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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1999
REGISTRATION NO. 333-82907
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CALICO COMMERCE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7372 77-0373344
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
RIVERPARK TOWERS
333 WEST SAN CARLOS STREET, SUITE 300
SAN JOSE, CALIFORNIA 95110
(408) 975-7400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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MR. ALAN P. NAUMANN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CALICO COMMERCE, INC.
333 WEST SAN CARLOS STREET, SUITE 300
SAN JOSE, CALIFORNIA 95110
(408) 975-7400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
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<S> <C>
GREGORY M. GALLO, ESQ. LARRY W. SONSINI, ESQ.
PETER M. ASTIZ, ESQ. JOHN T. SHERIDAN, ESQ.
SALLY J. RAU, ESQ. CHRISTOPHER OZBURN, ESQ.
GRAY CARY WARE & FREIDENRICH LLP WILSON SONSINI GOODRICH & ROSATI, P.C.
400 HAMILTON AVENUE 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94301-1825 PALO ALTO, CALIFORNIA 94304-1050
(650) 328-6561 (650) 493-9300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") 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, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED PER SHARE(1)(2) OFFERING PRICE(1)(2) FEE(3)
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Common Stock ($0.001 par value).......................... $14.00 $70,840,000 $19,694
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(1) Includes 660,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) The number of shares being registered hereby is omitted pursuant to Rule
457(o) promulgated under the Securities Act. Estimated solely for the
purposes of determining the registration fee pursuant to Rule 457(o)
promulgated under the Securities Act.
(3) Of this amount, $15,985 has previously been paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion. Dated August , 1999.
4,400,000 Shares
CALICO COMMERCE, INC.
Common Stock
[CALICO LOGO]
----------------------
This is an initial public offering of shares of common stock of Calico
Commerce, Inc. All of the 4,400,000 shares of common stock are being sold by
Calico.
Prior to this offering, there has been no public market for our common
stock. It is currently estimated that the initial public offering price per
share will be between $12.00 and $14.00. Application has been made for quotation
of the common stock on the Nasdaq National Market under the symbol "CLIC".
See "Risk Factors" beginning on page 5 to read about certain factors you
should consider before buying shares of the Common Stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<CAPTION>
Per Share Total
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Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Calico........................ $ $
</TABLE>
To the extent that the underwriters sell more than 4,400,000 shares of
common stock, the underwriters have the option to purchase up to an additional
660,000 shares from Calico at the initial public offering price less the
underwriting discount.
----------------------
The underwriters expect to deliver the shares against payment on
, 1999.
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
HAMBRECHT & QUIST
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Prospectus dated , 1999.
<PAGE> 3
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Calico and the consolidated financial statements and notes
appearing elsewhere in this prospectus. Except as set forth in the consolidated
financial statements or as otherwise specified in this prospectus, all
information in this prospectus:
- - assumes no exercise of the underwriters' over-allotment option;
- - gives effect to the conversion of each outstanding share of preferred stock
into one share of common stock upon the completion of this offering; and
- - reflects the 3-for-2 stock split and our reincorporation into Delaware prior
to the completion of this offering.
CALICO COMMERCE, INC.
We are a leading provider of eCommerce software and services that enable
our customers to sell complex products and services over the Internet and other
platforms as part of a greater eBusiness strategy. With our software, companies
are able to design sales platforms that evolve beyond basic transactions and
focus on interactions and enhanced relationships with their customers. We
believe that we have pioneered a new class of advanced eCommerce software that
enables companies to customize the appearance and function of their web site and
create a unique process to interact with their customers. This enables companies
to differentiate themselves from their competitors, and build strong customer
relationships that can result in increased revenue and reduced sales costs.
