<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1999
REGISTRATION NO. 333-82251
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
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 SEPTEMBER 20, 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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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................................ 15
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............................ 49
CERTAIN TRANSACTIONS.................. 58
PRINCIPAL STOCKHOLDERS................ 60
DESCRIPTION OF CAPITAL STOCK.......... 62
SHARES ELIGIBLE FOR FUTURE SALE....... 65
UNDERWRITING.......................... 67
LEGAL MATTERS......................... 70
EXPERTS............................... 70
WHERE YOU CAN FIND ADDITIONAL
INFORMATION......................... 71
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, which represent all end user
customers that have 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................ 17,336,939 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 August 31, 1999 and assumes
the conversion into common stock of all our preferred stock and convertible
debentures outstanding on that date. It excludes 2,330,460 shares subject to
outstanding options and warrants as of August 31, 1999 at a weighted-average
exercise price of $1.39 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
------------------- ------- -------- ------- --------
<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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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
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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 the Delaware reincorporation that was implemented in
September 1999; 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 reincorporated in Delaware as Broadbase Software,
Inc. in September 1999. Our address is 172 Constitution Drive, Menlo Park,
California 94025, and our telephone number is (650) 614-8300.
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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. On August 30, 1999 this matter
was settled and a license to the patent was obtained in exchange for the payment
to Timeline of $250,000 in cash and the issuance of 40,000 shares of Broadbase
common stock. 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 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. Litigation is subject to
inherent uncertainties and any of these results in connection with a lawsuit
could seriously harm our business. Furthermore, we could incur substantial costs
in defending against any intellectual property litigation, and these costs could
increase significantly if any dispute were to go to trial. Our defense of any
litigation, regardless of the merits of the complaint, will likely be
time-consuming, costly and a distraction for our management personnel. Publicity
related to any intellectual property 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.
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,
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<PAGE> 14
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 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.
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<PAGE> 15
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.
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
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<PAGE> 16
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-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.
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<PAGE> 17
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 54.4% 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.
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.
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<PAGE> 18
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 August
31, 1999, upon completion of this offering, we will have outstanding 17,336,939
shares of common stock, assuming no exercise of outstanding options or warrants
after August 31, 1999. Of these shares, the 4,000,000 shares sold in this
offering will be freely tradable, 10,581,058 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 with us or the
underwriters, and 2,755,881 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 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.
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.
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<PAGE> 19
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, which increased to 2,293,696 shares at a
weighted-average per share exercise price of $1.37 as of August 31, 1999;
- 572,443 shares of common stock available for future grant under our 1996
Equity Incentive Plan as of June 30, 1999, which decreased to 198,747
shares as of August 31, 1999;
- 3,500,000 shares of common stock to be initially available for future
grant under our 1999 Equity Incentive Plan, together with any shares
remaining available for grant as of the date of this prospectus under the
1996 Equity Incentive Plan;
- 500,000 shares of common stock to be initially available for issuance
under our 1999 Employee Stock Purchase Plan; and
- 40,000 shares of common stock issued in August 1999 in connection with
the settlement of litigation with, and obtaining a license from,
Timeline.
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 and excludes the 40,000 shares of
common stock issued in August 1999 in connection with the settlement of
litigation with, and obtaining a license from, Timeline. 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, which increased to 2,330,460 shares at a weighted-average per share
exercise price of $1.39 as of August 31, 1999. 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.
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. On August 30,
1999, this matter was settled and a license to the patent was obtained, in
exchange for the payment to Timeline of $250,000 in cash and the issuance of
40,000 shares of Broadbase common stock. A portion of the expense associated
with the settlement and the license will be recognized in the quarter ended
September 30, 1999 and the remainder will be amortized over a five year period.
Broadbase does not expect the settlement or the license to have a material
adverse effect on its financial condition or results of operations. See Note 9
of Notes to Financial Statements.
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.
23
<PAGE> 27
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.
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
24
<PAGE> 28
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 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
25
<PAGE> 29
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. 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
26
<PAGE> 30
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 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>
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<PAGE> 31
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.
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
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<PAGE> 32
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 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,
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<PAGE> 33
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 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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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, which represent all end user
customers that have licensed products or 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.
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.
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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.
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
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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 sources such as:
- Internet-based or e-commerce systems, including websites, e-mail and
online services;
- front-office customer relationship management applications including
sales, marketing and customer support systems;
- back-office enterprise resource planning applications including 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>
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<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."
Our Broadbase EPM applications provide analysis of a wide range of customer
trends and patterns. The analytic capabilities of each application are based on
the business logic that is used by a specific business function, such as
e-commerce, customer support, sales and marketing. In developing this logic, we
survey the major decision points faced by executives in the functional area and
in many cases retain industry consultants in the relevant fields to provide
further input on the analysis requirements of the business function. We believe
that we have gained significant internal expertise in the critical decision
processes of executives in these functional areas, and in the data and analysis
needed to support these decisions. The members of our research and development
organization who have developed this expertise identify the types of analysis
that can be effectively provided using our technology and that are needed by the
business function. We then develop and refine the models and calculations
necessary to provide this analysis. In addition, each application incorporates a
specific data model designed to support this analysis using data from multiple
alternative third party information systems. These data models are sets of
specifications and functions used by the applications to perform functions such
as eliminating the data that is not useful for the specific analysis and
transforming the data into uniform tables. We have developed a knowledge base
about the typical sources of data that can be used for the desired analysis and
draw on this knowledge base to design the data models used by our applications.
In addition to the standard analytic and data integration capabilities provided
by our applications, organizations can customize the business logic and data
models to support their specific and changing needs.
The following examples illustrate how our Broadbase EPM applications
integrate and analyze data:
Customer Service. One of the functions provided by the Customer Service
application is analysis of service costs. To analyze service costs, this
application accesses data from an organization's customer support systems,
including such case history data as the customer's name, the support
representatives that handled the case, the date and time the case was opened and
closed and, if available, entries of time spent on the case. In addition, the
application extracts data about the relevant support representatives'
compensation history from the organization's human resources system. The
Customer Service application then calculates the total time spent on each case
for each customer and the hourly cost of each representative involved in the
case. The application multiplies this cost by the total number of hours spent
supporting each customer case to determine the cost for each case. It then
aggregates the total costs for each case and sorts this aggregated data to
provide such information as the total cost to support an individual customer or
product, high or low support costs, costs by region, costs by support
representative, and trends by day, week or month. Our customers can customize
the application to provide additional functions or incorporate other data
sources. For example, the application can be customized to incorporate into the
calculation of the cost of each case information from the customer's financial
systems about the indirect and fixed costs of customer support, such as
administrative overhead and computer systems.
Sales. The process for making a sale often starts with the generation of a
lead by the marketing department. The sales department may not know the quality
of that lead, the cost to generate that lead, how that lead turns into a sale
and how many leads are needed in order to
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<PAGE> 44
attain a given revenue goal. To determine how many leads a company or division
needs to meet its sales goals, and how much they need to spend to generate those
leads, our Sales application performs lead analysis. Our Sales application
extracts lead source and company profile information from the organization's
marketing automation system. In addition, it extracts data such as lead
qualification and closure rates, historical transaction size information and
current sales goals from the organization's sales force automation system. The
application then uses this data to project the number of leads expected to be
required to meet the sales goal. It can perform further calculations using lead
generation cost data to create projected budgets to support this lead generation
process.
E-Commerce. Our E-Commerce application analyzes a number of types of data
about website content, user activity and online purchasing behavior. For
example, it uses information from a company's Internet infrastructure systems to
identify the registered visitors to the website who look at a specific piece of
content over a specific period. It then obtains data about product sales on a
customer to customer basis from the transaction database in the company's
e-commerce system. This data includes the type and amount of products purchased,
the date of the purchase and the amount paid. Our E-Commerce application then
correlates the two sets of data to identify and count the visitors who both
viewed the content and purchased the product, and calculates a "look-to-buy"
ratio - the percentage of people who viewed a product on the website that
actually purchased it. The application then develops a more detailed analysis
that uses data from the company's web logs to correlate actual visitor sessions
with purchases and to provide information about whether visitors purchased the
product immediately after viewing the content or in a later visit.
E-Personalize. Our E-Personalize application aggregates a range of website
data, including website usage patterns from web logs, user interest data
gathered from on-line surveys, and demographic data from the user registration
database or the third party demographic databases used by the customer. We are
developing analytic capabilities for this application that would then estimate
the likelihood that a website visitor would purchase specific products, by
aggregating historical usage patterns for groups of users and calculating the
percentage of times a product is purchased by each customer group. The group
with the highest ratio of product purchases would be identified as the most
likely to purchase a product. For example, if a retailer is interested in
determining the group that is most likely to purchase blue shirts, the
application would be able to determine that this group consisted of males over
the age of 30. It would then be able to create a rule that males over the age of
30 that visit the website should be shown blue shirts. The application would
then be able to input this rule into application systems such as Broadvision to
enable these systems to personalize the customer's experience.
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 relationship management 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;
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<PAGE> 45
- 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.
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.
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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. The following table represents all end
user customers as of July 31, 1999 to whom we had licensed products or sold
services totaling at least $50,000. 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
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<PAGE> 47
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.
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.
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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 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
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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 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."
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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 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."
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<PAGE> 51
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, 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. On August 30,
1999, this matter was settled and a license to the patent was obtained in
exchange for the payment to Timeline of $250,000 in cash and the issuance of
40,000 shares of Broadbase common stock.
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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.................... 44 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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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 Managing Member of the general partner of
Benchmark Capital Partners, 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, Red Hat Software, a developer
and provider of open source software and services, 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> 54
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. In the event of a change of control of 50%
or more of our outstanding stock, and if Mr. Levy is not being invited to serve
on the board of the combined company, then any unvested shares will vest
immediately.
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<PAGE> 55
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> 56
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
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<PAGE> 57
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
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<PAGE> 58
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> 59
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
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<PAGE> 60
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> 61
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. In
connection with the Series E preferred stock financing in June 1999, we entered
into an agreement with the investors in that financing that gave certain of the
investors rights to purchase, at the initial public offering price, shares of
the common stock offered in our initial public offering, subject to compliance
with applicable laws. No shares of our common stock will be sold pursuant to
this agreement to these investors in this offering, although some of these
investors may otherwise purchase shares in this offering. 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>
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<PAGE> 62
Our director Kevin Harvey is a Managing Member of the general partner of
Benchmark Capital Partners, and our director Nancy Schoendorf is a managing
partner of Mohr, Davidow Ventures.
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> 63
PRINCIPAL STOCKHOLDERS
The following table presents information as to the beneficial ownership of
our common stock as of August 31, 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 25.8% 19.9%
c/o Benchmark Capital
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Nancy Schoendorf(2).............................. 1,590,611 11.9 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 9.9 7.6
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 1.5
Paul Levy(8)..................................... 96,750 * *
All eight current directors and executive
officers as a group(9)......................... 7,273,603 54.5 41.5
</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 Managing Member of Benchmark Capital
Management Co., LLC, the general partner of Benchmark Capital Partners, L.P.
and Benchmark Founders' Fund, L.P. Mr. Harvey disclaims beneficial ownership
of shares held by Benchmark except to the extent of his pecuniary interest
arising from his interest in Benchmark Capital.
(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 August 31, 1999.
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<PAGE> 64
(4) Includes 70,000 shares held by the Mark Kremer 1999 Annuity Trust, of which
Mr. Kremer is trustee, and 70,000 shares held by the Anat Kremer 1999
Annuity Trust, of which Mr. Kremer and his wife are trustees. Does not
include 60,000 shares held by a trust for the benefit of Mr. Kremer's
children, of which neither he nor his wife are trustees. In addition, the
table includes 72,138 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 104,521 shares subject to a repurchase right that lapses at a rate
of 3,604 shares per month until January 2002, and 71,667 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 187,500 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. 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. Includes options to purchase 170,000 shares exercisable within sixty
(60) days of August 31, 1999.
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 13,336,939 shares outstanding
as of August 31, 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 August
31, 1999, and shares of preferred stock subject to debentures that are currently
convertible or convertible within 60 days of August 31, 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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<PAGE> 65
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
August 31, 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 13,336,939 shares of common stock held of record by
approximately 150 stockholders, and options to purchase 2,293,696 shares of
common stock and warrants to purchase 36,764 shares of common stock.
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> 66
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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<PAGE> 67
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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<PAGE> 68
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 17,336,939
shares of common stock based on shares outstanding at August 31, 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 13,336,939 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, 10,581,058 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 8,841,356 of these shares will
be subject to volume limitations. The remaining 2,755,881 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 173,369 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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<PAGE> 69
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 August 31, 1999, this registration statement would
cover approximately 6,492,443 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 August 31, 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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<PAGE> 70
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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<PAGE> 71
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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<PAGE> 72
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.
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 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.
69
<PAGE> 73
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.
70
<PAGE> 74
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.
Upon receipt of a request by an investor or his or her representative prior
to , 1999 (25 days after the date of this prospectus), we shall
transmit or cause to be transmitted promptly, without charge, a paper copy of
the prospectus.
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.
71
<PAGE> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 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)
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> 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)
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> 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)
(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> 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)
<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> 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'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> 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)
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> 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)
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> 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)
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> 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)
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> 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)
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> 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)
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> 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)
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> 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)
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> 95
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 alleged that the Company directly and
indirectly infringed 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 alleged that the Company induced
infringement of the Timeline patent claims. Timeline requested permanent
injunctions prohibiting the Company from directly or indirectly infringing the
Timeline patent, and sought damages, exemplary damages, costs and attorneys'
fees. Timeline further disclosed to the Company patent claims of a related
pending patent application that Timeline expected to be issued and to be added
to its claims. Based on the Company's preliminary investigation of this matter,
it did not believe its products infringed any valid claims of the Timeline
patent or of the pending patent application, and that it had other meritorious
defenses to all claims made by Timeline. However, rather than pursue a course of
protracted litigation, the Company, on August 30, 1999, settled this matter by
paying Timeline $250,000 and issuing Timeline 40,000 shares of its common stock
for a license to all of Timeline's patents and pending patent applications and a
release of any claims of past infringement by its products of any of Timeline's
patents and pending patent applications. The cost of the license is being
amortized by the Company over its estimated useful life of five years. All of
Timeline's claims against the Company have been dismissed.
F-21
<PAGE> 96
[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> 97
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 "These customers represent
all end user customers to whom we had licensed products and sold services
totalling at least $50,000 as of July 31, 1999." 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 "Sources of Data." 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, "Customer Service," "Sales,"
"E-Marketing," "E-Commerce," "E-Personalize" and "E-Procurement (anticipated).
To the left of the cylinder labelled "Customer Service" are the words "Broadbase
EPM Applications."
<PAGE> 98
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................................ 15
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............................ 49
Certain Transactions.................. 58
Principal Stockholders................ 60
Description of Capital Stock.......... 62
Shares Eligible for Future Sale....... 65
Underwriting.......................... 67
Legal Matters......................... 70
Experts............................... 70
Where You Can Find Additional
Information......................... 71
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> 99
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> 100
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> 101
<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
1 employee........... 07/05/99 common stock 2,875 1,318 Cash
2 employees.......... 07/13/99 common stock 4,844 2,692 Cash
2 consultants........ 07/15/99 common stock 12,000 54,720 Services
1 employee........... 07/19/99 common stock 2,230 678 Cash
1 employee........... 07/27/99 common stock 15,000 68,400 Cash
1 consultant......... 07/27/99 common stock 2,500 11,400 Services
1 employee........... 08/04/99 common stock 2,573 2,157 Cash
1 employee........... 08/05/99 common stock 495 154 Cash
1 employee........... 08/06/99 common stock 3,332 2,132 Cash
4 consultants........ 08/11/99 common stock 2,100 5,195 Services
</TABLE>
II-3
<PAGE> 102
<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........ 08/13/99 common stock 1,200 5,472 Services
1 employee........... 08/13/99 common stock 10,000 7,300 Cash
1 consultant......... 08/24/99 common stock 25,000 114,000 Services
5 consultants........ 08/26/99 common stock 6,100 27,816 Services
1 employee........... 08/26/99 common stock 3,000 1,650 Cash
Timeline............. 08/31/99 common stock 40,000 (5) (6)
</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
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.
(5) See "Form of consideration."
(6) Stock was issued in connection with the execution of a license agreement and
settlement of pending litigation.
II-4
<PAGE> 103
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 filed with the
Secretary of State of Delaware on September 10, 1999.
3.04 Certificate of Amendment of Certificate of Incorporation.
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.
(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> 104
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> 105
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 17th day of September, 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 September 17, 1999
- ------------------------------------------------ Directors, President and
Mark Kremer Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER:
/s/ CHUCK BAY Chief Financial Officer, September 17, 1999
- ------------------------------------------------ General Counsel,
Chuck Bay Executive Vice President
of Operations and
Corporate Secretary
ADDITIONAL DIRECTORS:
* Director September 17, 1999
- ------------------------------------------------
Kevin Harvey
* Director September 17, 1999
- ------------------------------------------------
Paul Levy
* Director September 17, 1999
- ------------------------------------------------
Nancy Schoendorf
*By: /s/ CHUCK BAY
--------------------------------------
Chuck Bay
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 106
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 $-- $50,000
</TABLE>
S-1
<PAGE> 107
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C>
1.01 Form of Underwriting Agreement.
3.01 Registrant's Certificate of Incorporation.*
3.02 Registrant's Bylaws.*
3.03 Registrant's Certificate of Designation filed with the
Secretary of State of Delaware on September 10, 1999.
3.04 Certificate of Amendment of Certificate of Incorporation.
4.01 Form of Specimen Certificate for Registrant's common stock.*
4.02 Amended and Restated Investors' Rights Agreement, dated June
30, 1999.*
4.03 Series E Rights Agreement, dated June 30, 1999.*
5.01 Opinion of Fenwick & West LLP regarding legality of the
securities being registered.
10.01 Form of Indemnity Agreement between Registrant and each of
its directors and executive officers.*
10.02 1996 Equity Incentive Plan and related forms of agreement.*
10.03 1999 Equity Incentive Plan and related forms of agreement.*
10.04 1999 Employee Stock Purchase Plan and related forms of
agreement.*
10.05 Sublease between SaRonix and Registrant dated June 1, 1998.*
10.06 Offer letter for Brian Kelly dated November 10, 1998.*
10.07 Offer letter for Thomas Doyle dated April 12, 1999.*
10.08 Offer letter for Chuck Bay dated January 18, 1998.*
10.09 Separation Agreement between Registrant and Bruce Armstrong
dated April 14, 1999.*
10.10 Broadbase Partner Agreement between Registrant and Indus
International, Inc. dated June 2, 1998, as amended.
