stockholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Committee may grant Awards pursuant to this Plan; provided,
however, that: (a) no Option may be exercised prior to initial stockholder
approval of this Plan; (b) no Option granted pursuant to an increase in the
number of Shares subject to this Plan approved by the Board will be exercised
prior to the time such increase has been approved by the stockholders of the
Company; (c) in the event that initial stockholder approval is not obtained
within the time period provided herein, all Awards granted hereunder shall be
cancelled, any Shares issued pursuant to any Awards shall be cancelled and any
purchase of Shares issued hereunder shall be rescinded; and (d) in the event
that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be
cancelled, any Shares issued pursuant to any Award granted pursuant to such
increase will be cancelled, and any purchase of Shares pursuant to such increase
will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This Plan
and all agreements thereunder shall be governed by and construed in accordance
with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
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Broadbase Software, Inc.
1999 Equity Incentive Plan
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement,
fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means Broadbase Software, Inc. or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The
Wall Street Journal;
(d) in the case of an Award made on the Effective Date, the price
per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's
11
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Broadbase Software, Inc.
1999 Equity Incentive Plan
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with the
SEC under the Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in good
faith.
"FAMILY MEMBER" includes any of the following:
(a) child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of the Participant, including any such person with
such relationship to the Participant by adoption;
(b) any person (other than a tenant or employee) sharing the
Participant's household;
(c) a trust in which the persons in (a) and (b) have more than fifty
percent of the beneficial interest;
(d) a foundation in which the persons in (a) and (b) or the
Participant control the management of assets; or
(e) any other entity in which the persons in (a) and (b) or the
Participant own more than fifty percent of the voting interest.
"INSIDER" means an officer or director of the Company or any
other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant
to Section 5.
"OUTSIDE DIRECTOR" means a member of the Board who is not an
employee of the Company or any Parent, Subsidiary or Affiliate of the Company.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this
Plan.
"PERFORMANCE FACTORS" means the factors selected by the
Committee from among the following measures to determine whether the performance
goals established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or
earnings before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total stockholder return and/or total stockholder return
growth;
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Broadbase Software, Inc.
1999 Equity Incentive Plan
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"PERFORMANCE PERIOD" means the period of service determined by
the Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this Broadbase Software, Inc. 1999 Equity Incentive
Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the
Award Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
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<PAGE> 14
NO.____________
BROADBASE SOFTWARE, INC.
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "AGREEMENT") is made and
entered into as of the Date of Grant set forth below (the "DATE OF GRANT") by
and between Broadbase Software, Inc., a Delaware corporation (the "COMPANY"),
and the Optionee named below ("OPTIONEE"). Capitalized terms not defined herein
shall have the meanings ascribed to them in the Company's 1999 Equity Incentive
Plan (the "PLAN").
OPTIONEE:
-------------------------------
SOCIAL SECURITY NUMBER:
-------------------------------
OPTIONEE'S ADDRESS:
-------------------------------
-------------------------------
TOTAL OPTION SHARES:
-------------------------------
EXERCISE PRICE PER SHARE:
-------------------------------
DATE OF GRANT:
-------------------------------
VESTING START DATE:
-------------------------------
EXPIRATION DATE:
-------------------------------
(unless earlier terminated
under Section 3 hereof)
TYPE OF STOCK OPTION
(CHECK ONE): [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
(this "OPTION") to purchase up to the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (collectively, the "SHARES")
at the Exercise Price Per Share set forth above (the "EXERCISE PRICE"), subject
to all of the terms and conditions of this Agreement and the Plan. If designated
as an Incentive Stock Option above, this Option is intended to qualify as an
"incentive stock option" ("ISO") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "CODE"), to the extent permitted
under Code Section 422.
2. VESTING; EXERCISE PERIOD.
2.1 Vesting of Shares. This Option shall be exercisable as it
vests. Subject to the terms and conditions of the Plan and this Agreement, this
Option shall vest and become exercisable as to portions of the Shares as
follows: (a) this Option shall not be exercisable with respect to any of the
Shares until _________________, 19___ (the "FIRST
<PAGE> 15
Stock Option Agreement
1999 Equity Incentive Plan
VESTING DATE"); (b) if Optionee has continuously provided services to the
Company, or any Parent or Subsidiary of the Company, then on the First Vesting
Date, this Option shall become exercisable as to twenty-five percent (25%) of
the Shares; and (c) thereafter this Option shall become exercisable as to an
additional 2.08333% of the Shares on each monthly anniversary of the First
Vesting Date, provided that Optionee has continuously provided services to the
Company, or any Parent or Subsidiary of the Company, at all times during the
relevant month. This Option shall cease to vest upon Optionee's Termination and
Optionee shall in no event be entitled under this Option to purchase a number of
shares of the Company's Common Stock greater than the "Total Option Shares."
2.2 Vesting of Options. Shares that are vested pursuant to the
schedule set forth in Section 2.1 hereof are "Vested Shares." Shares that are
not vested pursuant to the schedule set forth in Section 2.1 hereof are
"Unvested Shares."
2.3 Expiration. This Option shall expire on the Expiration Date
set forth above and must be exercised, if at all, on or before the earlier of
the Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3 hereof.