The Internet has created a new means for businesses to reach and interact
directly with new and existing customers worldwide, thereby transforming the
traditional ways companies market, sell and support their product and service
offerings. The Internet allows for enhanced interactivity, greater
personalization and the ability to offer a broad array of complex, configurable
goods and services, all at the time of purchase. In order to capitalize on the
opportunities offered by the Internet, companies are adopting more sophisticated
approaches to eCommerce in their eBusiness strategies, and are increasing their
investment in eCommerce infrastructure.
With an eBusiness strategy, a company can combine the opportunities
provided by the Internet with emerging technologies to expand their existing
business.
The Calico eSales Suite can be deployed by our customers on their web
sites to improve selling effectiveness and customer satisfaction. Our software
is designed to facilitate the selling process by dynamically assessing customer
requirements, providing tailored information, identifying constraints, proposing
alternatives and delivering quotes. Our software enables companies to provide
highly tailored products and services, recommend additional related or
complementary items to a buyer during the purchase process, and reduce the time
to market of new products and services. In addition, our software is designed to
improve sales effectiveness and order accuracy, thereby enhancing operating
efficiency and reducing costs.
The key elements of our strategy are to:
- - increase the breadth, depth and functionality of our eCommerce software;
- - align with eCommerce leaders and expand into additional industry market
segments;
- - enhance and expand our sales and services through additional partnerships
and alliances;
- - extend our technology leadership; and
- - identify and capitalize on new opportunities offered by expansion of
eCommerce.
Our eCommerce software is broadly applicable to a wide range of industries
and markets. Our current customers include a number of companies that have
adopted aggressive eBusiness strategies.
We were incorporated in California in 1994 and will reincorporate in
Delaware prior to the consummation of this offering. Our principal executive
offices are located at 333 West San Carlos Street, Suite 300, San Jose,
California 95110 and our telephone number is (408) 975-7400. Our worldwide
website is at www.calico.com. The information contained on our website does not
constitute a part of this prospectus.
We incurred net losses of approximately $15.3 million for fiscal 1999 and
$4.7 million for the three months ended June 30, 1999. As of June 30, 1999, we
had an accumulated deficit of $34.4 million.
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THE OFFERING
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Common Stock offered by Calico.................. 4,400,000 shares
Common Stock to be outstanding after this 31,520,127 shares
offering........................................
Proposed Nasdaq National Market symbol.......... "CLIC"
Use of proceeds................................. General corporate purposes, including working
capital, sales and marketing activities, product
development and support and capital
expenditures. See "Use of Proceeds".
</TABLE>
The above information is based on 27,120,127 shares outstanding as of June 30,
1999. Of this number, 2,302,561 shares are subject to a repurchase option held
by Calico. This information does not include 5,293,222 shares of common stock
issuable upon the exercise of options outstanding under our 1997 and 1995 Stock
Option Plans, 31,463 shares of common stock issuable upon exercise and
conversion of preferred stock options, and 133,249 shares of common stock
issuable upon exercise and conversion of preferred stock warrants. See
"Capitalization", "Management -- Executive Compensation", and "-- Benefit
Plans".
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
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1996 1997 1998 1999 1998 1999
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net revenue........................................... $ 2,270 $ 5,903 $11,859 $ 21,413 $ 4,653 $ 7,433
Gross profit................................................ 1,830 3,603 8,479 12,962 3,185 4,636
Loss from operations........................................ (2,070) (6,921) (5,458) (15,238) (1,610) (4,794)
Net loss.................................................... (1,970) (6,900) (5,499) (15,261) (1,645) (4,723)
Net loss per share:
Basic and diluted......................................... $ (0.69) $ (2.12) $ (1.08) $ (2.27) $ (0.27) $ (0.59)
Weighted average shares................................... 2,856 3,248 5,079 6,710 6,040 7,961
Pro forma net loss per share:
Basic and diluted......................................... $ (0.74) $ (0.20)
Weighted average shares................................... 20,689 23,588
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 10,528 $10,528 $ 62,124
Working capital............................................. 5,276 5,276 56,872
Total assets................................................ 27,223 27,223 78,819
Debt and capital leases, long-term portion.................. 622 622 622
Total Mandatorily Redeemable Convertible Preferred Stock.... 32,541 -- --
Total stockholders' equity (deficit)........................ (20,972) 11,569 63,165
</TABLE>
Consolidated statement of operations data for the three month period ended June
30, 1999 and for year ended March 31, 1999 includes the results of operations of
FirstFloor Software subsequent to our acquisition of FirstFloor in August 1998.