10.11 Offer Letter for Anil Gupta dated August 3, 1999.*
21.01 List of subsidiaries.*
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Ernst & Young LLP, Independent Auditors.
24.01 Power of Attorney.*
27.01 Financial Data Schedule.*
</TABLE>
- ------------------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.01
4,000,000 Shares
Broadbase Software, Inc.
Common Stock
($.001 Par Value)
UNDERWRITING AGREEMENT
September __, 1999
Deutsche Bank Securities Inc.
Dain Rauscher Wessels
Thomas Weisel Partners LLC
E*OFFERING Corp.
As Representatives of the
Several Underwriters
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Broadbase Software, Inc., a Delaware corporation (the "Company"), proposes
to sell to the several underwriters (the "Underwriters") named in Schedule I
hereto for whom you are acting as representatives (the "Representatives") an
aggregate of 4,000,000 shares of the Company's Common Stock, $.001 par value
(the "Firm Shares"). The respective amounts of the Firm Shares to be so
purchased by the several Underwriters are set forth opposite their names in
Schedule I hereto. The Company also proposes to sell at the Underwriters' option
an aggregate of up to 600,000 additional shares of the Company's Common Stock
(the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters.
1
<PAGE> 2
The Firm Shares and the Option Shares (to the extent the aforementioned option
is exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as
follows:
(a) A registration statement on Form S-1 (File No. 333-82251) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means the form of prospectus first filed
with the Commission pursuant to Rule 424(b) and shall be deemed to include the
"electronic Prospectus" provided for use in connection with the offering of the
Shares as contemplated by Section 4(e) of this Agreement. Each preliminary
prospectus included in the Registration Statement prior to the time it becomes
effective is herein referred to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The reincorporation of the
Company from a California corporation into a Delaware corporation was duly and
properly effectuated as a merger (the "Merger") in accordance with the Delaware
and California corporation laws, the Company succeeded to all rights, privileges
and obligations of the predecessor company, and the offer and sale of the
securities issued in connection with the Merger were in compliance with the
applicable federal and state securities laws. The Company is duly qualified to
transact business in all jurisdictions in which the conduct of its business
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the business of the Subsidiaries
individually or taken as a whole. Each of the subsidiaries of the Company as
listed in Exhibit 21 to Item 16(a) of the Registration Statement (collectively,
the "Subsidiaries") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration
2
<PAGE> 3
Statement. The Subsidiaries are the only subsidiaries, direct or indirect, of
the Company. Each of the Subsidiaries are duly qualified to transact business in
all jurisdictions in which the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business of the Subsidiaries individually or
taken as a whole. The outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable and are owned by the Company or another Subsidiary free and clear
of all liens, encumbrances and equities and claims, except for security
interests held by Lighthouse Capital Partners and Silicon Valley Bank; and no
options, warrants or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into shares of capital stock
or ownership interests in the Subsidiaries are outstanding. Except for Broadbase
Software K.K., none of the Subsidiaries is a "Significant Subsidiary" under
Regulation S-X promulgated by the Commission.
(c) The outstanding shares of the Company's Common Stock and
Preferred Stock have been duly authorized and validly issued and are fully paid
and non-assessable; the Common Stock to be issued upon conversion of the
Preferred Stock immediately prior to the closing of the offering of the Shares
have been duly authorized and when issued will be validly issued, fully paid and
non-assessable; the Shares to be issued and sold by the Company have been duly
authorized and when issued and paid for as contemplated herein will be validly
issued, fully paid and non-assessable; and, except as set forth in the
Prospectus, no preemptive rights of stockholders exist with respect to any of
the Shares or the issue and sale thereof other than the preemptive rights
granted to certain Series E Preferred Stockholders. Except as provided in the
Prospectus, neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock.
(d) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct as of the date thereof and under the stated
assumptions. All of the Shares conform to the description thereof contained in
the Registration Statement. The form of certificates for the Shares conforms to
the corporate law of the jurisdiction of the Company's incorporation.
(e) All agreements granting an option or right to purchase or
otherwise acquire Common Stock of the Company, including warrants and any other
security convertible into or exchangeable for Common Stock, and all agreements
pursuant to which any current stockholder has agreed to purchase Common Stock of
the Company, contain provisions prohibiting the sale, pledge, grant, transfer or
other disposition of such security for a period of 180 days after the effective
date of the Registration Statement.
(f) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will
3
<PAGE> 4
conform to, the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.
(g) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the results of
operations and cash flows of the Company and the consolidated Subsidiaries, at
the indicated dates and for the indicated periods. Such financial statements and
related schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods involved,
except as disclosed therein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data included in the Registration Statement presents fairly the
information shown therein and such financial data has been compiled on a basis
consistent with the financial statements presented therein and the books and
records of the Company.
(h) Ernst & Young LLP, who have certified certain of the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(i) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency or otherwise which if
determined adversely to the Company or any of its Subsidiaries might result in
any material adverse change in the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and of the Subsidiaries taken as a whole or to prevent the
consummation of the transactions contemplated hereby, except as set forth in the
Registration Statement.
(j) The Company and the Subsidiaries have good and marketable title
to all of the properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those reflected
in such financial statements (or as described in the Registration Statement) or
which are not material in amount. The Company and the Subsidiaries occupy their
leased properties under valid and binding leases. The Company's assets are
adequate for the conduct of the Company's business as described in the
Registration Statement.
4
<PAGE> 5
(k) The Company and the Subsidiaries have filed all Federal, State,
local and foreign tax returns which have been required to be filed and have paid
all taxes indicated by said returns and all assessments received by them or any
of them to the extent that such taxes have become due. All tax liabilities have
been adequately provided for in the financial statements of the Company, and the
Company does not know of any actual or proposed additional material tax
assessments.
(l) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise), or
prospects of the Company and its Subsidiaries taken as a whole, whether or not
occurring in the ordinary course of business, and there has not been any
material transaction entered into or any material transaction that is probable
of being entered into by the Company or the Subsidiaries, other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or supplemented.
The Company and the Subsidiaries have no material contingent obligations which
are not disclosed in the Company's financial statements which are included in
the Registration Statement.
(m) Neither the Company nor any of the Subsidiaries is or with the
giving of notice or lapse of time or both, will be, in violation of or in
default under its Charter or Bylaws or under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by which
it, or any of its properties, is bound and which default is of material
significance in respect of the condition, financial or otherwise of the Company
and its Subsidiaries taken as a whole or the business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and the Subsidiaries taken as a whole. The execution and delivery of
this Agreement and the consummation of the transactions herein contemplated and
the fulfillment of the terms hereof will not conflict with or result in a breach
of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party, or of the Charter or Bylaws of the Company
or any order, rule or regulation applicable to the Company or any Subsidiary of
any court or of any regulatory body or administrative agency or other
governmental body having jurisdiction.
(n) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state or foreign securities or Blue Sky laws) has been
obtained or made and is in full force and effect.
5
<PAGE> 6
(o) The Company and each of the Subsidiaries hold all material
licenses, certificates and permits from governmental authorities which are
necessary to the conduct of their businesses; the Company and the Subsidiaries
each own or possess the right to use all patents, patent rights, trademarks,
trade names, service marks, service names, copyrights, license rights, know-how
(including trade secrets and other unpatented and unpatentable proprietary or
confidential information, systems or procedures) and other intellectual property
rights ("Intellectual Property") necessary to carry on its business except where
the failure to possess such rights would not have a material adverse effect on
the Company; neither the Company nor any of the Subsidiaries has infringed, and
none of the Company or the Subsidiaries have received notice of conflict with,
any Intellectual Property. The Company has taken all reasonable steps necessary
to secure interests in such Intellectual Property from its contractors. There
are no outstanding options, licenses or agreements of any kind relating to the
Intellectual Property of the Company that are required to be described in the
Prospectus and are not described in all material respects. Except as set forth
in the Prospectus, the Company is not a party to or bound by any options,
licenses or agreements with respect to the Intellectual Property of any other
person or entity that are required to be set forth in the Prospectus. None of
the technology employed by the Company has been obtained or is being used by the
Company in violation of any contractual obligation binding on the Company or, to
the Company's knowledge, any of its officers, directors or employees or
otherwise in violation of the rights of any persons; except as described in the
Prospectus, the Company has not received any written or oral communications
alleging that the Company has violated, infringed or conflicted with, or, by
conducting its business as set forth in the Prospectus, would violate, infringe
or conflict with, any of the Intellectual Property of any other person or
entity. The Company knows of no material infringement by others of Intellectual
Property owned by or licensed to the Company.
(p) Neither the Company, nor to the Company's knowledge, any of its
affiliates, has taken or may take, directly or indirectly, any action designed
to cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the Shares. The
Company acknowledges that the Underwriters may engage in passive market making
transactions in the Shares on the Nasdaq National Market in accordance with
Regulation M under the Exchange Act.
(q) Neither the Company nor any Subsidiary is an "investment company"
within the meaning of such term under the Investment Company Act of 1940, (as
amended, the "1940 Act") and the rules and regulations of the Commission
thereunder.
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with
6
<PAGE> 7
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(s) The Company and each of its Subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(t) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(u) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater securityholders, except as set forth in the
Registration Statement.
(v) The execution and delivery of the Agreement and Plan of Merger
dated as of September 10, 1999 (the "Merger Agreement") between Broadbase
Information Systems, Inc., a California corporation ("BroadBase California"),
and the Company effecting the reincorporation of BroadBase California under the
laws of the State of Delaware, was duly authorized by all necessary corporate
action on the part of each of BroadBase California and the Company. Each of
BroadBase California and the Company had all corporate power and authority to
execute and deliver the Merger Agreement, to file the Merger Agreement with the
Secretary of State of California and the Secretary of State of Delaware and to
consummate the reincorporation contemplated by the Merger Agreement, and the
Merger Agreement at the time of execution and filing constituted a valid and
binding obligation of each of BroadBase California and the Company.
(w) No material labor dispute with employees of the Company exists or
to the knowledge of the Company is threatened and the Company is not aware of
any existing, threatened or imminent labor disturbance by the employees of any
of its principal suppliers, manufacturers or contractors that could reasonably
be expected to result in any material adverse change in the condition, financial
or otherwise of the Company or the business, management, properties, assets,
rights, operations or prospects of the Company.
7
<PAGE> 8
(x) No relationship, direct or indirect, exists between or among the
Company or the Subsidiaries, on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or the Subsidiaries, on the
other hand, which is required to be described in the Registration Statement or
the Prospectus that is not so described.
(y) Neither the Company nor the Subsidiaries, nor, to the best of the
Company's knowledge, any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or the Subsidiaries, has used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provisions of the Foreign
Corrupt Practices Act of 1972; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
(z) The Company has not been advised, and has no reason to believe,
that it and each of its Subsidiaries are not conducting business in compliance
with all applicable laws, rules and regulations of the jurisdictions in which it
is conducting business, except where failure to be so in compliance would not
materially adversely affect the earnings, business, management, properties,
assets, rights, operations or prospects of the Company and the Subsidiaries,
taken as a whole.
(aa) The business, operations and facilities of the Company and the
Subsidiaries have been and are being conducted in compliance with all applicable
laws, ordinances, rules, regulations, licenses, permits, approvals, plans,
authorizations or requirements relating to occupational safety and health,
pollution, protection of health or the environment (including, without
limitation, those relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or hazardous or toxic substances, materials
or wastes into ambient air, surface water, groundwater or land, or relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemical substances, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, whether solid, gaseous or
liquid in nature) or otherwise relating to remediating real property in which
the Company or the Subsidiaries have any interest, whether owned or leased, of
any governmental department, commission, board, bureau, agency or
instrumentality of the United States, any state or political subdivision thereof
and all applicable judicial or administrative agency or regulatory decrees,
awards, judgments and orders relating thereto, except for such failures to so
comply as would not, individually or in the aggregate, have a material adverse
affect on the Company's and the Subsidiaries' earnings, business, management,
properties, assets, rights, operations or prospects, taken as a whole; and
neither the Company nor either of the Subsidiaries has received any notice from
a governmental instrumentality or any third party alleging any violation thereof
or liability thereunder (including, without limitation, liability for costs of
investigating or remediating sites containing hazardous substances or damage to
natural resources), except for such violations or liabilities which would not,
individually or in the aggregate, have a material adverse affect on the
Company's and the Subsidiaries' earnings, business, management, properties,
assets, rights, operations or prospects, taken as a whole.
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(bb) Year 2000 Preparation. The Company has reviewed its operations
and that of its Subsidiaries to evaluate the extent to which the business or
operations of the Company or any of its Subsidiaries will be affected by the
Year 2000 Problem. As a result of such review, the Company has no reason to
believe, and does not believe, that the Year 2000 problem will have a material
adverse effect on the financial position, stockholders' equity or results of
operations of the Company and its Subsidiaries or result in any material loss or
interference with the Company's business or operations, except as described in
the Prospectus. The "Year 2000 Problem" as used herein means any significant
risk that computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems of
any kind will not, in the case of dates or time periods occurring after December
31, 1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ per share, the number of Firm
Shares set forth opposite the name of each Underwriter in Schedule I hereof,
subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in
New York Clearing House funds by Federal (same day) against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made through the facilities of
the Depository Trust Company, New York, New York at 10:00 a.m., New York time,
on the third business day after the date of this Agreement or at such other time
and date not later than five business days thereafter as you and the Company
shall agree upon, such time and date being herein referred to as the "Closing
Date." (As used herein, "business day" means a day on which the New York Stock
Exchange is open for trading and on which banks in New York are open for
business and are not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and in
such registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one business day prior to the
Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the
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Company setting forth the number of Option Shares as to which the several
Underwriters are exercising the option, the names and denominations in which the
Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which certificates for
Option Shares are to be delivered shall be determined by the Representatives but
shall not be earlier than three nor later than 10 full business days after the
exercise of such option, nor in any event prior to the Closing Date (such time
and date being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is three or more days before the Closing Date, the notice
of exercise shall set the Closing Date as the Option Closing Date. The number of
Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears to 4,000,000, adjusted by
you in such manner as to avoid fractional shares. The option with respect to the
Option Shares granted hereunder may be exercised only to cover over-allotments
in the sale of the Firm Shares by the Underwriters. You, as Representatives of
the several Underwriters, may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Company. To the
extent, if any, that the option is exercised, payment for the Option Shares
shall be made on the Option Closing Date in Federal (same day funds) through the
facilities of the Depository Trust Company in New York, New York drawn to the
order of the Company.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations and (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with
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a copy or to which the Representatives shall have reasonably objected in writing
or which is not in compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (i) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (ii) of receipt of any comments from the Commission, (iii) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested).
(e) The Company shall cause to be prepared and delivered, at its
expense, within one business day from the effective date of this Agreement, to
you an "electronic Prospectus" to be used by the Underwriters in connection with
the offering and sale of the Shares. As used herein, the term "electronic
Prospectus" means a form of Prospectus, and any amendment or supplement thereto
prepared and delivered to you by the Company, that meets each of the following
conditions: (i) it shall be encoded in an electronic format, satisfactory to
you, that may be transmitted electronically by you and the other Underwriters to
offerees and purchasers of the Shares for at least during the period when the
Prospectus is required to be delivered under the Act or the Exchange Act ("the
Prospectus Delivery Period"); (ii) it shall disclose the same information as the
paper Prospectus and Prospectus filed pursuant to EDGAR, except to the extent
that graphic
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and image material cannot be disseminated electronically, in which case such
graphic and image material shall be replaced in the electronic Prospectus with a
fair and accurate narrative description or tabular representation of such
material, as appropriate; and (iii) it shall be in or convertible into a paper
format or an electronic format, satisfactory to you, that will allow investors
to store and have continuously ready access to the Prospectus at any future
time, without charge to investors (other than any fee charged for subscription
to the system as a whole and for on-line time). Such electronic Prospectus may
consist of a Rule 434 preliminary prospectus, together with the applicable term
sheet, provided that it otherwise satisfies the format and conditions described
in the immediately preceding sentence. The Company hereby confirms that it has
included or will include in the Prospectus filed pursuant to EDGAR or otherwise
with the Commission and in the Registration Statement at the time it was
declared effective an undertaking that, upon receipt of a request by an investor
or his or her representative within the Prospectus Delivery Period, the Company
shall transmit or cause to be transmitted promptly, without charge, a paper copy
of the Prospectus.
(f) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(g) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(h) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
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(i) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of Deutsche Bank Securities Inc.,
except (i) the Company's issuance of Common Stock upon the exercise of warrants
and stock options that are presently outstanding and described as such in the
Prospectus, or any other issuance of options of Common Stock hereafter under the
option or equity incentive plans described in the Prospectus, provided that no
such issuance of Common Stock results from any acceleration of vesting of any
such security, and (ii) the Company's issuance of Common Stock under the
employee stock purchase plan described in the Prospectus.
(j) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the Nasdaq National Market.
(k) The Company will cause each officer and director of the Company
and each beneficial owner of any shares of Common Stock, including, shares of
Common Stock of the Company which may be deemed to be beneficially owned on the
date hereof in accordance with the rules and regulations of the Commission,
shares of Common Stock which may be issued upon exercise of a stock option or
warrant, and any other security convertible into or exchangeable for Common
Stock, to furnish to you, on or prior to the date of this agreement, a letter or
letters, in form and substance satisfactory to the Underwriters, pursuant to
which each such person shall agree not to offer, sell, sell short or otherwise
dispose of any shares of Common Stock of the Company or other capital stock of
the Company, or any other securities convertible, exchangeable or exercisable
for Common Shares or derivative of Common Shares owned by such person or request
the registration for the offer or sale of any of the foregoing (or as to which
such person has the right to direct the disposition of) for a period of 180 days
after the date of this Agreement, directly or indirectly, except with the prior
written consent of Deutsche Bank Securities Inc. ("Lockup Agreements").