3. TERMINATION.
3.1 Termination for Any Reason Except Death, Disability or Cause.
If Optionee is Terminated for any reason except Optionee's death, Disability or
Cause, then this Option, to the extent (and only to the extent) that it is
vested in accordance with the schedule set forth in Section 2.1 hereof on the
Termination Date, may be exercised by Optionee no later than three (3) months
after the Termination Date, but in any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Optionee is
Terminated because of death or Disability of Optionee (or the Optionee dies
within three (3) months after Termination other than for Cause or because of
Disability), then this Option, to the extent that it is vested in accordance
with the schedule set forth in Section 2.1 hereof on the Termination Date, may
be exercised by Optionee (or Optionee's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date, but in
any event no later than the Expiration Date. Any exercise after three months
after the Termination Date when the Termination is for any reason other than
Optionee's death or disability, within the meaning of Code Section 22(e)(3),
shall be deemed to be the exercise of a nonqualified stock option.
3.3 Termination for Cause. If Optionee is Terminated for Cause,
this Option will expire on the Optionee's date of Termination.
3.4 No Obligation to Employ. Nothing in the Plan or this
Agreement shall confer on Optionee any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Optionee's employment or other relationship at any time,
with or without Cause.
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Stock Option Agreement
1999 Equity Incentive Plan
4. MANNER OF EXERCISE.
4.1 Stock Option Exercise Agreement. To exercise this Option,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed stock option exercise agreement in the form attached
hereto as Exhibit A, or in such other form as may be approved by the Company
from time to time (the "EXERCISE AGREEMENT"), which shall set forth, inter alia,
Optionee's election to exercise this Option, the number of shares being
purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Optionee's investment intent and access to
information as may be required by the Company to comply with applicable
securities laws. If someone other than Optionee exercises this Option, then such
person must submit documentation reasonably acceptable to the Company that such
person has the right to exercise this Option.
4.2 Limitations on Exercise. This Option may not be exercised
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. This Option may
not be exercised as to fewer than 100 Shares unless it is exercised as to all
Shares as to which this Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by full
payment of the Exercise Price for the Shares being purchased in cash (by check),
or where permitted by law:
(a) by surrender of shares of the Company's Common Stock that
either: (1) have been owned by Optionee for more than six (6)
months and have been paid for within the meaning of SEC Rule 144
(and, if such shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect to
such shares); or (2) were obtained by Optionee in the open
public market; and (3) are clear of all liens, claims,
encumbrances or security interests;
(b) provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from Optionee and a
broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD DEALER") whereby Optionee
irrevocably elects to exercise this Option and to sell a portion
of the Shares so purchased to pay for the Exercise Price and
whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the exercise price directly to the Company; or
(2) through a "margin" commitment from Optionee and an NASD
Dealer whereby Optionee irrevocably elects to exercise this
Option and to pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from the NASD Dealer
in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company;
(c) by any combination of the foregoing.
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Stock Option Agreement
1999 Equity Incentive Plan
4.4 Tax Withholding. Prior to the issuance of the Shares upon
exercise of this Option, Optionee must pay or provide for any applicable federal
or state withholding obligations of the Company. If the Committee permits,
Optionee may provide for payment of withholding taxes upon exercise of this
Option by requesting that the Company retain Shares with a Fair Market Value
equal to the minimum amount of taxes required to be withheld. In such case, the
Company shall issue the net number of Shares to the Optionee by deducting the
Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement and
payment are in form and substance satisfactory to counsel for the Company, the
Company shall issue the Shares registered in the name of Optionee, Optionee's
authorized assignee, or Optionee's legal representative, and shall deliver
certificates representing the Shares with the appropriate legends affixed
thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. To the extent this
Option is an ISO, if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (a) the date two (2)
years after the Date of Grant, and (b) the date one (1) year after transfer of
such Shares to Optionee upon exercise of this Option, then Optionee shall
immediately notify the Company in writing of such disposition.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this Option and
the issuance and transfer of Shares shall be subject to compliance by the
Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Optionee understands that the Company is under no obligation to
register or qualify the Shares with the SEC, any state securities commission or
any stock exchange to effect such compliance.
7. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner other than by will or by the laws of descent and distribution and may
be exercised during the lifetime of Optionee only by Optionee. The terms of this
Option shall be binding upon the executors, administrators, successors and
assigns of Optionee.
8. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
the Board adopted the Plan of some of the federal tax consequences of exercise
of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
8.1 Exercise of Incentive Stock Option. To the extent this Option
qualifies as an ISO, there will be no regular federal income tax liability upon
the exercise of this Option, although the excess, if any, of the fair market
value of the Shares on the date of exercise
4
<PAGE> 18
over the Exercise Price will be treated as a tax preference item for federal
income tax purposes and may subject the Optionee to the alternative minimum tax
in the year of exercise.
8.2 Exercise of Nonqualified Stock Option. To the extent this
Option does not qualify as an ISO, there may be a regular federal income tax
liability upon the exercise of this Option. 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. The Company may be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
8.3 Disposition of Shares. The following tax consequences may
apply upon disposition of the Shares.
a. Incentive Stock Options. If the Shares are held for
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an ISO and are disposed of more than two (2) years
after the Date of Grant, any gain realized on disposition of the Shares will be
treated as capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within the applicable one (1) year or two (2) year
period, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the excess, if any,
of the fair market value of the Shares on the date of exercise over the Exercise
Price.
b. Nonqualified Stock Options. If the Shares are held for
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an NQSO, any gain realized on disposition of the
Shares will be treated as long-term capital gain.
c. Withholding. The Company may be required to withhold
from Participant's compensation or collect from the Participant and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income.
9. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to Optionee.
10. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Optionee.
11. ENTIRE AGREEMENT. The Plan is incorporated herein by reference. This
Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior understandings and agreements with respect
to such subject matter.
12. NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Corporate Secretary of
5
<PAGE> 19
Stock Option Agreement
1999 Equity Incentive Plan
the Company at its principal corporate offices. Any notice required to be given
or delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated above or to such other address as such party may designate in
writing from time to time to the Company. All notices shall be deemed to have
been given or delivered upon: personal delivery; three (3) days after deposit in
the United States mail by certified or registered mail (return receipt
requested); one (1) business day after deposit with any return receipt express
courier (prepaid); or one (1) business day after transmission by facsimile.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Optionee and Optionee's heirs, executors, administrators, legal representatives,
successors and assigns.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California, without regard to
that body of law pertaining to choice of law or conflict of law.
15. ACCEPTANCE. Optionee hereby acknowledges receipt of a copy of the
Plan and this Agreement. Optionee has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Optionee acknowledges that there may
be adverse tax consequences upon exercise of this Option or disposition of the
Shares and that the Company has advised Optionee to consult a tax advisor prior
to such exercise or disposition.
6
<PAGE> 20
Stock Option Agreement
1999 Equity Incentive Plan
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in duplicate by its duly authorized representative and Optionee has executed
this Agreement in duplicate as of the Date of Grant.
BROADBASE SOFTWARE, INC. OPTIONEE
By:
------------------------------- -------------------------------
(Signature)
- ---------------------------------- -------------------------------
(Please print name) (Please print name)
- ----------------------------------
(Please print title)
7
<PAGE> 21
EXHIBIT A
STOCK OPTION EXERCISE AGREEMENT
<PAGE> 22
EXHIBIT A
BROADBASE SOFTWARE, INC.
1999 EQUITY INCENTIVE PLAN (THE "PLAN")
STOCK OPTION EXERCISE AGREEMENT
I hereby elect to purchase the number of shares of Common Stock of
BROADBASE SOFTWARE, INC. (the "Company") as set forth below:
<TABLE>
<S> <C>
Optionee Number of Shares Purchased:
------------------------------- ------------------------------
Social Security Number: Purchase Price per Share:
---------------- --------------------------------
Address: Aggregate Purchase Price:
------------------------------- --------------------------------
Date of Option Agreement:
------------------------------- --------------------------------
-------------------------------
Exact Name of Title to Shares:
Type of Option: [ ] Incentive Stock Option ---------------------------
[ ] Nonqualified Stock Option
---------------------------
</TABLE>
1. DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Option Agreement (the
"Option Agreement") as follows (check as applicable and complete):
[ ] in cash (by check) in the amount of $_____________________, receipt of
which is acknowledged by the Company;
[ ] by delivery of ______________________________ fully-paid, nonassessable
and vested shares of the Common Stock of the Company owned by Optionee
for at least six (6) months prior to the date hereof (and which have
been paid for within the meaning of SEC Rule 144), or obtained by
Optionee in the open public market, and owned free and clear of all
liens, claims, encumbrances or security interests, valued at the current
Fair Market Value of $____________________ per share;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein, in the amount of
$_______________________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount of
$_________________________________________.
2. MARKET STANDOFF AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX
CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES.
OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S)
OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE
SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
4. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan and the Option Agreement constitute
the entire agreement and understanding of the parties and supersede in their
entirety all prior understandings and agreements of the Company and Optionee
with respect to the subject matter hereof, and are governed by California law
except for that body of law pertaining to choice of law or conflict of law.
Date:
------------------------------- -------------------------------
SIGNATURE OF OPTIONEE
<PAGE> 23
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Stock Option Exercise
Agreement (the "Agreement") and that I know its contents. I hereby consent to
and approve all of the provisions of the Agreement, and agree that the shares of
the Common Stock of Broadbase Software, Inc. purchased thereunder (the "Shares")
and any interest I may have in such Shares are subject to all the provisions of
the Agreement. I will take no action at any time to hinder operation of the
Agreement on these Shares or any interest I may have in or to them.