Shares used in computing unaudited pro forma basic and diluted net loss per
share include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of preferred stock to common stock, as if the
conversion occurred on April 1, 1998 or the date of original issuance, if later.
The pro forma as adjusted information above reflects the application of the
estimated net proceeds from the sale of the shares of common stock that we are
offering at an assumed initial public offering price of $13.00 per share, after
deducting estimated underwriting discounts and commissions and our estimated
offering expenses. See "Capitalization".
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RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before deciding whether to
invest in our common stock.
If any of the following risks actually occurs, our business could be
harmed. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
WE HAVE A FIVE YEAR HISTORY OF LOSSES, WE EXPECT TO CONTINUE TO INCUR LOSSES AND
WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY
We have incurred quarterly and annual losses in each of the five years
since we were formed, and we expect to continue to incur losses on both a
quarterly and annual basis for the foreseeable future. We incurred net losses of
$6.9 million for fiscal 1997, $5.5 million for fiscal 1998, $15.3 million for
fiscal 1999 and $4.7 million for the three months ended June 30, 1999. As of
June 30, 1999, we had an accumulated deficit of $34.4 million. Moreover, we
expect to continue to incur significant sales and marketing and research and
development expenses, and, as a result, we will need to generate significant
revenue to achieve and maintain profitability. Although our revenue has grown in
recent quarters, we cannot be certain that we can sustain this growth or that we
will generate sufficient revenue for profitability. If we do achieve
profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis in the future. See "Selected
Consolidated Financial Data" on page 20 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 21 for more
detailed information about our operating results.
OUR QUARTERLY RESULTS FLUCTUATE SIGNIFICANTLY, ARE SUBJECT TO SEASONALITY AND
MAY FALL SHORT OF ANTICIPATED LEVELS, WHICH MAY CAUSE VOLATILITY OR DECLINE IN
THE PRICE OF OUR COMMON STOCK
Our quarterly operating results have varied significantly in the past and
we expect that they will continue to vary significantly from quarter to quarter
in the future. These quarterly variations are caused by a number of factors,
including:
- - changes in the pricing of our products or services or those of our
competitors;
- - delays in customer orders;
- - timing of product deployments and achievement of implementation milestones,
particularly for large orders which could result in delays in recognition of
revenue in accordance with applicable accounting principles;
- - the timing and mix of our license and services revenue; and
- - our ability to attract and train qualified sales personnel and the time
required to bring our new sales personnel to full productivity.
In addition, we receive a major portion of our orders near the end of each
quarter. Therefore, we have difficulty predicting the volume and timing of
orders, and short delays in closing orders or implementation of products can
cause our operating results to fall substantially short of anticipated levels
for that quarter.
We also expect to experience seasonal fluctuations in the sales of our
software products. For example, our quarterly results may fluctuate based upon
our customers' calendar year budgeting cycles. These seasonal variations may
lead to fluctuations in our quarterly operating results.
As a result of these and other factors, we believe that period-to-period
comparisons of our historical results of operations are not necessarily
meaningful and are not a good predictor of our future performance. In some
future quarter our operating results may be below the expectations of public
market analysts and investors, which could cause volatility or decline in the
price of our common stock.