(l) The Company shall enforce the provisions referenced in Section
1(e) hereof prohibiting the sale, pledge, grant, transfer or other disposition
of the Company's securities for a period of 180 days after the effective date of
the Registration Statement, unless Deutsche Bank Securities Inc. has given prior
written consent authorizing such sale, pledge, grant, transfer or other
disposition of the Company's securities.
(m) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(n) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or any of the Subsidiaries to register as an investment
company under the 1940 Act.
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(o) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(p) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of printing and delivering to, or as requested by, the Underwriters copies of
the Registration Statement, Preliminary Prospectuses, the Prospectus, the
electronic Prospectus, this Agreement, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey
and any supplements or amendments thereto; the filing fees of the Commission;
the filing fees and expenses (including legal fees and disbursements) incident
to securing any required review by the National Association of Securities
Dealers, Inc. (the "NASD") of the terms of the sale of the Shares; the Listing
Fee of the Nasdaq National Market; and the expenses, including the fees and
disbursements of counsel for the Underwriters, incurred in connection with the
qualification of the Shares under State securities or Blue Sky laws. The Company
agrees to pay all costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, incident to the offer and sale of
directed shares of the Common Stock by the Underwriters to employees and persons
having business relationships with the Company and its Subsidiaries. The Company
shall not, however, be required to pay for any of the Underwriters expenses
(other than those related to qualification under NASD regulation and State
securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
11 hereof, or by reason of any failure, refusal or inability on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement or
to comply with any of the terms hereof on its part to be performed, unless such
failure to satisfy said condition or to comply with said terms be due to the
default or omission of any Underwriter, then the Company shall reimburse the
several Underwriters for reasonable out-of-pocket expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; but the Company shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares.
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6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
contained herein, and to the performance by the Company of its covenants and
obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinions of Fenwick & West LLP,
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement; the Company is
duly qualified to transact business in all jurisdictions in which the conduct of
its business requires such qualification, or in which the failure to qualify
would not have a materially adverse effect upon the business of the Company.
(ii) The Merger Agreement by and between the Company and
BroadBase California has been duly authorized by all necessary board of
directors, stockholder and shareholder action on the part of the Company and
BroadBase California and has been duly executed and delivered by each of the
parties thereto. The execution and delivery of the Merger Agreement and the
consummation of the Merger contemplated thereby, did not contravene any
provision of applicable law or the certificate of incorporation or bylaws of the
Company or the articles of incorporation or bylaws of BroadBase California or
any judgment or decree of any governmental body, agency or court having
jurisdiction over the Company or BroadBase California that is known to such
counsel, and no consent, approval, authorization or order of qualification with
any governmental body or agency was required for the performance by the Company
and BroadBase California of their obligations under the Merger Agreement except
such as were obtained and except such consent, approval, authorization, order or
qualification, which if not obtained, would not have a material adverse effect
on the condition (financial or otherwise), business or results of operations of
the Company. The Merger is effective under the laws of the
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<PAGE> 16
State of California and the State of Delaware. The Company succeeded to all
rights, privileges and obligations of BroadBase California, and the offer and
sale of the securities issued in connection with the Merger were in compliance
with the applicable federal and California securities laws. Neither the Merger
Agreement between the Company and BroadBase California, nor the Merger and
exchange of shares consummated in connection therewith (i) contravened,
conflicted with or resulted in a violation or breach of, or resulted in a
default under, any provisions of any agreement or contract of the Company or its
predecessor California corporation, except for any contravention, conflict,
violation, breach or default which would not reasonably be expected to result in
a material adverse effect on the Company; (ii) gave any person the right to (a)
declare a default or exercise any remedy under any such agreement or contract,
except where any such default or exercise of a remedy would not reasonably be
expected to result in a material adverse effect on the Company, (b) accelerate
the maturity or performance of any such agreement or contract, except where such
acceleration would not reasonably be expected to result in a material adverse
effect on the Company, or (c) cancel, terminate or modify any such contract,
except where any such cancellation, termination or modification would not
reasonably be expected to result in a material adverse effect on the Company; or
(iii) result in the imposition or creation of any encumbrance upon or with
respect to any of the shares of capital stock or the assets of the Company,
except where such encumbrance would not result in a material adverse effect on
the Company. For the purposes of this paragraph, "material adverse effect" shall
include the material adverse effect on the Company's and the Subsidiaries'
condition (financial or otherwise), business, or results of operations, taken as
a whole.
(iii) The Company has authorized and outstanding capital stock,
as of the date stated therein, as set forth under the caption "Capitalization"
in the Prospectus; the authorized shares of the Company's Common Stock have been
duly authorized; the outstanding shares of the Company's Common Stock (including
shares of Common Stock issued upon conversion of the Preferred Stock) have been
duly authorized and validly issued and are non-assessable and, to such counsel's
knowledge, fully paid; all of the Shares conform in all material respects to the
description thereof contained in the Prospectus; the certificates for the
Shares, assuming they are in the form filed with the Commission, are in due and
proper form in all material respects; the shares of Common Stock, including the
Option Shares, if any, to be sold by the Company pursuant to this Agreement have
been duly authorized and will be validly issued and non-assessable and, to such
counsel's knowledge, fully paid, when issued and paid for as provided for in
this Agreement; and with the exception of the rights of the Series E Preferred
Stockholders described in the Prospectus, to such counsel's knowledge, no
preemptive rights of stockholders exist with respect to any of the Shares or the
issue or sale thereof.
(iv) Except as described in or contemplated by the Prospectus,
to such counsel's knowledge, there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and
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except as described in the Prospectus, to the knowledge of such counsel, no
holder of any securities of the Company or any other person has the right,
contractual or otherwise, which has not been satisfied or effectively waived, to
cause the Company to sell or otherwise issue to them, or to permit them to
underwrite the sale of, any of the Shares or the right to have any Common Shares
or other securities of the Company included in the Registration Statement or the
right, as a result of the filing of the Registration Statement, to require
registration under the Act of any shares of Common Stock or other securities of
the Company.
(v) Based solely on the oral advice of the Staff of the
Commission, the Registration Statement has become effective under the Act and,
to the best of the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the Act.
(vi) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act, and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related schedules and other financial and statistical data included
therein).
(vii) The statements under the captions "Risk Factors--We depend
on our intellectual property, and litigation regarding our intellectual property
could harm our business," "Risk Factors--We have adopted anti-takeover defenses
that could delay or prevent the sale of our company and diminish the voting
rights of holders of our common stock," "Risk Factors--Some of our existing
investors have rights regarding the purchase of shares in this offering,"
"Business--Legal Proceedings," "Management," "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future Sale" in the
Prospectus and Items 14 and 15 of the Registration Statement, insofar as such
statements constitute a summary of documents referred to therein or of matters
of law, fairly summarize in all material respects the information called for
with respect to such documents and matters.
(viii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or required to be
described in the Registration Statement or the Prospectus which are not so filed
or described as required therein, and such contracts and documents as are
summarized in the Registration Statement or the Prospectus are fairly summarized
in all material respects.
(ix) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the Subsidiaries
except as set forth in the Prospectus.
(x) The execution and delivery of this Agreement and the
consummation of the transactions herein provided for do not and, as of the
Closing Date, will not conflict with or result in a breach of any of the terms
or provisions of, or constitute a default under, the Charter or
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Bylaws of the Company, or any agreement or instrument known to such counsel to
which the Company or any of the Subsidiaries is a party or by which the Company
or any of the Subsidiaries may be bound.
(xi) This Agreement has been duly authorized, executed and
delivered by the Company.
(xii) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein provided for
(other than as may be required by the NASD or as required by State or foreign
securities and Blue Sky laws as to which such counsel need express no opinion)
except such as have been obtained or made.
(xiii) The Company is not, and will not become, as a result of
the consummation of the transactions provided for in this Agreement, and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
In rendering such opinion Fenwick & West LLP may rely as to
matters governed by the laws of states other than California or federal laws and
the Delaware General Corporation Law on local counsel in such jurisdictions,
provided that in each case Fenwick & West LLP shall state that they believe that
they and the Underwriters are justified in relying on such other counsel. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
that causes them to believe that (i) the Registration Statement, at the time it
became effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and other financial and statistical information therein).
With respect to such statement, Fenwick & West LLP may state that their belief
is based upon the procedures set forth therein, but is without independent check
and verification.
(c) The Representatives shall have received from Morrison & Foerster
LLP, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (v) and (vi) of Paragraph (b) of this Section 6, and that the
Company is a duly organized and validly existing corporation under the laws of
the State of Delaware. In rendering such opinion Morrison & Foerster LLP may
rely as to
18
<PAGE> 19
all matters governed other than by the laws of the State of Delaware, California
or Federal laws on the opinion of counsel referred to in Paragraph (b) of this
Section 6. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact, necessary in
order to make the statements, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as to
financial statements, related notes, schedules and other financial and
statistical information therein). With respect to such statement, Morrison &
Foerster LLP may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Morrison & Foerster LLP a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the qualification
for offering and sale by the Underwriters of the Shares under the State
securities or Blue Sky laws of such jurisdictions as the Representatives may
reasonably have designated to the Company.
(e) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of Ernst & Young LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating that in their opinion the
financial statements and schedules examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and, to his knowledge after reasonable inquiry, no stop order suspending the
effectiveness of the Registration Statement has been issued, and no proceedings
for such purpose have been taken or are, to his knowledge, contemplated by the
Commission;
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<PAGE> 20
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and
the Prospectus and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct, and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business.
(g) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the Nasdaq National Market.
(i) The Lockup Agreements described in Section 4(k) are in full force
and effect.
(j) The Representatives shall have received an opinion of Baker &
McKenzie, special Japanese counsel for the Company, dated the Closing Date, to
the effect that:
(i) Broadbase Software K.K. has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as it is currently being conducted, and
is duly qualified to transact business and is in
20
<PAGE> 21
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification;
(ii) all of the issued shares of capital stock of Broadbase
Software K.K. have been duly and validly authorized and issued, are fully paid
and non-assessable, and owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims;
(iii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the charter documents of Broadbase
Software K.K. or, to such counsel's knowledge, any agreement or other instrument
binding upon Broadbase Software K.K. that is material to the Company and its
Subsidiaries, taken as a whole, or, to such counsel's knowledge, any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over Broadbase Software K.K.; and
(iv) such counsel does not know of any legal or governmental
proceedings pending or threatened to which Broadbase Software K.K. is a party or
to which any of the properties of Broadbase Software K.K. is subject.
The opinions and certificates mentioned in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Morrison & Foerster
LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section
6 shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in Sections 5
and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
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<PAGE> 22
8. INDEMNIFICATION.
(a) The Company agrees:
(1) to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter or
any such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made, or (iii) any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided, that the Company shall not be
liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct); provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof; and provided further that the foregoing indemnity agreement
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased Shares, or any person controlling such Underwriter, if a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
losses, claims, damages or liabilities, unless such failure is the result of
non-compliance by the Company with Section 4(d) hereof.
(2) to reimburse each Underwriter and each such controlling
person upon demand for any legal or other out-of-pocket expenses reasonably
incurred by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage or liability, action or
proceeding or in responding to a subpoena or governmental inquiry related to the
offering of the Shares, whether or not such Underwriter or controlling person is
a party to any action or proceeding. In the event that it is finally judicially
determined that the Underwriters were not entitled to receive payments for legal
and other expenses pursuant to this subparagraph, the Underwriters will promptly
return all sums that had been advanced pursuant
22
<PAGE> 23
hereto together with interest, compounded daily, determined on the basis of the
prime rate (or other commercial lending rate for borrowers of the highest credit
standing) announced from time to time by Bank of America NT&SA, San Francisco,
California.
(3) to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter or
any such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon any right of
rescission or claims relating to the offer of securities without registration or
applicable exemption under federal or state securities laws that any person may
bring against any Underwriter, or each person, if any, who controls any
Underwriter within the meaning of the Act, regarding shares purchased in this
offering pursuant to that certain Series E Preferred Stock Purchase Agreement.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of
23
<PAGE> 24
the provisions of Section 8(a) or (b). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred (or within 30 days of presentation) the fees and
expenses of the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel, (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them or
(iii) the indemnifying party shall have failed to assume the defense and employ
counsel acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and by the Company in the case of parties indemnified
pursuant to this Section 8(b). The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable
24
<PAGE> 25
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter, and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the
25
<PAGE> 26
benefits of the indemnity, contribution and reimbursement agreements contained
in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Deutsche Bank Securities
Inc., 101 California Street, 48th Floor, San Francisco, California 94111,
Attention: Tony Meneghetti; with a copy to Deutsche Bank Securities Inc., One
South Street, Baltimore, Maryland 21202, Attention: Equity Syndicate; if to the
Company, to Broadbase Software, Inc., 172 Constitution Drive Menlo Park,
California 94025, Attention: Chief Financial Officer; with a copy to Fenwick &
West LLP, Two Palo Alto Square, Palo Alto, California 94306, Attention: Gordon
K. Davidson.
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<PAGE> 27
11. TERMINATION.
(a) This Agreement may be terminated by you by notice to the Company
at any time prior to the Closing Date if any of the following has occurred: (i)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company and its Subsidiaries taken as a whole or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares, or (iii) suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority which in your opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) any downgrading, or placement on any watch list for
possible downgrading, in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Exchange Act); (vii) the suspension of trading of the
Company's common stock by the Nasdaq National Market, the Commission, or any
other governmental authority or, (viii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal affairs which
in your reasonable opinion has a material adverse effect on the securities
markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
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<PAGE> 28
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of legends
required by Item 502(d) of Regulation S-K under the Act and the information
under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
BROADBASE SOFTWARE, INC.
By
-------------------------------------
Mark Kremer
President and Chief Executive Officer
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<PAGE> 29
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
Deutsche Bank Securities Inc.
DAIN RAUSCHER WESSELS
THOMAS WEISEL PARTNERS LLC
E*OFFERING CORP.
As Representatives of the several
Underwriters listed on Schedule I
By: Deutsche Bank Securities Inc.
By:
------------------------------
Authorized Officer
29
<PAGE> 30
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
<S> <C>
Deutsche Bank Securities Inc.
Dain Rauscher Wessels
Thomas Weisel Partners LLC
E*OFFERING Corp.
----------
Total
----------
</TABLE>
30
<PAGE> 1
EXHIBIT 3.03
BROADBASE SOFTWARE, INC.
CERTIFICATE OF DESIGNATION
OF
PREFERRED STOCK
Pursuant to Section 151 of the
Delaware General Corporation Law
Broadbase Software, Inc., a Delaware corporation, (the "Corporation"), does
hereby certify that, pursuant to the authority contained in Article IV of its
Certificate of Incorporation, and in accordance with the provisions of Section
151 of the Delaware General Corporation Law, the Corporation's Board of
Directors has duly adopted the following resolution creating five separate
series of Preferred Stock designated as Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock.
RESOLVED, that the Corporation hereby designate and create five (5)
separate series of the authorized Preferred Stock designated as Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock as follows:
A. SERIES OF PREFERRED STOCK. Of the fifteen million one hundred
fifty-four thousand and forty-six (15,154,046) shares of Preferred Stock, par
value $0.001 per share, authorized to be issued by the Corporation, two million
three hundred ninety-eighty thousand (2,398,000) shares are hereby designated as
"Series A Preferred Stock," two million (2,000,000) shares are hereby designated
as "Series B Preferred Stock," two million one hundred sixty-six thousand and
sixty-five (2,166,065) shares are hereby designated as "Series C Preferred
Stock", one million four hundred thousand (1,400,000) shares are hereby
designated "Series D Preferred Stock" and two million one hundred eighty-nine
thousand nine hundred eighty-one (2,189,981) shares are designated "Series E
Preferred Stock." The rights, preferences, privileges and restrictions granted
to and imposed upon the respective classes and series of the Corporation's
capital stock are set forth below in Article B.
B. RIGHTS, PREFERENCE AND RESTRICTIONS OF PREFERRED STOCK. The rights,
preferences, restrictions and other matters relating to the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock are as follows:
1. DEFINITIONS. For purposes of this Section B, the following
definitions shall apply:
1.1 "Board" shall mean the Board of Directors of the Company.
1.2 "Corporation" shall mean this corporation.
1.3 "Common Stock" shall mean the Common Stock, $0.001 par
value, of the Corporation.
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Certificate of Designation
1.4 "Common Stock Dividend" shall mean a stock dividend declared
and paid on the Common Stock that is payable in shares of Common Stock.
1.5 "Dividend Rate" shall mean $0.05-1/3 per share per annum for
the Series A Preferred Stock, $0.215 per share per annum for the Series B
Preferred Stock, $0.443 per share per annum for the Series C Preferred Stock,
$0.58 per share per annum for the Series D Preferred Stock and $0.7306 per share
per annum for the Series E Preferred Stock.
1.6 "Original Issue Price" shall mean $0.66-2/3 per share for
the Series A Preferred Stock, $2.683 per share for the Series B Preferred Stock,
$5.54 per share for the Series C Preferred Stock, $7.25 per share for the Series
D Preferred Stock and $9.1325 per share for the Series E Preferred Stock.
1.7 "Permitted Repurchases" shall mean the repurchase by the
Corporation of shares of Common Stock held by employees, officers, directors,
consultants, independent contractors, advisors, or other persons performing
services for the Corporation or a subsidiary that are subject to restricted
stock purchase agreements or stock option exercise agreements under which the
Corporation has the option to repurchase such shares: (i) at cost, upon the
occurrence of certain events, such as the termination of employment or services;
or (ii) at any price pursuant to the Corporation's exercise of a right of first
refusal to repurchase such shares.
1.8 "Preferred Stock" shall mean the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the Series E Preferred Stock.
1.9 "Series A Preferred Stock" shall mean the Series A Preferred
Stock, $0.001 par value, of the Corporation.
1.10 "Series B Preferred Stock" shall mean the Series B Preferred
Stock, $0.001 par value, of the Corporation.
1.11 "Series C Preferred Stock" shall mean the Series C Preferred
Stock, $0.001 par value, of the Corporation.
1.12 "Series D Preferred Stock" shall mean the Series D Preferred
Stock, $0.001 par value, of the Corporation.
1.13 "Series E Preferred Stock" shall mean the Series E preferred
Stock, $0.001 par value, of the Corporation.
1.14 "Original Issue Date" shall mean the date on which the first
share of Series E Preferred Stock is issued by the Corporation.