Date:
- ------------------------------- -----------------------------
SIGNATURE OF OPTIONEE'S SPOUSE
- ----------------------------------
SPOUSE'S NAME - TYPED OR PRINTED
- ----------------------------------
OPTIONEE'S NAME - TYPED OR PRINTED
<PAGE> 1
EXHIBIT 10.04
BROADBASE SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
As Adopted July 2, 1999
As Amended August 19, 1999
1. ESTABLISHMENT OF PLAN. Broadbase Software, Inc. (the "COMPANY")
proposes to grant options for purchase of the Company's Common Stock to eligible
employees of the Company and its Participating Subsidiaries (as hereinafter
defined) pursuant to this Employee Stock Purchase Plan (this "PLAN"). For
purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" shall have the same
meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e)
and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the
"CODE"). "PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries
that the Board of Directors of the Company (the "BOARD") designates from time to
time as corporations that shall participate in this Plan. The Company intends
this Plan to qualify as an "employee stock purchase plan" under Section 423 of
the Code (including any amendments to or replacements of such Section), and this
Plan shall be so construed. Any term not expressly defined in this Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. A total of 500,000 shares of the Company's Common Stock is reserved for
issuance under this Plan. In addition, on each January 1, the aggregate number
of shares of the Company's Common Stock reserved for issuance under the Plan
shall be increased automatically by a number of shares equal to 1% of the total
number of outstanding shares of the Company Common Stock on the immediately
preceding December 31; provided that the aggregate number of shares issued over
the term of this Plan shall not exceed 5,000,000 shares. Such number shall be
subject to adjustments effected in accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board (the "COMMITTEE"). Subject to the provisions of this Plan
and the limitations of Section 423 of the Code or any successor provision in the
Code, all questions of interpretation or application of this Plan shall be
determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary (10) days before the beginning of such Offering Period, except that
employees who are employed on the Effective Date of the Registration Statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the
initial public offering of the Company's Common Stock shall be eligible to
participate in the first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or
less in a calendar year;
(d) employees who, together with any other person whose stock would
be attributed to such employee pursuant to Section 424(d) of the Code, own stock
or hold options to purchase stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any of its Participating Subsidiaries or who, as a result of being granted an
option under this Plan with respect to such Offering Period, would own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries; and
<PAGE> 2
Broadbase Software, Inc.
1999 Employee Stock Purchase Plan
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
purposes.
5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING
PERIOD") shall be of twenty-four (24) months duration commencing on January 1
and July 1 of each year and ending on December 31 and June 30 of each year;
provided, however, that notwithstanding the foregoing, the first such Offering
Period shall commence on the first business day on which price quotations for
the Company's Common Stock are available on the Nasdaq National Market (the
"FIRST OFFERING DATE") and shall end on June 30, 2001. Except for the first
Offering Period, each Offering Period shall consist of four (4) six month
purchase periods (individually, a "PURCHASE PERIOD") during which payroll
deductions of the participants are accumulated under this Plan. The first
Offering Period shall consist of no more than five and no fewer than three
Purchase Periods, any of which may be greater or less than six months as
determined by the Committee. The first business day of each Offering Period is
referred to as the "OFFERING DATE". The last business day of each Purchase
Period is referred to as the "PURCHASE DATE". The Committee shall have the power
to change the duration of Offering Periods with respect to offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company's treasury department (the "TREASURY Department") not
later than five (5) days before such Offering Date. Notwithstanding the
foregoing, the Committee may set a later time for filing the subscription
agreement authorizing payroll deductions for all eligible employees with respect
to a given Offering Period. An eligible employee who does not deliver a
subscription agreement to the Treasury Department by such date after becoming
eligible to participate in such Offering Period shall not participate in that
Offering Period or any subsequent Offering Period unless such employee enrolls
in this Plan by filing a subscription agreement with the Treasury Department not
later than five (5) days preceding a subsequent Offering Date. Once an employee
becomes a participant in an Offering Period, such employee will automatically
participate in the Offering Period commencing immediately following the last day
of the prior Offering Period unless the employee withdraws or is deemed to
withdraw from this Plan or terminates further participation in the Offering
Period as set forth in Section 11 below. Such participant is not required to
file any additional subscription agreement in order to continue participation in
this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date (but in no event less than the par value of a
share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the
fair market value of a share of the Company's Common Stock on the Purchase Date
(but in no event less than the par value of a share of the Company's Common
Stock), provided, however, that the number of shares of the Company's Common
Stock subject to any option granted pursuant to this Plan shall not exceed the
lesser of (x) the maximum number of shares set by the Committee pursuant to
Section 10(c) below with respect to the applicable Purchase Date, or (y) the
maximum number of shares which may be purchased pursuant to Section 10(b) below
with respect to the applicable Purchase Date. The fair market value of a share
of the Company's Common Stock shall be determined as provided in Section 8
below.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
2
<PAGE> 3
Broadbase Software, Inc.
1999 Employee Stock Purchase Plan
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of
any date, the value of a share of the Company's Common Stock determined as
follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported in The Wall Street
Journal;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the
date of determination on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted
on the Nasdaq National Market nor listed or admitted to
trading on a national securities exchange, the average of
the closing bid and asked prices on the date of
determination as reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Board in
good faith, which in the case of the First Offering Date
will be the price per share at which shares of the
Company's Common Stock are initially offered for sale to
the public by the Company's underwriters in the initial
public offering of the Company's Common Stock pursuant to a
registration statement filed with the SEC under the
Securities Act.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Offering Period. The deductions are made as a
percentage of the participant's compensation in one percent (1%) increments not
less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean all W-2 cash compensation,
including, but not limited to, base salary, wages, commissions, overtime, shift
premiums and bonuses, plus draws against commissions, provided, however, that
for purposes of determining a participant's compensation, any election by such
participant to reduce his or her regular cash remuneration under Sections 125 or
401(k) of the Code shall be treated as if the participant did not make such
election. Payroll deductions shall commence on the first payday of the Offering
Period and shall continue to the end of the Offering Period unless sooner
altered or terminated as provided in this Plan.
(b) A participant may increase or decrease the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Purchase Period. A participant may increase or decrease the
rate of payroll deductions for any subsequent Offering Period by filing with the
Treasury Department a new authorization for payroll deductions not later than
fifteen (15) days before the beginning of such Offering Period.