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OUR PRODUCTS HAVE A LONG SALES AND IMPLEMENTATION CYCLE WHICH MAKES IT DIFFICULT
TO PREDICT OUR QUARTERLY RESULTS AND MAY CAUSE OPERATING RESULTS TO VARY
SIGNIFICANTLY
The sales cycle for our products is long, typically ranging from three
months to a year, making it difficult to predict the quarter in which revenue
recognition may occur. Our products have a relatively high sales price per unit,
and often are part of a significant strategic decision by our customers
regarding their information systems infrastructure. Accordingly, the decision to
purchase our products typically requires significant pre-purchase evaluation. We
spend significant time educating and providing information to prospective
customers regarding the use and benefits of our products. During this evaluation
period, we may expend substantial funds in sales, marketing and management
efforts.
This lengthy sales cycle may cause license revenue and operating results
to vary significantly from period to period. If anticipated sales from a
specific customer for a particular quarter are not realized in that quarter, our
operating results may vary significantly and we may miss our revenue forecast.
ACCOUNTING POLICIES MAY REQUIRE US TO DEFER RECOGNITION OF REVENUE UNTIL LATER
QUARTERS
Even after purchase of our products, it often takes substantial time and
resources to implement our software and to integrate it with our customers'
existing computer systems. We may not be able to recognize all or a portion of
the revenue until the deployment of the software is completed or implementation
milestones are achieved. Because of revenue recognition accounting requirements,
we have in the past and may in the future be required to defer recognition of
license revenue for software products from the period in which the agreement for
the license of software is signed to subsequent periods. If we are unable to
complete one or more substantial anticipated license sales or experience delays
in the progress on a project or product or in the satisfaction of contract terms
required for revenue recognition in a particular quarter. We may not be able to
recognize revenue when anticipated, causing our quarterly results to fluctuate
and fall below anticipated levels. This could cause our stock price to decline.
BECAUSE A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR
REVENUE, OUR REVENUE COULD DECLINE IF WE LOSE A MAJOR CUSTOMER
We derive a significant portion of our software license revenue in each
quarter from a limited number of customers. For example, for the fiscal year
ended March 31, 1999, four customers accounted for 52% of our revenue and ten
customers accounted for 81% of our revenue. Many of our contracts are in excess
of $1.0 million. We expect that a limited number of customers will continue to
account for a substantial portion of our revenue for the foreseeable future. As
a result, if we lose a major customer, if a contract is delayed, cancelled or
deferred or if an anticipated sale is not made, our revenue would be adversely
affected. In addition, customers that have accounted for significant revenue in
the past may not continue to generate revenue in any future period.
WE MAY NOT ACHIEVE ANTICIPATED REVENUE IF WE DO NOT SUCCESSFULLY INTRODUCE, AND
IF OUR CUSTOMERS DO NOT ACCEPT, UPGRADES AND ENHANCEMENTS TO OUR PRODUCTS,
INCLUDING OUR NEW VERSION RELEASED IN JUNE 1999
We currently derive substantially all of our revenue from licenses,
professional services and support related to sales of the Calico eSales Suite.
The latest version of the Calico eSales Suite was introduced in June 1999.
Our business depends on the success and customer acceptance of this introduction
as well as future enhancements. Although our products have been subject to our
internal testing procedures, since the new version of the Calico eSales Suite
has only recently been introduced, customers may discover errors or other
problems with the product, which may adversely affect its acceptance.
We expect that we will continue to depend on revenue from new and enhanced
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versions of the Calico eSales Suite for the foreseeable future, and if our
target customers do not continue to adopt and expand their use of the Calico
eSales Suite, we may not achieve anticipated revenue.
WE COULD FAIL TO ACHIEVE ANTICIPATED REVENUE IF WE EXPERIENCE DELAYS IN
INTRODUCTION AND MARKET ACCEPTANCE OF NEW PRODUCTS
We expect to add new products by acquisition or internal development and
by developing enhancements to our existing products. We have in the past
experienced delays in the planned release dates of our software products and
upgrades. New products may not be released on schedule or may contain defects
when released. The introduction of enhancements to our suite of products may
cause customers to defer orders for our existing products. New and enhanced
products may not meet the requirements of the marketplace and achieve market
acceptance. If we are unable to ship or implement new or enhanced products when
planned, or fail to achieve timely market acceptance of our new or enhanced
products, we may suffer lost sales and could fail to achieve anticipated
revenue.