1.15 "Series C Original Issue Date" shall mean the date on which
the first share of Series C Preferred Stock was issued by the Corporation.
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Certificate of Designation
1.16 "Subsidiary" shall mean any corporation of which at least
fifty percent (50%) of the outstanding voting stock is at the time owned
directly or indirectly by the Corporation or by one or more of such subsidiary
corporations.
2. DIVIDEND RIGHTS.
2.1 Preferred Stock. In each calendar year, the holders of the
then outstanding Preferred Stock shall be entitled to receive, when, as and if
declared by the Board, out of any funds and assets of the Corporation legally
available therefor, noncumulative dividends at the applicable annual Dividend
Rate for the Series A Preferred Stock, the Series B Preferred Stock, the Series
C Preferred Stock, the Series D Preferred Stock and the Series E Preferred
Stock, respectively, prior and in preference to the payment of any dividends on
the Common Stock in such calendar year (other than a Common Stock Dividend). No
dividends (other than a Common Stock Dividend) shall be paid with respect to the
Common Stock during any calendar year unless dividends in the total amount of
the annual Dividend Rate for the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and
the Series E Preferred Stock shall have first been paid or declared and set
apart for payment to the holders of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and
the Series E Preferred Stock, respectively, during that calendar year. Dividends
on the Preferred Stock shall not be mandatory or cumulative, and no rights or
interest shall accrue to the holders of the Preferred Stock by reason of the
fact that the Corporation shall fail to declare or pay dividends on the
Preferred Stock in the amount of the applicable annual Dividend Rate or in any
other amount in any calendar year or any fiscal year of the Corporation, whether
or not the earnings of the Corporation in any calendar year or fiscal year were
sufficient to pay such dividends in whole or in part. Payments of any dividends
to the holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock
shall be paid pro rata, on an equal priority, pari passu basis according to the
respective Dividend Rates as set forth herein.
2.2 Participation Rights. If, after dividends in the full
preferential amount specified in this Section 2 for the Preferred Stock have
been paid or declared and set apart in any calendar year of the Corporation, the
Board shall declare additional dividends out of funds legally available therefor
in that calendar year, then such additional dividends shall be declared pro rata
on the Common Stock and the Preferred Stock on a pari passu basis according to
the number of shares of Common Stock held by such holders, where each holder of
shares of Preferred Stock is to be treated for this purpose as holding the
greatest whole number of shares of Common Stock then issuable upon conversion of
all shares of Preferred Stock held by such holder pursuant to Section 5.
2.3 Non-Cash Dividends. Whenever a dividend provided for in this
Section 2 shall be payable in property other than cash, the value of such
dividend shall be deemed to be the fair market value of such property as
determined in good faith by the Board.
3. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the funds
and assets of the Corporation that
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Broadbase Software, Inc.
Certificate of Designation
may be legally distributed to the Corporation's stockholders (the "Available
Funds and Assets") shall be distributed to stockholders in the following manner:
3.1 Preferred Stock. The holders of each share of Preferred
Stock then outstanding shall be entitled to be paid, out of the Available Funds
and Assets, and prior and in preference to any payment or distribution (or any
setting apart of any payment or distribution) of any Available Funds and Assets
on any shares of Common Stock, an amount per share equal to the Original Issue
Price of the applicable series of Preferred Stock plus all declared but unpaid
dividends per share on that series of Preferred Stock. If upon any liquidation,
dissolution or winding up of the Corporation, the Available Funds and Assets
shall be insufficient to permit the payment to holders of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the Series E Preferred Stock of their full preferential
amount described in this subsection, then all of the remaining Available Funds
and Assets shall be distributed among the holders of the then outstanding Series
A Preferred Stock, the holders of the then outstanding Series B Preferred Stock,
the holders of the then outstanding Series C Preferred Stock, the holders of the
then outstanding Series D Preferred Stock and the holders of the then
outstanding Series E Preferred Stock, pro rata according to the aggregate
preferential amount to which each holder is entitled.
3.2 Remaining Assets. If there are any Available Funds and
Assets remaining after the payment or distribution (or the setting aside for
payment or distribution) to the holders of the Preferred Stock of their full
preferential amounts described above in this Section 3, then all such remaining
Available Funds and Assets shall be distributed among the holders of the then
outstanding Common Stock, pro rata according to the number of shares of Common
Stock held by each holder thereof.
3.3 Merger or Sale of Assets. A (i) consolidation or merger of
the Corporation with or into any other corporation or corporations in which the
holders of the Corporation's outstanding shares immediately before such
consolidation or merger do not, immediately after such consolidation or merger,
retain stock representing a majority of the voting power of the surviving
corporation (or the parent corporation of such surviving corporation if the
surviving corporation is wholly-owned by the parent) of such consolidation or
merger; or (ii) sale of all or substantially all of the assets of the
Corporation, shall each be deemed to be a liquidation, dissolution or winding up
of the Corporation as those terms are used in this Section 3.
3.4 Non-Cash Consideration. If any assets of the Corporation
distributed to stockholders in connection with any liquidation, dissolution or
winding up of the Corporation are other than cash, then the value of such assets
shall be their fair market value as determined by the Board, except that any
securities to be distributed to stockholders in a liquidation, dissolution or
winding up of the Corporation shall be valued as follows:
(a) The method of valuation of securities not subject to
investment letter or other similar restrictions on free marketability shall be
as follows:
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Certificate of Designation
(i) if the securities are then traded on a national
securities exchange or the Nasdaq National Market (or a similar national
quotation system), then the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the 30-day
period ending three (3) days prior to the distribution; and
(ii) if actively traded over-the-counter, then the
value shall be deemed to be the average of the closing bid prices over the
30-day period ending three (3) days prior to the distribution; and
(iii) if there is no active public market, then the
value shall be the fair market value thereof, as determined in good faith by the
Board.
(b) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in
subparagraphs (a)(i), (ii) or (iii) of this subsection to reflect the
approximate fair market value thereof, as determined in good faith by the Board.
3.5 Notice.
(a) The corporation shall give each holder of record of
Preferred Stock written notice of any liquidation, dissolution or winding up of
the Corporation or any other transaction described in Section 3.3 not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 3, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened to no less than two (2) days upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar rights and that represent at least a majority of the voting power of all
then outstanding shares of such Preferred Stock.
(b) In the event the requirements of this Section 3 are not
complied with, this corporation shall forthwith either:
(i) cause such closing to be postponed until such time
as the requirements of this Section 3 have been complied with; or
(ii) cancel such transaction, in which event the
rights, preferences and privileges of the holders of the Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in this Section 3.
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Broadbase Software, Inc.
Certificate of Designation
4. VOTING RIGHTS.
4.1 Common Stock. Each holder of shares of Common Stock shall be
entitled to one (1) vote for each share thereof held.
4.2 Preferred Stock. Each holder of shares of Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which such shares of Preferred Stock could be converted
pursuant to the provisions of Section 5 below at the record date for the
determination of the stockholders entitled to vote on such matters or, if no
such record date is established, the date such vote is taken or any written
consent of stockholders is solicited.
4.3 General. Subject to the provisions of this Section 4, each
holder of Preferred Stock shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled
to notice of any stockholders' meeting in accordance with the bylaws of the
Corporation (as in effect at the time in question) and applicable law, and shall
be entitled to vote, together with the holders of Common Stock, with respect to
any question upon which holders of Common Stock have the right to vote, except
as may be otherwise provided by applicable law. Except as otherwise expressly
provided herein or as required by law, the holders of Preferred Stock and the
holders of Common Stock shall vote together and not as separate classes.
4.4 Board of Directors Election and Removal.
(a) Election. Directors shall be elected in the following
manner: (i) So long as there are at least 500,000 shares of the Series A
Preferred Stock outstanding (subject to appropriate adjustment to reflect stock
dividends, splits or combinations), the holders of the Series A Preferred Stock,
voting as a separate series (with cumulative voting rights as among themselves
in accordance with Section 214 of the Delaware General Corporation Law), shall
be entitled to elect one (1) director of the Corporation; (ii) so long as there
are at least 500,000 shares of the Series B Preferred Stock outstanding (subject
to appropriate adjustment to reflect stock dividends, splits or combinations),
the holders of the Series B Preferred Stock, voting as a separate series (with
cumulative voting rights as among themselves in accordance with Section 214 of
the Delaware General Corporation Law), shall be entitled to elect one (1)
director of the Corporation; (iii) so long as there are at least 500,000 shares
of Common Stock outstanding (subject to appropriate adjustment to reflect stock
dividends, splits or combinations), the holders of the Common Stock, voting as a
separate class (with cumulative voting rights as among themselves in accordance
with Section 214 of the Delaware General Corporation Law), shall be entitled to
elect one (1) director of the Corporation; and (vi) the holders of the Preferred
Stock and the Common Stock, voting together as a single class (with cumulative
voting rights as among themselves in accordance with Section 214 of the Delaware
General Corporation Law), shall be entitled to elect any remaining directors of
the Corporation, if the authorized number of directors is greater than the
number to be elected pursuant to the foregoing.
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Broadbase Software, Inc.
Certificate of Designation
(b) Quorum; Required Vote.
(i) Quorum. At any meeting held for the purpose of
electing directors, the presence in person or by proxy of the holders of a
majority of the shares of the Series A Preferred Stock, Series B Preferred Stock
or Common Stock then outstanding, respectively, shall constitute a quorum of the
Series A Preferred Stock, Series B Preferred Stock or Common Stock, as the case
may be, for the election of directors to be elected solely by the holders of the
Series A Preferred Stock, Series B Preferred Stock or Common Stock,
respectively. The holders of Preferred Stock and Common Stock representing a
majority of the voting power of all the then-outstanding shares of Preferred
Stock and Common Stock shall constitute a quorum for the election of any
directors to be elected jointly by the holders of the Preferred Stock and the
Common Stock.
(ii) Required Vote. With respect to the election of any
director or directors by the holders of the outstanding shares of a specified
series of stock given the right to elect such director or directors pursuant to
subsection 4.4(a) above ("Specified Stock"), that candidate or those candidates
(as applicable) shall be elected who either: (i) in the case of any such vote
conducted at a meeting of the holders of such Specified Stock, receive the
highest number of affirmative votes of the outstanding shares of such Specified
Stock, up to the number of directors to be elected by such Specified Stock; or
(ii) in the case of any such vote taken by written consent without a meeting,
are elected by the written consent of the holders of a majority of the
outstanding shares of such Specified Stock.
(c) Vacancy. If there shall be any vacancy in the office of
a director elected by the holders of any Specified Stock pursuant to subsection
4.4(a), then a successor to hold office for the unexpired term of such director
may be elected by either: (i) the remaining director or directors (if any) in
office that were so elected by the holders of such Specified Stock, by the
affirmative vote of a majority of such directors (or by the sole remaining
director elected by the holders of such Specified Stock if there be but one), or
(ii) the required vote of holders of the shares of such Specified Stock
specified in subsection 4.4(b)(ii) above that are entitled to elect such
director under subsection 4.4(a).
(d) Removal. Any director who shall have been elected to
the Board by the holders of any Specified Stock pursuant to subsection 4.4(a) or
by any director or directors elected by holders of any Specified Stock as
provided in subsection 4.4(c), may be removed during his or her term of office,
either with or without cause, by, and only by, the affirmative vote of shares
representing a majority of the voting power of all the outstanding shares of
such Specified Stock entitled to vote, given either at a meeting of such
stockholders duly called for that purpose or pursuant to a written consent of
stockholders without a meeting, and any vacancy created by such removal may be
filled only in the manner provided in subsection 4.4(c).
(e) Procedures. Any meeting of the holders of any Specified
Stock, and any action taken by the holders of any Specified Stock by written
consent without a meeting, in order to elect or remove a director under this
subsection 4.4, shall be held in accordance with the procedures and provisions
of the Corporation's Bylaws, the Delaware General Corporation
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Certificate of Designation
Law and applicable law regarding stockholder meetings and stockholder actions by
written consent, as such are then in effect (including but not limited to
procedures and provisions for determining the record date for shares entitled to
vote).
(f) Termination. Notwithstanding anything in this
subsection 4.4 to the contrary, the provisions of this subsection 4.4 shall
cease to be of any further force or effect upon the first date that either there
is: (i) a merger or consolidation of the Corporation with or into any other
corporation or corporations if such consolidation or merger is approved by the
stockholders of the Corporation in compliance with applicable law and the
Certificate of Incorporation and Bylaws of the Corporation; (ii) a sale of all
or substantially all of the Corporation's assets; or (iii) immediately prior to
the closing of an IPO (as defined in Section 5.2(a)). Further, to the extent
that (i) the number of outstanding shares of Series A Preferred Stock is reduced
to less than 500,000 shares (subject to appropriate adjustment to reflect stock
dividends, splits or combinations), the provisions of Section 4.4(a)(i) shall
terminate and cease to be of any further force or effect; (ii) the number of
outstanding shares of Series B Preferred Stock is reduced to less than 500,000
shares (subject to appropriate adjustment to reflect stock dividends, splits or
combinations), the provisions of Section 4.4(a)(ii) shall terminate and cease to
be of any further force or effect; and (iii) the number of outstanding shares of
Common Stock is reduced to less than 500,000 shares (subject to appropriate
adjustment to reflect stock dividends, splits or combinations), the provisions
of Section 4.4(a)(iii) shall terminate and cease to be of any further force or
effect.
5. CONVERSION RIGHTS. The outstanding shares of Preferred Stock
shall be convertible into Common Stock as follows:
5.1 Optional Conversion.
(a) At the option of the holder thereof, each share of
Preferred Stock shall be convertible, at any time or from time to time prior to
the close of business on the business day before any date fixed for redemption
of such share, into fully paid and nonassessable shares of Common Stock as
provided herein.
(b) Each holder of Preferred Stock who elects to convert
the same into shares of Common Stock shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or any
transfer agent for the Preferred Stock or Common Stock, and shall give written
notice to the Corporation at such office that such holder elects to convert the
same and shall state therein the number of shares of Preferred Stock being
converted. Thereupon the Corporation shall promptly issue and deliver at such
office to such holder a certificate or certificates for the number of shares of
Common Stock to which such holder is entitled upon such conversion. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the certificate or certificates
representing the shares of Preferred Stock to be converted, and the person
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such shares of Common
Stock on such date.
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Broadbase Software, Inc.
Certificate of Designation
5.2 Automatic Conversion.
(a) (i) Each share of Preferred Stock shall automatically
be converted into fully paid and nonassessable shares of Common Stock, as
provided herein immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended, covering the offer and sale
of Common Stock for the account of the Corporation in which the aggregate public
offering price (before deduction of underwriters' discounts and commissions)
equals or exceeds $10,000,000 and the public offering price per share of which
equals or exceeds $10.00 per share before deduction of underwriters' discounts
and commissions (such price per share of Common Stock to be appropriately
adjusted to reflect Common Stock Events (as defined in subsection 5.4)) (the
"IPO").
(ii) Each share of Preferred Stock (other than the
Series E Preferred Stock) shall automatically be converted into fully paid and
nonassessable shares of Common Stock, as provided herein upon the Corporation's
receipt of the written consent of the holders of not less than a majority of the
then outstanding shares of Preferred Stock (other than the Series E Preferred
Stock) to the conversion of all then outstanding Preferred Stock (other than the
Series E Preferred Stock) under this Section 5.
(iii) Each share of Series E Preferred Stock shall
automatically be converted into fully paid and nonassessable shares of Common
Stock, as provided herein upon the Corporation's receipt of the written consent
of the holders of not less than a majority of the then outstanding shares of
Series E Preferred Stock to the conversion of all then outstanding Series E
Preferred Stock under this Section 5.
(b) Upon the occurrence of any event specified in
subparagraph 5.2(a)(i), (ii), or (iii) above, the outstanding shares of the
applicable series of Preferred Stock shall be converted into Common Stock
automatically without the need for any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided, however, that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares of the applicable series of Preferred Stock are either
delivered to the Corporation or its transfer agent as provided below, or the
holder notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon the occurrence of such automatic
conversion of the applicable series of Preferred Stock, the holders of such
Preferred Stock shall surrender the certificates representing such shares at the
office of the Corporation or any transfer agent for the Preferred Stock or
Common Stock. Thereupon, there shall be issued and delivered to such holder
promptly at such office and in its name as shown on such surrendered certificate
or certificates, a certificate or certificates for the number of shares of
Common Stock into which the shares of the applicable series of Preferred Stock
surrendered were convertible on the date on which such automatic conversion
occurred.
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5.3 Conversion Price. Each share of Preferred Stock shall be
convertible in accordance with subsection 5.1 or subsection 5.2 above into the
number of shares of Common Stock which results from dividing the Original Issue
Price for such series of Preferred Stock by the conversion price for such series
of Preferred Stock that is in effect at the time of conversion (the "Conversion
Price"). The initial Conversion Price for the Series A Preferred Stock shall be
the Original Issue Price for the Series A Preferred Stock. The initial
Conversion Price for the Series B Preferred Stock shall be the Original Issue
Price for the Series B Preferred Stock. The initial Conversion Price for the
Series C Preferred Stock shall be the Original Issue Price for the Series C
Preferred Stock. The initial Conversion Price for the Series D Preferred Stock
shall be the Original Issue Price for the Series D Preferred Stock. The initial
Conversion Price for the Series E Preferred Stock shall be the Original Issue
Price for the Series E Preferred Stock. The Conversion Price of each series of
Preferred Stock shall be subject to adjustment from time to time as provided
below.
5.4 Adjustment Upon Common Stock Event. Upon the happening of a
Common Stock Event (as hereinafter defined) after the effective date of this
amendment, the Conversion Price of each series of Preferred Stock shall,
simultaneously with the happening of such Common Stock Event, be adjusted by
multiplying the Conversion Price of such series of Preferred Stock in effect
immediately prior to such Common Stock Event by a fraction, (i) the numerator of
which shall be the number of shares of Common Stock issued and outstanding
immediately prior to such Common Stock Event, and (ii) the denominator of which
shall be the number of shares of Common Stock issued and outstanding immediately
after such Common Stock Event, and the product so obtained shall thereafter be
the Conversion Price for such series of Preferred Stock. The Conversion Price
for each series of Preferred Stock shall be readjusted in the same manner upon
the happening of each subsequent Common Stock Event. As used herein, the term
"Common Stock Event" shall mean (i) the issue by the Corporation of additional
shares of Common Stock as a dividend or other distribution on outstanding Common
Stock, (ii) a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock, or (iii) a combination of the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock.