(c) A participant may reduce his or her payroll deduction percentage
to zero during an Offering Period by filing with the Treasury Department a
request for cessation of payroll deductions. Such reduction shall be effective
beginning with the next payroll period commencing more than fifteen (15) days
after the Treasury Department's receipt of the request and no further payroll
deductions will be made for the duration of the Offering Period. Payroll
deductions credited to the participant's account prior to the effective date of
the request shall be used to purchase shares of Common Stock of the Company in
accordance with Section (e) below. A participant may not resume making payroll
deductions during the Offering Period in which he or she reduced his or her
payroll deductions to zero.
3
<PAGE> 4
Broadbase Software, Inc.
1999 Employee Stock Purchase Plan
(d) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(e) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have no
interest or voting right in shares covered by his or her option until such
option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under this
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Not less
than thirty (30) days prior to the commencement of any Offering Period, the
Committee may, in its sole discretion, set a maximum number of shares which may
be purchased by any employee at any single Purchase Date (hereinafter the
"MAXIMUM SHARE AMOUNT"). Until otherwise determined by the Committee, there
shall be no Maximum Share Amount. In no event shall the Maximum Share Amount
exceed the amounts permitted under Section 10(b) above. If a new Maximum Share
Amount is set, then all participants must be notified of such Maximum Share
Amount prior to the commencement of the next Offering Period. The Maximum Share
Amount shall continue to apply with respect to all succeeding Purchase Dates and
Offering Periods unless revised by the Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Com-
4
<PAGE> 5
Broadbase Software, Inc.
1999 Employee Stock Purchase Plan
mittee shall determine to be equitable. In such event, the Company shall give
written notice of such reduction of the number of shares to be purchased under a
participant's option to each participant affected.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be elected
at any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current Offering
Period in which a participant is enrolled is higher than the Fair Market Value
on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Any
funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period, if any.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event, the
payroll deductions credited to the participant's account will be returned to him
or her or, in the case of his or her death, to his or her legal representative,
without interest. For purposes of this Section 12, an employee will not be
deemed to have terminated employment or failed to remain in the continuous
employ of the Company or of a Participating Subsidiary in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except as
expressly provided herein, no issue 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 thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
5
<PAGE> 6
Broadbase Software, Inc.
1999 Employee Stock Purchase Plan
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion in such instances, declare that this Plan
shall terminate as of a date fixed by the Committee and give each participant
the right to purchase shares under this Plan prior to such termination. In the
event of (i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (iii)
the sale of all or substantially all of the assets of the Company or (iv) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction, the Plan will continue with
regard to Offering Periods that commenced prior to the closing of the proposed
transaction and shares will be purchased based on the Fair Market Value of the
surviving corporation's stock on each Purchase Date, unless otherwise provided
by the Committee consistent with pooling of interests accounting treatment.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Committee
or the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
6
<PAGE> 7
Broadbase Software, Inc.
1999 Employee Stock Purchase Plan
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the First Offering Date (as defined above).
This Plan shall be approved by the stockholders of the Company, in any manner
permitted by applicable corporate law, within twelve (12) months before or after
the date this Plan is adopted by the Board. No purchase of shares pursuant to
this Plan shall occur prior to such stockholder approval. This Plan shall
continue until the earlier to occur of (a) termination of this Plan by the Board
(which termination may be effected by the Board at any time), (b) issuance of
all of the shares of Common Stock reserved for issuance under this Plan, or (c)
ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under this Plan in the event of such participant's death subsequent to the end
of an Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan; or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
Notwithstanding the foregoing, the Board may make such amendments to the
Plan as the Board determines to be advisable, if the continuation of the Plan or
any Offering Period would result in financial accounting treatment
7
<PAGE> 8
Broadbase Software, Inc.
1999 Employee Stock Purchase Plan
for the Plan that is different from the financial accounting treatment in effect
on the date this Plan is adopted by the Board.
8
<PAGE> 9
BROADBASE SOFTWARE, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT FORM
Check One: Complete:
[ ] New Enrollment or Re-enrollment Social Security No.
--------------
[ ] Change Employee No.
----------------------
[ ] Change in How Shares Are to Be Held in Account
[ ] Increase in Payroll Deduction Level [ ] this Purchase Period
[ ] next Offering Period
[ ] Decrease in Payroll Deduction Level [ ] this Purchase Period
[ ] next Offering Period
[ ] Suspension of Payroll Deductions for Open Offering Period (Attach
Completed Suspension Form)
[ ] Withdrawal (Attach Completed Withdrawal Form)
[ ] Beneficiary Change
1. Name of Participant
-----------------------------------------------------
2. Shares purchased under the Plan should be held in account with the Plan
Broker in my name or in my name together with the name(s) indicated
below:
Name Social Security No.
------------------------- --------------------
Name Social Security No.
------------------------- --------------------
There may be tax consequences for naming individuals other than your
spouse on the account in which Shares purchased under the Plan are held.
If spouse (circle one): Joint Tenants/Community Property.
PLEASE NOTIFY THE PLAN BROKER DIRECTLY TO TRANSFER OR SELL YOUR STOCK.