WE HAVE LIMITED EXPERIENCE WITH LARGE-SCALE DEPLOYMENTS, AND IF OUR PRODUCTS DO
NOT SCALE TO OPERATE IN A COMPANY-WIDE ENVIRONMENT, WE MAY LOSE SALES AND SUFFER
DECREASED REVENUE
Our strategy requires that our software be highly scalable, or able to
accommodate substantial increases in the number of users concurrently using the
product. However, we are just beginning to deploy large-scale Internet-based
solutions and no large-scale deployment has been operating at any customer site
for an extended period of time. In addition, the interface component of the
Calico eSales Configurator is powered by Microsoft Active Server Pages and
therefore operates only on Windows NT. We intend to develop user interface
components to allow our customers to use either a Unix-based or Windows NT-based
Web server. If we are unable to promptly or successfully develop the Unix
version, the scalability of our Calico eSales Configurator may be limited for
larger customer applications due to the scalability limitations of Windows NT.
If our solutions do not perform adequately in large-scale implementations, we
may lose customer sales resulting in a decline in revenue.
IF WE ARE UNABLE TO SUCCESSFULLY PENETRATE NEW MARKETS, WE MAY NOT BE ABLE TO
ACHIEVE EXPECTED SALES GROWTH
Sales of our products and services in two markets -- computer hardware and
network and telecommunications equipment -- accounted for over 80% of our total
net revenue in the fiscal year ended March 31, 1999. We expect that revenue from
these two markets will continue to account for a substantial portion of our
total net revenue in fiscal 2000. We are targeting expansion in additional
market segments defined by industry where eCommerce software is highly strategic
and promote competitive advantage, including manufacturing, retail,
telecommunications services and financial services. If we are unable to
successfully increase penetration of our existing markets or expand in these
additional markets, or if the overall economic climate of our target markets
deteriorates, we may not be able to achieve expected sales growth.
IF WE DO NOT EXPAND OUR DIRECT SALES ORGANIZATION, WE MAY NOT BE ABLE TO
INCREASE SALES OF OUR PRODUCTS
Our future growth depends on the ability of our direct sales force to
develop customer relationships and increase sales to a level that will allow us
to reach and maintain profitability. Our ability to increase our sales will
depend on our ability to recruit, train and retain top quality sales people who
are able to target prospective customers' senior management, and who can
productively generate and service large accounts.
There is a shortage of the sales personnel we need, and competition for
qualified personnel is intense. In addition, it will take time for new sales
personnel 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 to reach productivity when
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anticipated, we may not be able to expand our sales organization and increase
sales of our products.
IF WE DO NOT EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION AND ESTABLISH AND
MAINTAIN RELATIONSHIPS WITH THIRD PARTY CONSULTANTS, WE MAY NOT BE ABLE TO
PROVIDE ADEQUATE IMPLEMENTATION SERVICES TO OUR CUSTOMERS
Growth in the license of our products depends on our ability to provide
our customers with professional services to assist with design, implementation
and maintenance. If we are unable to get the support of third-party consultants
to provide these services or if third parties do not provide these services
effectively or in a cost-efficient manner, or decide to develop their own
products or support the products of our competitors rather than our products, we
may not be able to provide sufficient implementation services to our customers.
This could result in decreased customer satisfaction and loss of sales. In
addition, if we have to retain third party consultants to provide services for
our customers for which we have previously committed, the resulting increased
costs could have an adverse impact on the gross margins for our professional
services.
YEAR 2000 CONSIDERATIONS MAY CAUSE OUR CUSTOMERS AND POTENTIAL CUSTOMERS TO
DELAY PURCHASES OF OUR PRODUCTS UNTIL LATER IN 2000, AND MAY REDUCE OUR SALES
We may experience reduced license of products as customers and potential
customers put a priority on correcting year 2000 problems and therefore defer
purchase decisions for software products until later in 2000. Accordingly,
demand for our products may be particularly volatile and unpredictable for the
remainder of calendar 1999 and 2000.