5.5 Adjustments for Other Dividends and Distributions. If at any
time or from time to time after the Original Issue Date the Corporation pays a
dividend or makes another distribution to the holders of the Common Stock
payable in securities of the Corporation other than shares of Common Stock, then
in each such event provision shall be made so that the holders of each series of
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable upon conversion thereof, the amount of
securities of the Corporation which they would have received had their Preferred
Stock been converted into Common Stock on the date of such event (or such record
date, as applicable) and had they thereafter, during the period from the date of
such event (or such record date, as applicable) to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 5 with respect to the rights of the holders of the Preferred Stock
or with respect to such other securities by their terms.
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Broadbase Software, Inc.
Certificate of Designation
5.6 Adjustment for Reclassification, Exchange and Substitution.
If at any time or from time to time after the Original Issue Date the Common
Stock issuable upon the conversion of any series of Preferred Stock is changed
into the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than by a
Common Stock Event or a stock dividend provided for elsewhere in this Section
5), then in any such event each holder of such series of Preferred Stock shall
have the right thereafter to convert such Preferred Stock into the kind and
amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the number of
shares of Common Stock into which such shares of Preferred Stock could have been
converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.
5.7 Sale of Shares Below Conversion Price.
(a) Adjustment Formula. If at any time or from time to time
after the Original Issue Date the Corporation issues or sells, or is deemed by
the provisions of this subsection 5.7 to have issued or sold, Additional Shares
of Common Stock (as hereinafter defined), otherwise than in connection with a
Common Stock Event as provided in subsection 5.4, a dividend or distribution as
provided in subsection 5.5 or a recapitalization, reclassification or other
change as provided in subsection 5.6, for an Effective Price (as hereinafter
defined) that is less than the Conversion Price for a series of Preferred Stock
in effect immediately prior to such issue or sale, then:
(x) in the event that such issuance or sale (a
"Triggering Issuance") occurs after the Corporation has in one or more
transactions issued or sold (together, the "Minimum Issuances"), following the
Series C Original Issue Date, a number of such Additional Shares of Common
Stock, for an Effective Price of less than the Conversion Price of the Series C
Preferred Stock in effect immediately prior to the applicable Minimum Issuance,
for an Aggregate Consideration Received (as hereinafter defined) for all such
Minimum Issuances in excess of an aggregate of $300,000, then (A) if the
Effective Price of such Triggering Issuance is greater than $3.47 per share
(subject to appropriate adjustment to reflect stock dividends, splits or
combinations), the Conversion Price of the Series C Preferred Stock shall be
reduced, as of the close of business on the date of such Triggering Issuance, to
the Effective Price of such Triggering Issuance or (B) if such Effective Price
is less than $3.47 per share (subject to appropriate adjustment to reflect stock
dividends, splits or combinations), the Conversion Price of the Series C
Preferred Stock shall be reduced, as of the close of business on the date of
such Triggering Issuance, to $3.47 and shall then be subject to adjustment
pursuant to subdivision 5.7(a)(z) hereof. After the Conversion Price of the
Series C Preferred Stock has been reduced pursuant to this Section 5.7(a)(x) to
$3.47 (subject to appropriate adjustment to reflect stock dividends, splits or
combinations), this Section 5.7(a)(x) shall no longer apply and Section
5.7(a)(z) shall instead apply. Notwithstanding the foregoing, this subdivision
5.7(a)(x) shall no longer apply, and thereafter subdivision 5.7(a)(z) shall
apply, in the event of the earlier of (A) three years after the Series C
Original Issue Date or (B) the date the Corporation receives proceeds from one
or more financings that are equal to or in excess of an aggregate of $8 million
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Broadbase Software, Inc.
Certificate of Designation
and which value the Corporation immediately prior to each such financing at an
amount which is equal to or in excess of $80 million (calculated by multiplying
the price per share paid in such financing by the sum, immediately prior to such
financing, of the total number of Common Stock Equivalents and any shares of
Common Stock reserved for future issuance to employees, officers or directors
of, or contractors, consultants or advisers to, the Corporation or any
Subsidiary pursuant to options or rights not yet granted under stock purchase or
stock option plans, stock bonuses or awards, warrants, contracts or other
arrangements that are approved by the Board).
(y) in the event that such issuance or sale (a "Series
E Triggering Issuance") occurs after the Corporation has in one or more
transactions issued or sold (together, the "Series E Minimum Issuances"),
following the Original Issue Date, a number of such Additional Shares of Common
Stock, for an Effective Price of less than the Conversion Price of the Series E
Preferred Stock in effect immediately prior to the applicable Series E Minimum
Issuance, for an Aggregate Consideration Received (as hereinafter defined) for
all such Series E Minimum Issuances in excess of an aggregate of $300,000, then
(A) if the Effective Price of such Series E Triggering Issuance is greater than
$3.47 per share (subject to appropriate adjustment to reflect stock dividends,
splits or combinations), the Conversion Price of the Series E Preferred Stock
shall be reduced, as of the close of business on the date of such Series E
Triggering Issuance, to the Effective Price of such Series E Triggering Issuance
or (B) if such Effective Price is less than $3.47 per share (subject to
appropriate adjustment to reflect stock dividends, splits or combinations), the
Conversion Price of the Series E Preferred Stock shall be reduced, as of the
close of business on the date of such Triggering Issuance, to $3.47 and shall
then be subject to adjustment pursuant to subdivision 5.7(a)(z) hereof. After
the Conversion Price of the Series E Preferred Stock has been reduced pursuant
to this Section 5.7(a)(y) to $3.47 (subject to appropriate adjustment to reflect
stock dividends, splits or combinations), this Section 5.7(a)(y) shall no longer
apply and Section 5.7(a)(z) shall instead apply. Notwithstanding the foregoing,
this subdivision 5.7(a)(y) shall no longer apply, and thereafter subdivision
5.7(a)(z) shall apply, in the event of the earlier of (A) three years after the
Series C Original Issue Date, or (B) the date the Corporation receives proceeds
from one or more financings that are equal to or in excess of an aggregate of $8
million and which value the Corporation immediately prior to each such financing
at an amount which is equal to or in excess of $80 million (calculated by
multiplying the price per share paid in such financing by the sum, immediately
prior to such financing, of the total number of Common Stock Equivalents and any
shares of Common Stock reserved for future issuance to employees, officers or
directors of, or contractors, consultants or advisers to, the Corporation or any
Subsidiary pursuant to options or rights not yet granted under stock purchase or
stock option plans, stock bonuses or awards, warrants, contracts or other
arrangements that are approved by the Board), or (C) the date the Corporation
receives proceeds from the sale, in one or more financings (whether on the
Original Issue Date or thereafter) of at least 875,993 shares of Series E
Preferred Stock at a price per share equal to the Series E Preferred Stock
Original Issue Price.
(z) in each and every other case not covered by
subdivisions 5.7(a)(x) and (y), the Conversion Price for such series of
Preferred Stock shall be reduced, as of
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Broadbase Software, Inc.
Certificate of Designation
the close of business on the date of such issue or sale, to the price obtained
by multiplying such Conversion Price by a fraction:
(i) The numerator of which shall be the sum of
(A) the number of Common Stock Equivalents Outstanding (as
hereinafter defined) immediately prior to such issue or sale
of Additional Shares of Common Stock plus (B) the quotient
obtained by dividing the Aggregate Consideration Received
(as hereinafter defined) by the Corporation for the total
number of Additional Shares of Common Stock so issued or
sold (or deemed so issued and sold) by the Conversion Price
for such series of Preferred Stock in effect immediately
prior to such issue or sale; and
(ii) The denominator of which shall be the sum of
(A) the number of Common Stock Equivalents Outstanding
immediately prior to such issue or sale of Additional Shares
of Common Stock plus (B) the number of Additional Shares of
Common Stock so issued or sold (or deemed so issued and
sold).
(b) Certain Definitions. For the purpose of making any
adjustment required under this subsection 5.7:
(i) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued by the Corporation, whether or not
subsequently reacquired or retired by the Corporation, other than: (A) shares of
Common Stock issued or issuable upon conversion of Preferred Stock; and (B)
shares of Common Stock (or options, warrants or rights therefor) issued to
employees, officers or directors of, or contractors, consultants or advisers to,
the Corporation or any Subsidiary pursuant to stock purchase or stock option
plans, stock bonuses or awards, warrants, contracts or other arrangements that
are approved by the Board; and (C) up to 36,764 shares of Preferred Stock (or
warrants therefor) issued by the Corporation to lenders in connection with loan
financing transactions and any other shares of Preferred Stock or Common Stock
(or warrants therefor) that are unanimously approved by the Board for issuance
to lenders or equipment lessors; and (D) up to 40,000 shares of Common Stock to
be issued by the Company in connection with the grant of a license to the
Company by Timeline, Inc. for the settlement of claims made against the Company
by Timeline, Inc.
(ii) The "Aggregate Consideration Received" by the
Corporation for any issue or sale (or deemed issue or sale) of securities shall
(A) to the extent it consists of cash, be computed at the gross amount of cash
received by the Corporation before deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Corporation in
connection with such issue or sale and without deduction of any expenses payable
by the Corporation; (B) to the extent it consists of property other than cash,
be computed at the fair value of that property as determined in good faith by
the Board; and (C) if Additional Shares of Common Stock, Convertible Securities
or Rights or Options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Corporation for a consideration which covers
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Broadbase Software, Inc.
Certificate of Designation
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or Rights or Options;
(iii) "Common Stock Equivalents Outstanding" shall mean
the number of shares of Common Stock that is equal to the sum of (A) all shares
of Common Stock of the Corporation that are outstanding at the time in question,
plus (B) all shares of Common Stock of the Corporation issuable upon conversion
of all shares of Preferred Stock or other Convertible Securities that are
outstanding at the time in question, plus (C) all shares of Common Stock of the
Corporation that are issuable upon the exercise of Rights or Options that are
outstanding at the time in question assuming the full conversion or exchange
into Common Stock of all such Rights or Options that are Rights or Options to
purchase or acquire Convertible Securities into or for Common Stock;
(iv) "Convertible Securities" shall mean stock or
other securities convertible into or exchangeable for shares of Common Stock or
for shares of Preferred Stock that are convertible into shares of Common Stock;
(v) The "Effective Price" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold, by the Corporation under this subsection 5.7, into the Aggregate
Consideration Received, or deemed to have been received, by the Corporation
under this subsection 5.7, for the issue of such Additional Shares of Common
Stock; and
(vi) "Rights or Options" shall mean warrants, options
or other rights to purchase or acquire shares of Common Stock or Convertible
Securities.
(c) Deemed Issuances. For the purpose of making any
adjustment to the Conversion Price of the Preferred Stock required under this
subsection 5.7, if the Corporation issues or sells any Rights or Options or
Convertible Securities and if the Effective Price of the shares of Common Stock
issuable upon exercise of such Rights or Options and/or the conversion or
exchange of Convertible Securities (computed without reference to any additional
or similar protective or antidilution clauses) is less than the Conversion Price
then in effect for a series of Preferred Stock, then the Corporation shall be
deemed to have issued, at the time of the issuance of such Rights, Options or
Convertible Securities, that number of Additional Shares of Common Stock that is
equal to the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Rights, Options or Convertible Securities upon their issuance
and to have received, as the Aggregate Consideration Received for the issuance
of such shares, an amount equal to the total amount of the consideration, if
any, received by the Corporation for the issuance of such Rights or Options or
Convertible Securities, plus, in the case of such Rights or Options, the minimum
amounts of consideration, if any, payable to the Corporation upon the exercise
in full of such Rights or Options, plus, in the case of Convertible Securities,
the minimum amounts of consideration, if any, payable to the Corporation (other
than by cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided that:
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Broadbase Software, Inc.
Certificate of Designation
(i) if the minimum amounts of such consideration
cannot be ascertained, but are a function of antidilution or similar protective
clauses, then the Corporation shall be deemed to have received the minimum
amounts of consideration without reference to such clauses;
(ii) if the minimum amount of consideration payable to
the Corporation upon the exercise of Rights or Options or the conversion or
exchange of Convertible Securities is reduced over time or upon the occurrence
or non-occurrence of specified events other than by reason of antidilution or
similar protective adjustments, then the Effective Price shall be recalculated
using the figure to which such minimum amount of consideration is reduced; and
(iii) if the minimum amount of consideration payable to
the Corporation upon the exercise of such Rights or Options or the conversion or
exchange of Convertible Securities is subsequently increased, then the Effective
Price shall again be recalculated using the increased minimum amount of
consideration payable to the Corporation upon the exercise of such Rights or
Options or the conversion or exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance of
such Rights or Options or Convertible Securities, shall be made as a result of
the actual issuance of shares of Common Stock or Preferred Stock on the exercise
of any such Rights or Options or the conversion or exchange of any such
Convertible Securities. If any such Rights or Options or the conversion rights
represented by any such Convertible Securities shall expire without having been
fully exercised, then the Conversion Price as adjusted upon the issuance of such
Rights or Options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only shares of Common Stock so issued were the shares of
Common Stock, if any, that were actually issued or sold on the exercise of such
Rights or Options or rights of conversion or exchange of such Convertible
Securities, and such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation for the granting of
all such Rights or Options, whether or not exercised, plus the consideration
received for issuing or selling all such Convertible Securities actually
converted or exchanged, plus the consideration, if any, actually received by the
Corporation (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) on the conversion or exchange of such
Convertible Securities, provided that such readjustment shall not apply to prior
conversions of Preferred Stock.
5.8 Certificate of Adjustment. In each case of an adjustment or
readjustment of the Conversion Price for a series of Preferred Stock, the
Corporation, at its expense, shall cause its Chief Financial Officer to compute
such adjustment or readjustment in accordance with the provisions hereof and
prepare a certificate showing such adjustment or readjustment, and shall mail
such certificate, by first class mail, postage prepaid, to each registered
holder of the Preferred Stock at the holder's address as shown in the
Corporation's books.
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<PAGE> 16
Broadbase Software, Inc.
Certificate of Designation
5.9 Fractional Shares. No fractional shares of Common Stock
shall be issued upon any conversion of Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled, the
Corporation shall pay the holder cash equal to the product of such fraction
multiplied by the Common Stock's fair market value as determined in good faith
by the Board as of the date of conversion.
5.10 Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
5.11 Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of the Preferred Stock shall be
deemed given upon the earlier of actual receipt or deposit in the United States
mail, by certified or registered mail, return receipt requested, postage
prepaid, addressed to each holder of record at the address of such holder
appearing on the books of the Corporation.
5.12 No Impairment. The Corporation shall not avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but shall at all times in good faith
assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Preferred Stock against impairment.
6. RESTRICTIONS AND LIMITATIONS.
6.1 Class Protective Provisions. So long as 500,000 shares of
Preferred Stock (subject to appropriate adjustment to reflect stock dividends,
splits or combinations) remain outstanding, the Corporation shall not, without
the approval, by vote or written consent, of the holders of 70% of the Preferred
Stock then outstanding (66-2/3% of the Preferred Stock with respect to
subsection 6.1(7)), voting as a single class:
(1) amend its Certificate of Incorporation in any manner
that would alter, change or adversely affect any of the rights, preferences,
privileges or restrictions of any series of Preferred Stock;
(2) reclassify any outstanding shares of securities of the
Corporation into shares having rights, preferences or privileges senior to or on
a parity with any series of Preferred Stock;
(3) authorize any other series or class of stock having
rights or preferences senior to or on a parity with any series of Preferred
Stock;
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<PAGE> 17
Broadbase Software, Inc.
Certificate of Designation
(4) increase or decrease (other than by conversion) the
total number of authorized shares of Preferred Stock;
(5) merge or consolidate with or into any corporation if
such merger or consolidation would result in the stockholders of the Corporation
immediately prior to such merger or consolidation holding less than a majority
of the voting power of the stock of the surviving corporation immediately after
such merger or consolidation;
(6) sell all or substantially all the Corporation's assets
in a single transaction or series of related transactions;
(7) liquidate or dissolve;
(8) declare or pay any dividends (other than dividends
payable solely in shares of its own Common Stock) on or declare or make any
other distribution (other than Permitted Repurchases), directly or indirectly,
on account of any shares of Common Stock now or hereafter outstanding; or
(9) amend the Corporation's bylaws to change the authorized
range of the number of members of its Board.
6.2 Additional Series C Protective Provisions. For so long as at
least 850,000 shares of Series C Preferred Stock (subject to appropriate
adjustment to reflect stock dividends, splits or combinations) remain
outstanding, the Corporation shall not, without the approval, by vote or written
consent, of the holders of at least 60% of the Series C Preferred Stock, take
the actions set forth in Section 6.1 above in a way that adversely affects the
Series C Preferred Stock in a different manner than other shares of Preferred
Stock (excluding those differences which currently exist in or are contemplated
by this Restated Certificate of Incorporation).
6.3 Additional Series E Protective Provisions. For so long as at
least 514,645 shares of Series E Preferred Stock (subject to appropriate
adjustment to reflect stock dividends, splits or combinations) remain
outstanding, the Corporation shall not, without the approval, by vote or written
consent, of the holders of at least 60% of the Series E Preferred Stock, take
the actions set forth in Section 6.1 above in a way that adversely affects the
Series E Preferred Stock in a different manner than other shares of Preferred
Stock (excluding those differences which currently exist in or are contemplated
by this Restated Certificate of Incorporation).
7. MISCELLANEOUS
7.1 No Reissuance of Preferred Stock. No share or shares of
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
7.2 Consent to Certain Transactions. Each holder of shares of
Preferred Stock shall, by virtue of its acceptance of a stock certificate
evidencing Preferred Stock, be deemed to
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Broadbase Software, Inc.
Certificate of Designation
have consented, for purposes of Sections 502, 503 and 506 of the California
Corporations Code, to all Permitted Repurchases.
-18-
<PAGE> 19
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed and attested by its duly authorized officer this 9th
day of September, 1999.
By: /s/ CHUCK BAY
-----------------------------------
Chuck Bay, Chief Financial Officer,
General Counsel, Executive Vice
President of Business Development
and Corporate Secretary
I declare under penalty of perjury under the laws of the State of
California, the State of Delaware and the United States of America that the
foregoing is true and correct and that this declaration was executed on
September 9, 1999 at Menlo Park, California.