3. Payroll Deduction Level (from 2% to 10% in whole percentages):_________
(the percentage deduction will be made from your total cash compensation
paid by the Company including base salary, commissions, bonuses and
incentive compensation)
4. I confirm my spouse's interest (if married) in the community property
herein, and I hereby designate the following person(s) as my
beneficiary(ies) to receive all payments and/or stock attributable to my
interest under the Plan:
<TABLE>
<CAPTION>
NAME *To be divided ADDRESS
as follows:
<S> <C> <C>
------------------------------------ ---------------- -------------------------------
Last First M.I. Number Street
------------------------------------ -------------------------------
Social Security No. Relationship City State Zip
------------------------------------ ---------------- -------------------------------
Last First M.I. Number Street
------------------------------------ -------------------------------
Social Security No. Relationship City State Zip
</TABLE>
* If more than one beneficiary: (1) insert "in equal shares", or (2)
insert percentage to be paid to each beneficiary.
5. The information provided on this Enrollment Form will remain in effect
unless and until I complete and submit to the Company a new enrollment
form.
BROADBASE SOFTWARE, INC. OFFICE USE:
Signature: Date received by the Company:
--------- ---------------
Name: Date entered into system:
-------------- -------------------
Date: PLEASE RETURN THIS COMPLETED FORM TO THE COMPANY.
--------------
<PAGE> 10
BROADBASE SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
1. I elect to participate in the Broadbase Software, Inc. (the "COMPANY")
1999 Employee Stock Purchase Plan (the "PLAN") and to subscribe to
purchase shares of the Company's Common Stock (the "SHARES") in
accordance with this Subscription Agreement and the Plan.
2. I authorize payroll deductions from each of my paychecks in that
percentage of my base salary, commissions, bonuses and incentive
compensation as shown on my Enrollment Form, in accordance with the
Plan.
3. I understand that such payroll deductions shall be accumulated for the
purchase of Shares under the Plan at the applicable purchase price
determined in accordance with the Plan. I further understand that except
as otherwise set forth in the Plan, Shares will be purchased for me
automatically at the end of each Purchase Period unless I withdraw from
the Plan or otherwise become ineligible to participate in the Plan.
4. I understand that this Subscription Agreement will automatically
re-enroll me in all subsequent Offering Periods unless I withdraw from
the Plan or I become ineligible to participate in the Plan.
5. I acknowledge that I have a copy of and am familiar with the Company's
most recent Prospectus which describes the Plan. A copy of the complete
Plan and the Prospectus is on file with the Company. (In the case of the
initial Plan Purchase Period, the Prospectus will be on file on the
first day of the Offering Period.)
6. I understand that Shares purchased for me under the Plan will be held in
a personal account with the Plan Broker unless I request otherwise.
7. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
8. I have read and understood this Subscription Agreement.
Signature:
-------------------------------
Name:
------------------------------------
Date:
------------------------------------
PLEASE RETURN THIS COMPLETED FORM TO THE COMPANY.
<PAGE> 11
BROADBASE SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, _________________________, the undersigned participant in the
Offering Period of the Broadbase Software, Inc. 1999 Employee Stock Purchase
Plan (the "PLAN") which began on _______________, hereby notify Broadbase
Software, Inc. (the "COMPANY") that I wish to withdraw from the Offering Period.
I direct the Company to pay to me as promptly as practicable all payroll
deductions credited to my account with respect to such Offering Period. I
understand and agree that my participation in the Plan will terminate and no
shares will be purchased for me at the end of the Purchase Period so long as I
submit this Notice of Withdrawal to the Company at least 15 days prior to the
end of the Purchase Period. I understand and agree that if I submit this Notice
of Withdrawal to the Company less than 15 days prior to the end of the Purchase
Period, shares will be purchased for me at the end of the Purchase Period, and
my participation in the Plan will end at the beginning of the next Purchase
Period or Offering Period, as the case may be. I further understand that no
additional payroll deductions will be made for the purchase of shares in the
current Offering Period, and I shall be eligible to participate in succeeding
Offering Periods only by timely delivering to the Company a new Subscription
Agreement and Enrollment Form.
Name and address of Participant (please print):
Name:
----------------------------------------------------------------------
Street Address or P.O. Box:
------------------------------------------------
City, State ZIP:
-----------------------------------------------------------
- ------------------------------------- ------------------------------
Signature Date
PLEASE RETURN THIS FORM TO THE COMPANY.
<PAGE> 12
BROADBASE SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF SUSPENSION
I, _________________________, the undersigned participant in the
Offering Period of the Broadbase Software, Inc. 1999 Employee Stock Purchase
Plan (the "PLAN") which began on _______________, hereby notify Broadbase
Software, Inc. (the "COMPANY") that I wish to suspend my payroll deductions to
the Plan for the remainder of the Offering Period. I understand and agree that
my request will be effective beginning with the next payroll period commencing
more than 15 days after the Company receives this Notice of Suspension. I
understand and agree that payroll deductions credited to my account prior to the
date this Notice of Suspension is effective will be used to purchase shares on
the next Purchase Date. I further understand that no additional payroll
deductions will be made for the purchase of shares in the current Offering
Period, and I will be eligible to participate in succeeding Offering Periods
only by timely delivering to the Company a new Subscription Agreement and
Enrollment Form.