By: /s/ CHUCK BAY
-----------------------------------
Chuck Bay
<PAGE> 1
Exhibit 3.04
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BROADBASE SOFTWARE, INC.
BEFORE RECEIPT OF PAYMENT FOR STOCK
Broadbase Software, Inc., a Delaware corporation, does hereby certify that:
1. The corporation has not received any payment for any of its stock.
2. The amendment set forth below to the corporation's Certificate of
Incorporation ("Certificate") was duly adopted by a majority of its directors in
accordance with the provisions of Section 241 of the Delaware General
Corporation Law.
3. Article IV, Paragraph A of the Certificate is hereby amended and
restated in full as follows:
Article IV
"A. Authorization of Shares. The total number of shares of all classes of
stock which the corporation has authority to issue is one hundred five million
one hundred fifty-four thousand and forty-six (105,154,046) shares, consisting
of two classes: ninety million (90,000,000) shares of Common Stock, $0.001 par
value per share, and fifteen million one hundred fifty-four thousand and
forty-six (15,154,046) shares of Preferred Stock, $0.001 par value per share."
[the rest of this page left intentionally blank]
<PAGE> 2
IN WITNESS WHEREOF, said corporation has caused this Certificate of
Amendment to be executed by its duly authorized officer this 15th day of July,
1999.
BROADBASE SOFTWARE, INC.
By: /s/ CHUCK BAY
-------------------------------------
Chuck Bay, Chief Financial Officer,
General Counsel, Executive Vice
President Business Development and
Corporate Secretary
I declare under penalty of perjury under the laws of the State of Delaware
and the United States of America that the foregoing is true and correct and that
this declaration was executed on July 15, 1999 at Palo Alto, California.
By: /s/ Chuck Bay
-------------------------------------
Chuck Bay
2
<PAGE> 1
EXHIBIT 5.01
September 15, 1999
Broadbase Software, Inc.
172 Constitution Drive
Menlo Park, California 94025
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-1
(File Number 333-82251), together with the exhibits included therein (the
"Registration Statement"), filed by you with the Securities and Exchange
Commission (the "Commission") on or about July 2, 1999, amendments no. 1 and 2
thereto filed on August 12 and August 30, 1999, respectively, and amendment no.
3 thereto to be filed on or about the date hereof, in connection with the
registration under the Securities Act of 1933, as amended, of 4,600,000 shares
of your Common Stock (the "Stock").
In rendering this opinion, we have examined the following:
(1) the Registration Statement;
(2) your Registration Statement on Form 8-A (File Number 000-26789) filed
with the Commission on July 22, 1999;
(3) the Prospectus included in the Registration Statement;
(4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books and the minute books of BroadBase Information Systems, Inc., a
California corporation ("BroadBase California"), to which you will be
the successor, that are in our possession;
(5) the stock records for both you and BroadBase California that you have
provided to us (consisting of a list of stockholders and a list of
holders of options and warrants respecting your capital stock and any
rights to purchase capital stock verifying the number of such issued
and outstanding securities);
(6) a Management Certificate addressed to us and dated of even date
herewith executed by the Company and BroadBase California containing
certain representations;
(7) the Merger Agreement filed with the California Secretary of State and
the Delaware Secretary of State on September 13, 1999 (the "Merger
Agreement") pursuant to which BroadBase California was merged with and
into you in connection with its Delaware reincorporation (the
"Delaware Reincorporation").
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity and completeness of all documents submitted
to us as originals, the conformity to originals and
<PAGE> 2
Broadbase Software, Inc.
September 15, 1999
Page 2
completeness of all documents submitted to us as copies, the legal capacity of
all natural persons executing the same, the lack of any undisclosed termination,
modification, waiver or amendment to any document reviewed by us and the due
authorization, execution and delivery of all documents where due authorization,
execution and delivery are prerequisites to the effectiveness thereof.
For the purposes of this opinion, we have relied as to matters of fact
solely upon our examination of the documents referred to above and have assumed
the current accuracy and completeness of the information obtained from public
officials and records referred to above. We have made no independent
investigation or other attempt to verify the accuracy of any of such information
or to determine the existence or non-existence of any other factual matters;
however, we are not aware of any facts that would cause us to believe that the
opinion expressed herein is not accurate.
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America and
the State of California and (without reference to case law or secondary sources)
the existing Delaware General Corporation Law.
In connection with our opinion expressed below, we have assumed that, at or
prior to the time of the delivery of any Stock, the Registration Statement will
have been declared effective under the Securities Act of 1933, as amended, that
the registration will apply to such Stock and will not have been modified or
rescinded and that there will not have occurred any change in law affecting the
validity or enforceability of such Stock.
Based upon the foregoing, it is our opinion that the Stock to be issued and
sold by you when issued and sold in accordance in the manner referred to in the
relevant Prospectus associated with the Registration Statement, will be validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof. This
opinion is intended solely for your use as an exhibit to the Registration
Statement for the purpose of the above sale of the Stock and is not to be relied
upon for any other purpose.
Very truly yours,
/s/ FENWICK & WEST LLP
----------------------
FENWICK & WEST LLP
<PAGE> 1
EXHIBIT 10.10
AGREEMENT BETWEEN INDUS AND BROADBASE
Understanding that Indus and Broadbase are, and will continue to, make good
faith efforts toward the successful conclusion of an OEM relationship, both
parties agree to the following:
Broadbase agrees to take an active role in the development, testing and release
of the Indus Knowledge Warehouse (IKW).
In consideration for Broadbase's efforts Indus agrees to commit to a prepayment
of OEM royalties in the amount of $250,000 on or before March 31, 1999.
This prepay balance can be used to offset royalty payments due from Indus to
Broadbase on sales of the IKW on or after the general availability release of
the product at a rate of 50% of the amounts owed.
The amounts of the royalty payments owed will be calculated in accordance with
whatever OEM agreement is in effect at the time the amount owed is incurred.
The prepay balance may not be used to offset amounts owed for consulting,
training, maintenance, or technical support.
The $250,000 prepayment of royalties will be due upon the General Availability
release of the IKW product (expected on July 1).
INDUS BROADBASE
By: /s/ Kerry Larson By: /s/ Chuck Bay
Name: Kerry Larson Name: Chuck Bay
Title: SVP Marketing Title: CFO & EVP
<PAGE> 2
BROADBASE PARTNER TERMS AND CONDITIONS
THESE BROADBASE PARTNER TERMS AND CONDITIONS ("Terms and Conditions")
are entered into between Broadbase Information Systems, Inc. ("Broadbase") and
the party identified below ("Partner") as of ____________, 199_ (the "Effective
Date").
The parties desire to have Partner participate in Broadbase partner
programs pursuant to the terms and conditions set forth herein and any amendment
hereto.
The parties expect to execute a Broadbase Partner Agreement setting
forth the details of the partner relationship established herein.
NOW, THEREFORE, in consideration of the promises and mutual obligations
of the parties set forth herein, and for other good and valuable consideration,
the parties hereby agree as follows:
1. TERM AND TERMINATION.
1.1. Term Any Broadbase Partner Agreement document signed by the parties
relating to these Terms and Conditions ("BPA") will remain in effect until it
terminates or expires in accordance with its terms.
1.2 Termination. Either party may terminate a BPA upon written notice if the
other party materially breaches a material term thereof and fails to cure the
breach within thirty (30) days following written notice.
1.3. Rights and Duties Upon Termination. Termination of a BPA will not limit
either party from pursuing any other remedies available to it, including but not
limited to injunctive relief, nor will such termination relieve Partner's
obligation to pay all fees that accrued prior to such termination. Upon
termination of any BPA; Partner will (a) fully comply with all terms and
conditions in the BPA regarding termination; (b) cease any and all use of
Broadbase software provided by Broadbase to Partner (the "Software") and all
Confidential Information (as defined herein) of Broadbase; and (c) certify to
Broadbase within thirty (30) days that Partner has destroyed or returned to
Broadbase all copies of the Software and Confidential Information of Broadbase.
1.4 No Damages for Termination. BROADBASE SHALL NOT BE LIABLE TO PARTNER FOR
DAMAGES OF ANY KIND, INCLUDING WITHOUT LIMITATION, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, ON ACCOUNT OF THE TERMINATION OF ANY BPA IN ACCORDANCE WITH ITS TERMS.
PARTNER WAIVES ANY RIGHT IT MAY HAVE TO RECEIVE ANY COMPENSATION OR REPARATIONS
ON TERMINATION OF ANY BPA UNDER THE LAW OF THE TERRITORY DESIGNATED IN THE BPA
OR OTHERWISE, OTHER THAN EXPRESSLY PROVIDED THEREIN. Broadbase will not be
liable to Partner on account of termination of any BPA for reimbursement or
damages for the loss of goodwill, prospective profits or anticipated income, or
on account of any expenditures, investments, leases or commitments made by
Broadbase or for any other reason whatsoever based upon or growing out of such
termination or expiration. Partner acknowledges that (i) Partner has no
expectation and has received no assurances that any investment by Partner in the
promotion of Broadbase products will be recovered or recouped or that Partner
will obtain any anticipated amount of profits by virtue of any BPA, and (ii)
Partner will not have or acquire by virtue of any BPA or otherwise any vested,
proprietary or other right in the promotion of Broadbase products or in
"goodwill" created by its efforts thereunder. THE PARTIES ACKNOWLEDGE THAT THIS
SECTION 1.4 HAS BEEN INCLUDED AS A MATERIAL INDUCEMENT FOR BROADBASE TO ENTER
INTO ANY BPA AND THAT BROADBASE WOULD NOT HAVE ENTERED INTO ANY BPA BUT FOR THE
LIMITATIONS OF LIABILITY SET FORTH HEREIN.
1.5 Survival. Sections 1.3, 1.4, 3.4, 3.5, 5, and 7 of these Terms and
Conditions will survive any expiration or termination of any BPA.
2. PROPRIETARY RIGHTS.
2.1 Software Ownership. Partner hereby acknowledges that, as between
Broadbase and Partner, Broadbase is the owner of all right and title in and to
the Software, and Partner shall acquire no rights in or to the Software.
2.2 No Other Rights. Partner acknowledges and agrees that, except as
otherwise provided in any BPA, Partner has no and will acquire no proprietary
rights in the Software, whether express or implied. Partner will not at any time
during or after the term of any BPA do anything that may adversely affect the
validity or enforceability of, or infringe or contribute to the infringement of,
any proprietary right of Broadbase. Partner will not modify the Software except
as expressly authorized in any BPA. Partner will not reverse engineer,
decompile, or disassemble the Software or other Broadbase product or authorize
anyone else to do so.
2.3 Obligation to Protect. Partner agrees to use best efforts to protect
Broadbase's proprietary rights and to cooperate in Broadbase's efforts to
protect its proprietary rights. Partner agrees to promptly notify Broadbase of
any known or suspected breach of any such proprietary right that comes to
Partner's attention.
3. INDEMNITY, WARRANTIES, REMEDIES, LIMITATION OF LIABILITY.
3.1 Infringement Indemnification.
(a) Broadbase will defend and indemnify Partner
<PAGE> 3
against a claim that the Software as furnished by Broadbase and used within the
scope of these Terms and Conditions (and any BPA) infringes a copyright or trade
secret, provided that: (i) Partner promptly notifies Broadbase in writing of the
claim, (ii) Broadbase has sole control of the defense and all related settlement
negotiations, and (iii) Partner provides Broadbase with the assistance,
information and authority necessary to perform the above.
(b) Broadbase will have no liability for any claim of infringement based
on: (i) use of a superseded release of the Software if such infringement would
have been avoided by the use of a current release of the Software; (ii) the
combination, operation, or use of any Software furnished under any BPA with
programs or data not provided by Broadbase, if such infringement would have been
avoided by the use of the Software without such programs or data; or (iii)
modifications to the Software by any party other thanthan Broadbase, if such
infringement would have been avoided in the absence of such modifications.
(c) In the event that the Software is held, or is believed by Broadbase,
to infringe a copyright or trade secret, Broadbase will have the option, at its
expense, to: (i) modify the Software to be noninfringing, (ii) obtain for
Partner a license to continue its use of the Software; or (iii) terminate the
affected BPA for the infringing Software and refund any license fees paid by
Partner attributable to that Software, amortized over a five year term from the
Effective Date of the affected BPA on a straight-line basis.
(d) THIS SECTION 3.1 STATES PARTNER'S SOLE AND EXCLUSIVE REMEDY AND
BROADBASE'S ENTIRE LIABILITY FOF INFRINGEMENT.
3.2. Software Warranty. Broadbase warrants that, for a period of ninety (90)
days from the effective date of the relevant BPA, the Software will conform to
the applicable product documentation provided by Broadbase in all material
respects. The foregoing warranty does not apply to modifications or improper use
of the Software by Partner. Broadbase does not warrant that the Software will
meet Partner's requirements, that the Software will operate in the combinations
that Partner may select or use, that the operation of the Software will be
uninterrupted or error-free, or that all Software errors will be corrected. FOR
ANY BREACH OF THE FOREGOING WARRANTY, PARTNER'S SOLE AND EXCLUSIVE REMEDY WILL
BE, AT BROADBASE'S OPTION: (I) THE REPLACEMENT OR CORRECTION OF THE DEFECTIVE
SOFTWARE; OR (ii) THE TERMINATION OF ANY BPA AS TO THE DEFECTIVE SOFTWARE AND
THE REFUND OF THE LICENSE FEE PAID TO BROADBASE FOR SUCH SOFTWARE.
3.3. Warranties of Authority and Rights. Broadbase warrants that it has the
authority to enter into these Terms and Conditions and any BPA, and that it has
sufficient rights to the Software to grant to Partner the rights set forth in
these Terms and Conditions and any BPA.
3.4. Warranty Limitations. EXCEPT AS SPECIFICALLY SET FORTH ABOVE, BROADBASE
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, TO PARTNER OR ANY OTHER PERSON OR
ENTITY WITH RESPECT TO THE SOFTWARE, AND HEREBY DISCLAIMS ALL IMPLIED
WARRANTIES, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
3.5. Limitation of Liability. IN NO EVENT WILL BROADBASE BE LIABLE FOR ANY
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS,
REVENUE, DATA, OR USE, INCURRED BY PARTNER OR ANY THIRD PARTY, WHETHER IN AN
ACTION IN CONTRACT OR TORT (INCLUDING NEGLIGENCE), EVEN IF IT HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES. BROADBASE'S LIABILITY FOR DAMAGES UNDER
THESE TERMS AND CONDITIONS AND ALL BPAS WILL IN NO EVENT EXCEED THE LESSER OF
(i) FIFTY THOUSAND DOLLARS ($50,000); OR (ii) THE AMOUNT OF FEES PAID BY PARTNER
TO BROADBASE UNDER ANY BPA IN THE TWELVE (12) MONTH PERIOD PRIOR TO THE DATE OF
PARTNER'S CLAIM.
4. PAYMENT.
4.1. Payment. Invoices for payment of any amounts due to Broadbase under any
BPA will be payable net 30 days. All payments will be nonrefundable and
nonrecoupable when paid. Amounts unpaid when due will accrue interest at the
rate of one and one half percent (1.5%) per month or the maximum rate allowed by
law, whichever is less.
4.2. Taxes. Partner agrees to pay all present or future sales, excise, use,
value-added, foreign withholding, or other similar taxes or duties (not
including taxes on the net income of Broadbase) owed in connection with these
Terms and Conditions, on any BPA, or on the Software in regard to its use by
Partner.
5. CONFIDENTIALITY AND PUBLICITY.
5.1 Confidentiality. Partner will not disclose to any third party or, except
as expressly permitted under the BPA, use any Software or other confidential or
proprietary information disclosed to it by Broadbase ("Confidential
Information"), and will use best efforts to maintain the confidentiality of all
Confidential Information in its possession or control, which will in no event be
less than the measures it uses to maintain the confidentiality of its own
information of equal importance. Confidential Information will not include
2
<PAGE> 4
information that: (a) is in or enters the public domain without breach of these
Terms and Conditions, any BPA or any other confidentiality agreement between the
parties; (b) Partner received from a third party without restriction on
disclosure and without breach of a nondisclosure obligation; or (c) Partner
develops independently, which it can prove with written evidence. PartnerPartner
agrees not to disclose to any third party any benchmarks, tests, or other
evaluations of the Software without the prior written consent of Broadbase.
5.2 Software. Partner acknowledges that the Software is a trade secret of
Broadbase, the disclosure or which would cause substantial harm to Broadbase
that could not be remedied by the payment of damages alone. Accordingly, the
parties agree that Broadbase will be entitled to seek preliminary and permanent
injunctive relief and other equitable relief for any breach of this Section 5.
5.3 Publicity. Partner agrees to permit, and hereby authorizes, Broadbase to
use Partner's name and/or trademarks and services marks, and to identify Partner
as a Broadbase partner in Broadbase's publicity, promotional and/or marketing
materials.
6. INDEMNITY. Partner will indemnify Broadbase and hold it harmless from
any claims, losses or damages (including but not limited to court costs and
reasonable attorneys' fees) for personal injury, tangible or intangible property
damage or any other liability, arising from any act or omission of Partner, its
employees or agents relating to Broadbase, the Software, or any Broadbase
product.
7. GOVERNMENT RIGHTS. The Software is provided with restricted rights. Use,
duplication, or disclosure by the U.S. Government is subject to restrictions as
set forth in any BPA and as provided in DFARS 227.7202-1(a) and 227.7202-3(a)
(1991), DFARS 212.227-7013(c)(1)(ii) (OCT 1988), FAR 12.212(a)(1991), FAR
12.227-19, or FAR 12.227-14 (ALT III), as applicable. Broadbase Information
Systems, Inc., 173 Constitution Avenue, Menlo Park, CA 94025.
8. GENERAL TERMS. This Agreement and all BPAs will be governed by the laws
of the State of California, without regard to choice of law principles. Any
litigation arising under these Terms and Conditions or any BPA will be brought
in the federal or state courts of the Northern District of California, and
Partner agrees and hereby submits to the exercise of jurisdiction over it in
such courts. The relationship of the parties is solely that of independent
contractors, and not partners, joint venturers or agents. All notices required
to be sent hereunder will be in writing and will be deemed to have been given
when mailed by certified mail, overnight express, or sent by confirmed facsimile
to the recipient's address listed in the cover page hereto. In the event any
provision of these Terms and Conditions is held to be unenforceable, the
remaining provisions of these Terms and Conditions will remain in full force and
effect. The waiver by either party of any default or breach of these Terms and
Conditions will not constitute a waiver of any other or subsequent default or
breach. Any waiver, amendment or other modification to these Terms and
Conditions will be effective only if in writing and signed by the parties.
Neither party will be liable by reason of failure of performance (except failure
to pay) if the failure arises out of causes beyond the party's reasonable
control. Each party agrees to comply with all applicable laws, rules and
regulations in connection with its activities under these Terms and Conditions.
Partner agrees to comply fully with all relevant regulations of the U.S.
Department of Commerce and with the U.S. Export Administration Act to ensure
that the Software and media are not exported in violation of U.S. law. This
Agreement combined with any BPA, is the complete and exclusive statement of the
agreement between the parties relating to the subject matter of these Terms and
Conditions and any such BPA which supersedes any proposal or prior agreement,
written or oral, and any other communications between the parties regarding such
subject matter. To the extent there is a conflict between these Terms and
Conditions any BPA, the terms and conditions of the BPA shall override these
Terms and Conditions. It is expressly agreed that any terms and conditions of
Partner's purchase orders and/or other forms will be superseded by the relevant
BPA and these Terms and Conditions.
IN WITNESS WHEREOF, the parties have caused their authorized
representatives to execute these Terms and Conditions as of the Effective Date.
<TABLE>
<S> <C>
BROADBASE INFORMATION SYSTEMS, INC. Indus International
------------------------------------
(PARTNER)
By: By: /s/ Lou Perrelli
--------------------------------- ---------------------------------
Name: Name: Lou Perrelli
------------------------------- -------------------------------
Title: Title: GM Channels
------------------------------ ------------------------------
Address: Address: 60 Spear St.
---------------------------- ----------------------------
San Francisco, CA 94105
- ------------------------------------ ------------------------------------
</TABLE>
3
<PAGE> 5
BROADBASE PARTNER AGREEMENT
AUTHORIZED SOLUTIONS PROVIDER
THIS BROADBASE AUTHORIZED SOLUTIONS PROVIDER PARTNER AGREEMENT (the
"Agreement") is made as of __________, 199_ (the "Effective Date"), by and
between Broadbase Information Systems, Inc., a California corporation
("Broadbase"), and Indus International ("ASP Partner").
A. The parties desire to define a mechanism by which ASP Partner may
market and distribute Broadbase software products to its customers.
B. The parties have previously or are concurrently executing a document
setting forth the terms and conditions of Broadbase's partner program (the
"Terms and Conditions"). Broadbase and ASP Partner desire to incorporate the
Terms and Conditions into this Agreement. Capitalized terms not otherwise
defined herein have the meanings ascribed to them in the Terms and Conditions.
C. The parties agree that in the event of a conflict between this
Agreement and the Terms and Conditions, this Agreement will prevail.
NOW, THEREFORE, in consideration of the promises and mutual obligations
of the parties set forth herein, and for other good and valuable consideration,
the parties hereby agree as follows:
1. DEFINITIONS.
1.1 "End User" means a customer of ASP Partner that is licensed by ASP
Partner to use the Products for its internal business purposes.
1.2 "Products" means the Broadbase object code products specified in Exhibit
B and shall also include any documentation that is normally included as part of
the product.
2. APPOINTMENT, GRANT OF LICENSE.
2.1 Appointment. Subject to the terms and conditions of this Agreement,
Broadbase appoints ASP Partner, and ASP Partner accepts such appointment, as an
independent non-exclusive distributor of the Products and hereby grants ASP
Partner a limited, nonexclusive, nontransferable license solely for the purposes
of demonstration, display, marketing and distribution of the Products to End
Users during the term of this Agreement. Pursuant to the terms hereof, Broadbase
shall sell to ASP Partner, and ASP Partner shall purchase from Broadbase, the
Products ordered by ASP Partner at the purchase prices and upon the payment
terms described below. ASP Partner will not use the Products for general
internal use. ASP Partner will have no right under this Agreement to reproduce
or copy any Products for internal use, distribution to third parties or
otherwise.
2.2 Demonstration Licenses. ASP Partner shall have the right to use the
Product to (i) demonstrate Product on ASP Partner's premises, (ii) demonstrate
Product at a prospective End User's site provided that all copies of the Product
are removed within 5 days of when they are installed and provided further that
ASP Partner shall be responsible for protecting the confidentiality of the
Products while on the prospective End User's site.)
2.3 Evaluation Copies. ASP Partner may deliver copies of the Product for
evaluation purposes only (an "Evaluation Copy") to a prospective End User after
it has signed a evaluation license with at a minimum the provisions contained in
Exhibit C (except that back-up and/or archival copies may not be made and upon
termination of the evaluation license, all copies of the Product must be
returned to ASP Partner [i.e., certification of destruction will not be
enough]). All such Evaluation Copies shall be reported in the Quarterly Reports
Exhibit D contemplated by Section 4.1 but will show no royalty owing. Any
Evaluation Copies not removed at the completion of the evaluation period or 90
days from delivery to End User (whichever occurs first) are deemed to be
perpetually licensed, and End-User License Fees shall be due to Broadbase from
ASP Partner as of that date.
3. OBLIGATIONS OF ASP PARTNER.
3.1 Startup License Configuration. Upon execution of this document, ASP
Partner agrees to acquire at least one Startup License as well as a support
contract for that license from Broadbase. ASP Partner also agrees to purchase a
quantity of nonrefundable Product as inventory from Broadbase. The prices and
terms thereof to be defined in Exhibit A.
3.2 Sales, Demonstration and Implementation Certification. Within six months
of the signing of this document, ASP Partner agrees to cause at least one of its
employees to complete the Broadbase Sales and Demonstration Certification and
the Broadbase Implementation Certification (a description of which can be found
on Exhibit B). ASP Partner also agrees to maintain at least one certified
employee in each of these areas throughout the term of the agreement.
3.3 Support Certification. In order to enable the ASP Partner to effectively
provide first level post-sales service and support for all the Products
distributed by ASP Partner, ASP Partner is encouraged but not required to cause
a sufficient number of its personnel to complete the
1
<PAGE> 6
Broadbase Support Certification. Until such time as this certification is
complete, Broadbase agrees to provide support as per its then-current published
support policies for all customers for whom a valid support agreement is in
place.
3.4 Broadbase Packaging. ASP Partner will distribute the Products with all
packaging, any and all warranties and disclaimers, intact as shipped from
Broadbase.
3.5 Compliance with Law. ASP Partner will comply with all applicable
international, national, state, regional and local laws and regulations in
performing its duties hereunder and in any of its dealings with respect to the
Products.
3.6 Export and Re-export. ASP Partner will not, and will require its
customers to agree to refrain from, any and all export or re-export of any
Product (including documentation and other technical data) in violation of U.S.
export laws.
3.7 Covenants of ASP Partner. ASP Partner will: (i) conduct business in a
manner that reflects favorably at all times on the Products and on the good
name, goodwill and reputation of Broadbase; (ii) avoid deceptive, misleading or
unethical practices that are or might be detrimental to Broadbase or the
Products; and (iii) make no representations, warranties or guarantees with
respect to Broadbase or the Products that are inconsistent with those
customarily provided by Broadbase.
4. INSPECTIONS, RECORDS AND REPORTING.
4.1 Quarterly Reports. Within [thirty (30)] days of the end of each quarter
during the term of this Agreement, ASP Partner will provide to Broadbase a
written report, a template of which is provided as Exhibit D, (which Broadbase
will keep strictly confidential) showing, for such quarter:
(a) the identity of each customer to whom ASP Partner has distributed
any Product during such quarter, including company name, complete address and
both business and technical contact information for each such customer.
(b) the license configuration for each of the Products distributed,
including number of licenses, number of users, current discount percentage, and
license and support fees due Broadbase.
4.2 Notification. ASP Partner will: (i) notify Broadbase in writing of any
claim or proceeding involving the Products within ten (10) days after ASP
Partner learns of such claim or proceeding; (ii) report promptly to Broadbase
all claimed or suspected product defects; and (iii) notify Broadbase in writing
not more than thirty (30) days after any transfer of more than twenty-five
percent (25%) of ASP Partner's voting control or a transfer of substantially all
its assets.
4.3 Records. ASP Partner will maintain, for at least [two] years after
expiration or termination of this Agreement, its records, contracts and accounts
relating to distribution of the Products, and will permit examination thereof by
authorized representatives of Broadbase at all reasonable times.
5. ORDER PROCEDURE.
5.1 Broadbase Acceptance. All orders for the Products by ASP Partner will be
subject to acceptance in writing by Broadbase at its principal place of business
and will not be binding until the earlier of such acceptance or shipment, and,
in the case of acceptance by shipment, only as to the portion of the order
actually shipped. Broadbase agrees that it will not unreasonably withhold its
acceptance and it will notify ASP Partner promptly of any partial shipments.
5.2 License Requirements. For each Product distributed to its End Users, ASP
Partner agrees to, at its option, execute with such End User either Broadbase's
standard, then-current end user license agreement, or substantially include
mandatory minimum terms and conditions, as defined in Exhibit C, within its own
licensing document.
5.3 Cancellation. Broadbase reserves the right to cancel any orders placed
by ASP Partner and accepted by Broadbase as set forth above, or to refuse or
delay shipment thereof, if ASP Partner: (i) fails to make any payment as
provided in this Agreement or under the terms of payment set forth in any
invoice or otherwise agreed to by Broadbase and ASP Partner, (ii) fails to meet
reasonable credit or financial requirements established by Broadbase, including
any limitations on allowable credit, or (iii) otherwise fails to comply with the
Terms and Conditions or the terms and conditions of this Agreement. Broadbase
also reserves the right to discontinue the manufacture or distribution of any or
all Products at any time, and to cancel any orders for such discontinued
Products without liability of any kind to ASP Partner or to any other person. No
such cancellation, refusal or delay will be deemed a termination (unless
Broadbase so advises ASP Partner) or breach of this Agreement by Broadbase.
6. PRICES AND PAYMENT.
6.1 Prices to ASP Partner. Prices to ASP Partners for the Products are
calculated by applying the distribution discount, as defined on Exhibit A, to
the applicable product price, as defined in the then-current Broadbase Price
List for the country in which the Broadbase Product(s) will be installed and/or
used. Distribution discounts are also applicable to the purchase by the ASP
Partner and re-distribution to its End Users of Broadbase Support, Training
Credits, and Documentation. Broadbase may change its list prices from time to
time upon at least thirty (30) days' prior written notice. Notwithstanding the
foregoing, Broadbase will not change its prices for any order that has been
accepted by it.
2
<PAGE> 7
6.3 Taxes, Tariffs, Fees. Broadbase's list prices do not include any
national, state or local sales, use, value added or other taxes, customs duties,
or similar tariffs and fees which Broadbase may be required to pay or collect
upon the delivery of the Products or upon collection of the payments due or
otherwise. Should any tax or levy be owed or made, ASP Partner agrees to pay
such tax or levy and indemnify Broadbase for any claim for such tax or levy
demanded. ASP Partner represents and warrants to Broadbase that all Products
acquired hereunder are for redistribution in the ordinary course of ASP
Partner's business, and ASP Partner agrees to provide Broadbase with appropriate
resale certificate numbers and other documentation satisfactory to the
applicable taxing authorities to substantiate any claim of exemption from any
such taxes or fees.
6.3 Payment. ASP Partner will pay to Broadbase the amounts owed it in United
States dollars and at the address designated by Broadbase.
6.4 No Setoff. ASP Partner will not setoff or offset against Broadbase's
invoices amounts that ASP Partner claims are due to it. ASP Partner will bring
any claims or causes of action it may have in a separate action and waives any
right it may have to offset, setoff or withhold payment for the Products and
delivered by Broadbase.
7. SHIPMENT, RISK OF LOSS AND DELIVERY.
7.1 Shipment. All Products will be shipped F.O.B. Broadbase's point of
shipment. Shipments will be made to ASP Partner's identified warehouse
facilities or freight forwarder, subject to approval in writing by Broadbase in
advance of shipment. Unless specified in ASP Partner's order, Broadbase will
select the mode of shipment and the carrier. ASP Partner will be responsible for
and pay all packing, shipping, freight and insurance charges.
7.2 Title and Risk of Loss. Title and all risk of loss of or damage to the
Products will pass to ASP Partner upon delivery by Broadbase to the carrier,
freight forwarder or ASP Partner, whichever first occurs.
8. ASP PARTNER DETERMINES ITS OWN PRICE.
Although Broadbase may publish suggested wholesale or retail prices, these are
suggestions only and ASP Partner will be entirely free to determine the actual
prices at which the Products will be licensed to its customers.
9. TRADEMARKS, TRADE NAMES, LOGOS, DESIGNATIONS AND COPYRIGHTS.
9.1 Use During Agreement. During the term of this Agreement, ASP Partner is
authorized by Broadbase to use the trademarks, trade names, logos and
designations Broadbase uses for the Products in connection with ASP Partner's
advertisement, promotion and distribution of the Products. ASP Partner's use of
such trademarks, trade names, logos and designations will be in accordance with
Broadbase's policies in effect from time to time, including but not limited to
trademark usage and cooperative advertising policies. ASP Partner agrees not to
attach any additional trademarks, trade names, logos or designations to any
Product. ASP Partner further agrees not to use any Broadbase trademark, trade
name, logo or designation in connection with any non-Product.
9.2 Copyright and Trademark Notices. ASP Partner will include on each
Product that it distributes, and on all containers and storage media therefore,
all trademark, copyright and other notices of proprietary rights included by
Broadbase on such Product. ASP Partner agrees not to alter, erase, deface or
overprint any such notice on anything provided by Broadbase. ASP Partner also
will include the appropriate trademark notices when referring to any Product in
advertising and promotional materials.
9.3 ASP Partner Does Not Acquire Proprietary Rights. ASP Partner has paid no
consideration for the use of Broadbase's trademarks, trade names, logos,
designations or copyrights, and nothing contained in this Agreement will give
ASP Partner any right, title or interest in any of them. ASP Partner
acknowledges that Broadbase owns and retains all goodwill, trademarks, trade
names, logos, designations, copyrights and other proprietary rights in or
associated with the Products, and agrees that it will not at any time during or
after this Agreement assert or claim any interest in or do anything that may
adversely affect the validity of any trademark, trade name, logo, designation or
copyright belonging to or licensed to Broadbase (including, without limitation
any act or assistance to any act, which may infringe or lead to the infringement
of any of Broadbase's proprietary rights).
9.4 No Continuing Rights. Upon expiration or termination of this Agreement,
ASP Partner will immediately cease all display, advertising and use of all
Broadbase trademarks, trade names, logos and designations and will not
thereafter use, advertise or display any trademark, trade name, logo or
designation which is, or any part of which is, similar to or confusing with any
trademark, trade name, logo or designation associated with any Product.
9.5 Obligation to Protect. ASP Partner agrees to promptly notify Broadbase
of any known or suspected breach of Broadbase's proprietary rights that comes to
its attention. ASP Partner agrees to cooperate at Broadbase's expense in
Broadbase's efforts to protect its proprietary rights.
10. COSTS.
Except as may be agreed in writing by Broadbase and ASP Partner, each party will
pay all costs and expenses incurred in the performance of its obligations and
the exercise of its rights under this Agreement.
3
<PAGE> 8
11 TERM AND TERMINATION.
11.1. This Agreement commences on the Effective Date and will remain in effect
for a term of [one (1)] year unless earlier terminated in accordance with the
terms of the Partner Agreement. At the end of the initial term (and each
subsequent renewal term), this Agreement will automatically renew for an
additional [one (1) year] term, unless either party provides the other party
with written notice of termination, at least thirty (30) days prior to the date
of any such automatic renewal.
11.2. Rights and Duties Upon Termination. Upon termination or expiration of
this Agreement, in addition to the obligations of each party set forth in the
Terms and Conditions:
(a) Broadbase, at its option, may reacquire any or all Products then in
ASP Partner's possession at prices not greater than the prices paid by ASP
Partner for such Products (or, if the Products are not in unopened factory
sealed boxes, fifty percent (50%) of such prices). Upon receipt of any Products
so reacquired from ASP Partner, Broadbase will issue an appropriate credit to
ASP Partner's account.
(b) The due dates of all outstanding invoices to ASP Partner for the
Products automatically will be accelerated so they become due and payable on the
effective date of termination, even if longer terms had been agreed previously.
All orders or portions thereof remaining unshipped as of the effective date of
termination will automatically be canceled.
11.3 Survival. The rights and obligations of the parties contained in
Sections 4 and 11 will survive any termination or expiration of this Agreement.
11.4. Entire Agreement. This Agreement, the Exhibits attached hereto, and the
Terms and Conditions which are incorporated herein by this reference, is the
sole and entire agreement between the parties hereto pertaining to the subject
matter hereof and supersedes all prior communications or agreements, written or
oral pertaining to such subject matter.
IN WITNESS WHEREOF the parties have caused their authorized
representatives to execute this Agreement as of the Effective Date.
BROADBASE INFORMATION SYSTEMS, INC. Indus International
--------------------------------------
(ASP PARTNER)
By: By: /s/ Lou Perrelli
---------------------------- -------------------------------
Name: Name: Lou Perrelli
---------------------------- -------------------------------
Title: Title: GM Channels
---------------------------- -------------------------------
Exhibits:
EXHIBIT A:_____ASP Partner Order Form
EXHIBIT B:_____License and Discount Types
EXHIBIT C:_____Mandatory Terms of End User License
EXHIBIT D:_____Quarterly Sales Reconciliation Report Template
EXHIBIT E:_____Special Terms and Conditions
4
<PAGE> 9
EXHIBIT A
ASP PARTNER ORDER FORM
<TABLE>
<CAPTION>
MAXIMUM FIRST YEAR
NUMBER OF NAME OF SOFTWARE OR SERVICE CONCURRENT UNIT EXTENDED SUPPORT AND
UNITS USERS PRICE PRICE MAINTENANCE
20%
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Partner Startup License $25,000 $25,000 $5,000
Early Partner Discount $25,000 $25,000 $5,000
Broadbase Workgroup License $50,000 $ 0 $ 0
DISTRIBUTION DISCOUNT = 20% $ (0) $ 0
SUB TOTAL: $ (0) $ 0
TOTAL: $ (0)
</TABLE>
*First Year Support to be reported and paid within 30 days of the end of the
quarter in which Product(s) are distributed to ASP Partner's End Users (Section
4.1).