Name and address of Participant (please print):
Name:
----------------------------------------------------------------------
Street Address or P.O. Box:
------------------------------------------------
City, State ZIP:
-----------------------------------------------------------
- ------------------------------------- ------------------------------
Signature Date
PLEASE RETURN THIS FORM TO THE COMPANY.
<PAGE> 1
EXHIBIT 10.09
SEPARATION AGREEMENT
The Separation Agreement ("Agreement") is entered into effective April 14,
1999 ("Effective Date") between Broadbase Information Systems, Inc., a
California Corporation, its officers, directors, employees, agents, attorneys,
assignees, successors and predecessors (collectively, "Broadbase") and Bruce
Armstrong ("Employee").
WHEREAS, Employee has been employed by Broadbase, and both Employee and
Broadbase have agreed that Employee's employment shall terminate effective June
30, 1999 ("Termination Date"). Broadbase and Employee wish to sever their
relationship in a way that preserves the goodwill which exists between them.
NOW THEREFORE, for and in consideration of the payment by Broadbase to
Employee of the sums described in this Agreement, the parties agree as follows:
1. TERMINATION DATE: Employee's employment with Broadbase is terminated
effective June 30, 1999 (the "Termination Date"). This represents 75 days
notice, and shall include full health benefits, stock option vesting, vacation
accrual and target compensation for the notice period. The termination is not
intended to fall within the specific definition of Section 3.3 of your stock
option agreements.
2. VESTING OF SHARES. Employee currently holds option(s) to purchase shares
of Broadbase Common Stock. Employee's options will continue to vest through
June 30, 1999. Any options not vested by that date shall terminate. Employee
may exercise [his/her] vested options in accordance with the Broadbase 1996
Equity Incentive Plan ("Incentive Plan"); it being agreed that the Company
shall repurchase all shares previously purchased by Employee which are unvested
as of the Termination Date. As of June 30, 1999, the portion of the promissory
note relating to the vested shares from Employee's 11/25/96 grant shall be
forgiven (per Exhibit A to this Agreement, which also sets forth the total
number of vested shares either exercised or subject to exercise by Employee.
3. ACKNOWLEDGMENT OF PAYMENT OF WAGES. On the Termination Date, Broadbase
will deliver to Employee a final paycheck of all accrued wages, salary,
bonuses, reimbursable expenses, and accrued but unused vacation pay due and
owing to [his/her] from Broadbase as of the Termination Date.
4. PAYMENT. In addition, the parties agree that Employee will receive
compensation through June 30, 1999 as severance pay. This severance pay is in
addition to any amounts due Employee from Broadbase and is given as
consideration for the release set forth below. Broadbase will pay this to
Employee less all normal withholding and deductions.
5. NONSOLICITATION. Employee agrees that, during the period that begins on
his Termination Date and ends on June 30, 2000 (the "Restrictive Period"), he
will not: a) personally or through others, encourage, induce, attempt to
induce, solicit or attempt to solicit (on Employee's own behalf or on behalf of
any other person or entity) anyone who is employed at that time, or was
employed during the previous three months, by Broadbase, or any of Broadbase's
subsidiaries to leave his or her employment with Broadbase, or any of
Broadbase's subsidiaries; or b) personally or through others, interfere or
attempt to interfere with the relationship or prospective relationship of
Broadbase with any person or entity that is, was or is expected to become, a
customer or client of Broadbase or of any of Broadbase's subsidiaries.
6. COBRA COVERAGE. Employee has the option, at [his/her] own expense; to
extend the health insurance coverage currently provided by Broadbase for a
period of 18 months from the Termination Date pursuant to the terms and
conditions of COBRA. Employee has 60 days from the Termination Date to notify
Broadbase in writing of [his/her] election to so continue [his/her] continuation
coverage.
7. RETURN OF COMPANY PROPERTY. Employee hereby represents and warrants to
Broadbase that [he/she] has returned to Broadbase any and all of Broadbase's
property or data of any type whatsoever that was in [his/her] possession or
control.
8. CONFIDENTIAL INFORMATION. Employee hereby acknowledges that [he/she] is
bound by the attached Agreement dated November 1, 1996, that as a result of
[his/her] employment with Broadbase [he/she] has had access to the Confidential
Information (as defined in such agreement) of Broadbase, that [he/she] will
hold all such Confidential Information in strictest confidence and that
[he/she] may not make any use of such Confidential Information on behalf of any
third party. Employee further confirms that [he/she] has delivered to Broadbase
all documents and data of any nature containing or pertaining to such
<PAGE> 2
Confidential Information and that [he/she] has not taken with [him/her] any
such documents or data of any reproduction thereof.
9. REPRESENTATION REGARDING EXISTING CLAIMS. Employee hereby warrants that as
of the Effective Date of this Agreement, [he/she] has not filed any legal
action in any court naming Broadbase as a party.
10. WAIVER OF CLAIMS. The payments and agreements set forth in the Agreement
are in full satisfaction of any and all accrued salary, vacation pay, bonus
pay, profit-sharing, termination benefits or other compensation to which
Employee may be entitled by virtue of [his/her] employment with Broadbase or
[his/her] termination of employment. Employee hereby releases and waives any
and all claims [he/she] may have against Broadbase or any of their officers,
directors, employees, managers, shareholders, partners, agents, attorneys,
parent corporations, subsidiaries, successors, and assigns, including without
limitation claims for any additional compensation or benefits arising out of
the termination of [his/her] employment, any claims for any additional stock
or stock options and any claims of wrongful termination, breach of contract or
discrimination under state or federal law.