<TABLE>
<S> <C>
BILLING CONTACT TECHNICAL SUPPORT CONTACT
Contact Name Contact Name
Title: Title:
Address Address
City, State, ZIP City, State, ZIP
Phone Phone
SHIP TO CONTACT MARKETING CONTACT
Contact Name Contact Name
Title: Title:
Address Address
City, State, ZIP City, State, ZIP
Phone Phone
</TABLE>
5
<PAGE> 10
EXHIBIT B
LICENSE AND DISCOUNT TYPES
ASP PARTNER TRAINING - ASP Partners are eligible to attend any regularly
scheduled Broadbase training classes for no charge, the amount of training time
will be reasonable and appropriate in Broadbase's judgment and ASP Partner will
bear all travel and living expenses for such personnel sent to Broadbase for
training.
PRODUCTS ELIGIBLE FOR DISTRIBUTION -Broadbase Workgroup Server, Broadbase
Departmental Server, Brio Designer for Broadbase, Brio Query for Broadbase,Brio
Insight for Broadbase Web, Brio Quickview for Broadbase Web
PRODUCT DISCOUNTS FOR END-USER DISTRIBUTION - End-User distribution discounts
are tiered based on unit volume commitments. Prices to the ASP Partner are
calculated by applying the distribution discount, as defined on the following
discount schedule, to the applicable product price (as defined in the
then-current Broadbase Price List) for the country in which the Broadbase
Product(s) will be installed and/or used.
<TABLE>
<CAPTION>
Number of Units* 2 5 10 20
----- ----- ----- -------
<S> <C> <C> <C> <C>
Cumulative List Price* $100K $250K $500K 1,000K
(Distribution Discount) 20% 25% 30% 35%
Prepaid License Fees $ 80K 188K $350K $650K
</TABLE>
*Number of actual units may vary. Calculations are based on an average per unit
list price of $50K.
OTHER DISCOUNTS FOR END-USER DISTRIBUTION - The then-current distribution
discount, is also applicable to Support, Training, and Documentation. As with
the Product discounts, the price to the ASP Partner is derived by applying the
distribution discount to the applicable support fees (as defined in the
then-current Broadbase Price List).
SALES AND DEMONSTRATION CERTIFICATION - To ensure that ASP Partner is able to
effectively communicate the Broadbase value proposition to their customers,
Broadbase makes available sales and demonstration materials that offer step by
step instruction on the presentation and demonstration of the Broadbase
products. Broadbase also offers coaching and education to ensure a smooth
knowledge transfer. Sales and Demonstration Certifications are available to
individuals within the partner's organization that have satisfactorily completed
a short presentation and demonstration to a Broadbase representative. Partners
to are encouraged to certify as many of their employees as possible.
IMPLEMENTATION CERTIFICATION - Broadbase makes available training materials that
educate our Partners on the most efficient ways to implement a Broadbase
solution. As part of the certification process, Broadbase will provide a test
case, whereby individuals within the partner's organization will be encouraged
to construct a Broadbase data mart from beginning to end. Implementation
Certification can be achieved by submitting the finished results to a Broadbase
representative for approval. Partners to are encouraged to certify as many of
their employees as possible.
SUPPORT CERTIFICATION - For partners that provide front-line Broadbase product
support, Broadbase makes available training materials, documentation and access
to an on-line knowledge base that educates our Partners on the most efficient
way to provide Broadbase support to their end customers. To be designated as a
Certified Broadbase Support Engineer, individuals within the partner's
organization are required to have completed the Implementation Certification as
well as pass a written Support Certification exam. Partners are encouraged to
certify as many of their employees as possible.
6
<PAGE> 11
EXHIBIT C
MANDATORY TERMS OF END USER LICENSES
All Agreements covering the distribution of the Program shall include
substantially the following provisions (i.e. ASP Partner will include these
terms in its agreements with End Users):
(1) ASP Partner licensor retains all title to the Program, and all copies
thereof, and no title to the Program, or any intellectual property therein, is
transferred to the licensee;
(2) The licensee may not copy the Program, except for backup and archival
purposes only, and the licensee shall include on all copies of the Program all
copyright and other proprietary notices or legends included on the Program when
it was shipped to such licensee;
(3) The licensee agrees not to reverse assemble, decompile or otherwise
attempt to derive source code from the Program;
(4) The licensee agrees to comply with all export and re-export restrictions
and regulations ("Export Restrictions") imposed by the government of the United
States;
(5) Although copyrighted, the Program is unpublished and contains
proprietary and confidential information of licensor and is considered by such
licensor to constitute valuable trade secrets. The licensee will hold the
Program in confidence and shall protect the Program with at least the same
degree of care with which the licensee protects its own similar confidential
information;
(6) ASP Partner's licensor is a direct and intended third party beneficiary
of the license agreement and may enforce it directly against the licensee;
provided however that such licensors shall not be liable to the licensee for any
general, special, direct, indirect, consequential, incidental or other damages
arising out of or related to the Program;
(7) Upon termination of the license for the Program, the licensee shall
return to ASP Partner all copies of the Program, or certify to ASP Partner that
the licensee has destroyed all such copies;
(8) ASP Partner and/or ASP Partner licensor shall have the right to direct a
recognized accounting firm to conduct, during normal business hours, an audit of
(and to copy) the appropriate records of the licensee to verify the number of
copies of the Program in Use by the licensee, the computer systems on which such
copies are installed and in the case of limited user licenses, the number of
users Using such copies. Representatives of the auditing firm shall protect the
confidentiality of the licensee's Confidential Information and abide by the
licensee's reasonable security regulations while on licensee's premises. If the
number of copies or users is found to be greater than that contracted for or the
computer system on which the Program is in use differs from the single computer
system for which license rights have been granted to the licensee, the licensee
shall be invoiced for the additional copies, users or computer systems at the
prices quoted in the then current price list of Broadbase (subject to any
applicable discounts to which ASP Partner may have agreed). The additional
license fees shall be payable within thirty (30) days of such invoice;
(9) The licensee shall not release the results of any benchmark of the
Program to any third party without the prior written approval of ASP Partner's
licensor for each such release;
(10) Licensee acknowledges its responsibility to (i) regularly back-up data
maintained on any computer system using the Program, and (ii) adequately test
prior to deployment each production version of the Program in a configuration
which reasonably simulates licensee's planned production environment.
7
<PAGE> 12
EXHIBIT D
Quarterly Reconciliation Report
_____ Quarter, 19_98__
<TABLE>
<CAPTION>
Customer Name and Support Contact Broadbase Number of Broadbase Support Fees
Site Address And Products Concurrent List Prices (18**%)
Phone Number of Users And Dates
<S> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<S> <C>
DATE: 1. Total of List Prices
NAME OF ASP Partner: 2. Subtract Distribution
Discount (See Exhibit A)
20%
SPECIAL DISCOUNT***
BY: (please print) 3. DISCOUNTED TOTAL
(Signature) 4. BEGINNING PREPAID BALANCE
TITLE: 5. ENDING PREPAID BALANCE
PHONE: 6. AMOUNT OWED TO BROADBASE
</TABLE>
* SPECIAL ONE TIME CHEVRON PRICING allows unlimited users but limits data
source to Passport only. See Chevron-Indus agreement for details.
** SPECIAL ONE TIME DISCOUNT OF SUPPORT from 20% to 18%.
*** EXTRA $30K Discount only good if Purchase Order is received by Broadbase
on or before May 8, 1998.
8
<PAGE> 13
EXHIBIT E
This Exhibit E ("Exhibit E ") dated ______________, 199__, entered into by
_________________ ("Partner") and BROADBASE INFORMATION SYSTEMS (Broadbase)
supplements the terms of the Broadbase Partner Agreement dated
__________________, 199__ between Partner and Broadbase (the "Agreement").
Capitalized terms not otherwise defined in this Exhibit shall have the same
meaning as in the Agreement.
1. SECTION 1.4 OF THE BROADBASE TERMS AND CONDITIONS IS DELETED AND
REPLACED WITH THE FOLLOWING:
1.4 No Damages for Termination. NEITHER PARTY SHALL BE LIABLE TO THE
OTHER PARTY FOR DAMAGES OF ANY KIND, INCLUDING WITHOUT LIMITATION,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, ON ACCOUNT OF THE TERMINATION OF
ANY BPA IN ACCORDANCE WITH ITS TERMS. BOTH PARTIES WAIVE ANY RIGHT THEY
MAY HAVE TO RECEIVE ANY COMPENSATION OR REPARATIONS ON TERMINATION OF
ANY BPA UNDER THE LAW OF THE TERRITORY DESIGNATED IN THE BPA OR
OTHERWISE, OTHER THAN EXPRESSLY PROVIDED THEREIN. Neither party will be
liable to the other party on account of termination of any BPA for
reimbursement or damages for the loss of goodwill, prospective profits
or anticipated income, or on account of any expenditures, investments,
leases or commitments made by either party or for any other reason
whatsoever based upon or growing out of such termination or expiration.
Partner acknowledges that (i) Partner has no expectation and has
received no assurances that any investment by Partner in the promotion
of Broadbase products will be RECOVERED OR RECOUPED OR THAT PARTNER WILL
OBTAIN ANY ANTICIPATED AMOUNT OF PROFITS BY VIRTUE OF ANY BPA, AND (II)
PARTNER will not have or acquire by virtue of any BPA or otherwise any
vested, proprietary or other right in the promotion of Broadbase
products or in "goodwill" created by its efforts thereunder. THE PARTIES
ACKNOWLEDGE THAT THIS SECTION 1.4 HAS BEEN INCLUDED AS A MATERIAL
INDUCEMENT FOR BROADBASE TO ENTER INTO ANY BPA AND THAT BROADBASE WOULD
NOT HAVE ENTERED INTO ANY BPA BUT FOR THE LIMITATIONS OF LIABILITY SET
FORTH HEREIN.
2. SECTION 2.1 OF THE BROADBASE TERMS AND CONDITIONS IS DELETED AND
REPLACED WITH THE FOLLOWING:
2.1 Software Ownership. Partner hereby acknowledges that, as between
Broadbase and Partner, Broadbase is the owner of all right and title in
and to the Software, and Partner shall acquire no rights in or to the
Software. Both parties agree that, unless otherwise agreed upon in
writing, any models, scripts, structures and/or business metrics that
are developed as part of this agreement shall remain the sole property
of the Partner.
3. IN SECTION 3.2 OF THE BROADBASE TERMS AND CONDITIONS, THE WARRANTY
PERIOD IS CHANGED FROM 90 DAYS TO 6 MONTHS.
4. SECTION 5.1 OF THE BROADBASE TERMS AND CONDITIONS IS DELETED AND
REPLACED WITH THE FOLLOWING:
5.1 Confidentiality. Neither party will disclose to any third party or,
except as expressly permitted under the BPA, use any Software or other
confidential or proprietary information disclosed to it by the other
party ("Confidential Information"), and will use best efforts to
maintain the confidentiality of all Confidential Information in its
possession or control, which will in no event be less than the measures
it uses to maintain the confidentiality of its own information of equal
importance. Confidential Information will not include information that:
(a) is in or enters the public domain without breach of these Terms and
Conditions, any BPA or any other confidentiality agreement between the
parties; (b) either party received from a third party without
restriction on disclosure and without breach of a nondisclosure
obligation; or (c) either party develops independently, which it can
prove with written evidence. Both parties agree not to disclose to any
third party any benchmarks, tests, or other evaluations of the Software
without the prior written consent of the other party.
5. SECTION 2.1 OF THE BROADBASE PARTNER AGREEMENT IS DELETED AND REPLACED
WITH THE FOLLOWING:
2.1 Appointment. Subject to the terms and conditions of this Agreement,
Broadbase appoints ASP Partner, and ASP Partner accepts such
appointment, as an independent non-exclusive distributor of the Products
and hereby grants ASP Partner a limited, nonexclusive, nontransferable
license solely for the purposes of demonstration, display, marketing,
distribution and development of the Products to End Users during the
term of this Agreement. Pursuant to the terms hereof, Broadbase shall
sell to ASP Partner, and ASP Partner shall purchase from Broadbase, the
Products ordered by ASP Partner at the purchase prices and upon the
payment terms described below. Except as
9
<PAGE> 14
described above, ASP Partner will not use the Products for general
internal use. ASP Partner will have no right under this Agreement to
reproduce or copy any Products for distribution to third parties.
6. SECTION 4.1 OF THE BROADBASE PARTNER AGREEMENT, IS DELETED AND REPLACED
WITH:
4.1 Semi-Annual Reports. Within [thirty (30)] days of the end of
each calendar quarter that a distribution of the Product period
has occurred, and during the term of this Agreement, ASP Partner
will provide to Broadbase a written report, a template of which
is provided as Exhibit D, (which Broadbase will keep strictly
confidential) showing, for such period:
(a) the identity of each customer to whom ASP Partner has
distributed any Product during such period, including
company name, complete address and both business and
technical contact information for each such customer.
(b) the license configuration for each of the Products
distributed, including number of licenses, number of
users, current discount percentage, and license and
support fees due Broadbase.
7. SECTION 4.2, SUBSECTION (III) OF THE BROADBASE PARTNER AGREEMENT IS
DELETED
8. TO SECTION 6.1 OF THE BROADBASE PARTNER AGREEMENT, THE FOLLOWING IS APPENDED:
. . . or in an active proposal stage, but not to exceed 180 days from
the notification to Partner of the change of the Broadbase list price.
9. SECTION 6.4 OF THE BROADBASE PARTNER AGREEMENT IS DELETED AND REPLACED
WITH THE FOLLOWING:
6.4 No Setoff. ASP Partner will not setoff or offset against Broadbase's
invoices amounts that ASP Partner claims are due to it. ASP Partner will
bring any claims or causes of action it may have in a separate action
and waives any right it may have to offset, setoff or withhold payment
for the Products and delivered by Broadbase, except for valid warranty
claims by Partner's customers.
<TABLE>
<S> <C>
NAME OF CUSTOMER: Indus International
- --------------------------------------------------------------------------------
By: By: /s/ Lou Perrelli
- --------------------------------------------------------------------------------
(Authorized Signature) (Authorized Signature)
- --------------------------------------------------------------------------------
Name: Name: Lou Perrelli
- --------------------------------------------------------------------------------
Title: Title: GM Channels
- --------------------------------------------------------------------------------
Date of this Exhibit:
- --------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 15
EXHIBIT F
This Exhibit F ("Exhibit F") dated June 30, 1999, entered into by Indus
International, Inc. ("Partner") and BROADBASE INFORMATION SYSTEMS (Broadbase)
supplements the terms of the Broadbase Partner Agreement dated June 2, 1998
between Partner and Broadbase (the "Agreement"). Capitalized terms not otherwise
defined in this Exhibit shall have the same meaning as in the Agreement.
TERM: Term of the Agreement shall be extended to 2 years from the date of this
Exhibit and will automatically renew for an additional [one (1) year] term per
the terms defined in section 11 in the Agreement. License and distribution
rights for the Brio products are excluded from this agreement unless mutually
agreed upon on a case-by-case basis.
TERMINATION: Upon termination or expiration of this Agreement, license and
distribution rights of the Broadbase products (excluding Brio) will survive
until all prepaid royalties are used up.
PREPAYMENT ROYALTY: Partner agrees to make a nonrefundable prepayment of future
royalties in the amount of $1,000,000 on net 30 day terms from the execution
date of this Exhibit. (This prepayment brings the total prepay balance to
$1,250,000).
ROYALTY: Partner agrees to pay a royalty to Broadbase equaling a percentage of
the actual selling price of the Derivative Offering. (For the purposes of this
agreement "Derivative Offering" means both the Partner software which contains
Broadbase Products and any annual software maintenance and/or support fees.)
Cumulative revenue shall include all revenue from the sale of the Derivative
Offering from the execution of this Exhibit forward. Royalty amounts will be
calculated on the following graduated scale.
<TABLE>
<S> <C>
-Upon execution of this Exhibit -- 50/50 split
-After first million of cumulative revenue -- 60% Partner/40% Broadbase
-After second million of cumulative revenue -- 70% Partner/30% Broadbase
-After third million of cumulative revenue -- 80% Partner/20% Broadbase
</TABLE>
ROYALTY REPORTING: Partner agrees to report royalty and/or royalty burn down on
an Exhibit D within 10 business days after the end of the same calendar quarter
that the royalty or royalty burn-down has occurred.
BURN-DOWN RATE: Prepaid royalties are decremented at 100% of royalty amounts
due.
MINIMUM ROYALTY: Notwithstanding the above, in no event shall the pricing per
End User be less than $50,000.
MAXIMUM ROYALTY: Notwithstanding the above, in no event shall royalty be paid on
amounts in excess of $800,000 of the actual selling price for each End User
transaction. The parties may mutually agree to exceptions to the Maximum and
Minimum Royalty.
1
[*] Confidential treatment has been requested for certain portions of
this document. Such omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE> 16
USE LIMITATIONS: End User license rights exclude the use of the Broadbase
software independently of the Derivative Offering. License rights do include the
ability to access, extract, transform, or contain data from data sources other
than those owned or controlled by the Partner but only insofar as data from
these sources is added to the Derivative Offering. If an End User customer
wishes to use the Broadbase software as a general purpose tool (and to build
applications that are independent of the Derivative Offering), they will be
required to contract directly with Broadbase.
<TABLE>
<S> <C>
NAME OF CUSTOMER:
- --------------------------------------------------------------------------------
By: By: Indus International, Inc.
- --------------------------------------------------------------------------------
(Authorized Signature) /s/ Joan P. Platt
- --------------------------------------------------------------------------------
Name: Name: Joan P. Platt
- --------------------------------------------------------------------------------
Title: Title: CFO
- --------------------------------------------------------------------------------
Date of this Exhibit: June 30, 1999
- --------------------------------------------------------------------------------
</TABLE>
2
<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. 3 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
September 15, 1999