Employee hereby expressly waives any benefits of Section 1542 of the Civil
Code of the State of California, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
11. NONDISPARAGEMENT. Employee agrees that [he/she] will not disparage the
Company or its products, services, agents, representatives, directors,
officers, shareholders, attorneys, employees, vendors, affiliates, successors
or assigns, or any person acting by, through, under or in concert with any of
them, with any written or oral statement.
12. LEGAL AND EQUITABLE REMEDIES. Employee agrees that Broadbase shall have
the right to enforce this Agreement and any of its provisions by injunction,
specific performance or other equitable relief without prejudice to any other
rights or remedies Broadbase may have at law or in equity for breach of this
Agreement.
13. ATTORNEY'S FEES. If any action at law or in equity is brought to enforce
the terms of this Agreement, the prevailing party shall be entitled to recover
its reasonable attorney's fees, costs and expenses from the other party, in
addition to any other relief to which such prevailing party may be entitled.
14. CONFIDENTIALITY. The contents, terms and conditions of this Agreement
shall be kept confidential by Employee and shall not be disclosed except to
[his/her] attorneys or pursuant to subpoena or court order. Any breach of this
confidentiality provision shall be deemed a material breach of this Agreement.
15. NO ADMISSION OF LIABILITY. This Agreement is not and shall not be
construed or contended by you to be an admission or evidence of any wrongdoing
or liability on the part of Broadbase, its representatives, heirs, executors,
attorneys, agents, partners, officers, shareholders, directors, employees,
subsidiaries, affiliates, divisions, successors or assigns. This Agreement
shall be afforded the maximum protection allowable under California Evidence
Code Section 1152 and/or any other state or Federal provisions of similar
effect.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
Employee and Broadbase with respect to the subject matter hereof and supersedes
all prior negotiations and agreements, whether written or oral, relating to
such subject matter. Employee acknowledges that neither Broadbase nor its
agents or attorneys, have made any promise, representation or warranty
whatsoever, either expressed or implied, written or oral, which is not
contained in this Agreement for the purpose of inducing Employee to execute the
Agreement, and Employee acknowledges that [he/she] has executed this Agreement
in reliance only upon such promises, representations and warranties as are
contained herein.
17. MODIFICATION. It is expressly agreed that this Agreement may not be
altered, amended, modified, or otherwise changed in any respect except by
another written agreement that specifically refers to this Agreement, duly
executed by authorized representatives of each of the Parties hereto.
EMPLOYEE Broadbase Information Systems
By: BRUCE W ARMSTRONG By: CHUCK J. BAY
------------------------- -------------------------
Date: 6/23/99 Date: 6-23-99
----------------------- -----------------------
<PAGE> 3
BROADBASE NONSOLICITATION INSERT
Employee further agrees that, during the period that begins on his
Termination Date and ends on __________ (the "Restrictive Period"), he will not:
(a) personally or through others, encourage, induce, attempt to induce,
solicit or attempt to solicit (on Employee's own behalf or on behalf of any
other person or entity) any one who is employed at that time, or was employed
during the previous three months, by the Company, or any of the Company's
subsidiaries to leave his or her employment with the Company or any of the
Company's subsidiaries;
(b) personally or through others, interfere or attempt to interfere with
the relationship or prospective relationship of the Company with any person or
entity that is, was or is expected to become, a customer or client of the
Company or of any of the Company's subsidiaries.
<PAGE> 4
Exhibit A
<TABLE>
<S> <C> <C>
PERSONNEL OPTION STATUS BROADBASE INFORMATION SYSTEMS, INC. Page: 1
ID: 94-3177334 File: Oplstmt
173 Constitution Drive Date: 5/20/99
Menlo Park, CA 94025 Time: 8:59:05 AM
</TABLE>
AS OF 6/30/99
BRUCE W. ARMSTRONG ID: 16
3974 WASHINGTON STREET
SAN FRANCISCO, CA 94118
<TABLE>
<CAPTION>
====================================================================================================================================
OPTION
NUMBER DATE PLAN TYPE GRANTED PRICE EXERCISED VESTED CANCELLED UNVESTED OUTSTANDING EXERCISABLE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
000014 11/25/96 1996 ISO 337,500 $0.033300 337,500 217,969 0 119,531 0 -119,531
0000601 5/23/97 1996 ISO 67,500 $0.250000 0 35,156 0 32,344 67,500 35,156
------- ------- ------- ------ ------- -------- --------
405,000 337,500 253,125 0 151,875 67,500 -84,375
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
INFORMATION CURRENTLY ON FILE
- ------------------------------------------------------------------------------------------------------------------------------------
TAX RATE % BROKER REGISTRATION ALTERNATE ADDRESS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal 28.000
Social Security 6.200
Medicare 1.450
CA-State 0.000
</TABLE>
<PAGE> 1
Exhibit 23.02
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
March 5, 1999, in Amendment No. 2 to the Registration Statement (Form S-1 No.
333-82251) and related Prospectus of Broadbase Software, Inc. for the
registration of shares of its common stock.
Our audits also included the financial statement schedule of Broadbase
Software, Inc. listed in Item 16(b). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
San Jose, California
August 27, 1999