OUR DEPENDENCE ON SERVICES REVENUE, WHICH HAS A LOWER GROSS MARGIN THAN LICENSE
REVENUE, COULD ADVERSELY IMPACT OUR GROSS MARGIN AND OPERATING RESULTS
We anticipate that services revenue will continue to represent a
significant percentage of total net revenue as we continue to provide consulting
and training services that complement our products and as our installed base of
customers grows. To increase services revenue, we must expand our services
organization, successfully recruit and train a sufficient number of qualified
services personnel, and obtain renewals of current maintenance contracts by our
customers.
Although services revenue is important to our business, services revenue
has lower gross margins than license revenue. As a result, a continued increase
in the percentage of total net revenue represented by services revenue or an
unexpected decrease in license revenue could have a detrimental impact on our
overall gross margins and our operating results.
WE NEED TO ESTABLISH AND MAINTAIN KEY MARKETING ALLIANCES TO COMPLEMENT OUR
DIRECT SALES FORCE IN ORDER TO GROW SALES
In order to increase geographic sales coverage worldwide and to address
new markets and customer segments, we must complement our direct sales force
with strategic marketing alliances. Until recently, few potential partner
organizations have focused on the emerging class of packaged eCommerce
applications and we have only established a limited number of such key
alliances. To date, we have not generated significant revenue from these
alliances. If we fail to maintain our existing relationships and to establish
new key alliances, or if our partners do not perform to our or our customers'
expectations, we may not be able to expand our sales as anticipated.
COMPETITION IN THE MARKET FOR ADVANCED ECOMMERCE PRODUCTS AND SERVICES COULD
REDUCE OUR SALES AND PREVENT US FROM ACHIEVING PROFITABILITY
The market for software and services that enable eCommerce is new,
intensely competitive, highly fragmented, and rapidly changing. We expect
competition to persist and intensify, which could result in price reductions,
reduced gross margins and loss of market share.
Competitors vary in size and in the scope and breadth of the products and
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services offered. Many of our competitors and potential competitors have a
number of significant advantages over us, including:
- - a longer operating history;
- - preferred vendor status with our customers;
- - more extensive name recognition and marketing power; and
- - significantly greater financial, technical, marketing and other resources,
giving them the ability to respond more quickly to new or changing
opportunities, technologies and customer requirements.
Our competitors may also bundle their products in a manner that may
discourage users from purchasing our products. Current and potential competitors
may establish cooperative relationships with each other or with third parties,
or adopt aggressive pricing policies to gain market share. Competitive pressures
may require us to reduce the prices of our products and services. We may not be
able to maintain or expand our sales if competition increases and we are unable
to respond effectively.
WE NEED TO IMPROVE AND IMPLEMENT NEW SYSTEMS, PROCEDURES AND CONTROLS AND HIRE
ADDITIONAL PERSONNEL IN ORDER TO CONTINUE TO MANAGE OUR RAPID GROWTH
We have recently experienced a period of rapid growth and expansion, which
places significant demands on our managerial administrative, operational,
financial and other resources. All members of our management team, other than
our Vice President, Research and Development have joined Calico since June 1997.
Our Vice President, Engineering joined Calico in January 1999, and our Vice
President and Chief Financial Officer joined Calico in June 1999. From September
30, 1997 to June 30, 1999, we expanded from 85 to 210 employees. Our new
employees include a number of key managerial, marketing, planning, technical and
operations personnel who have not yet been fully integrated into our
organization.
We also plan to expand the geographic scope of our operations. Our rapid
growth and expansion places significant demands on our managerial,
administrative, operational, financial and other resources. To accommodate
continued anticipated growth and expansion, we will be required to:
- - improve existing and implement new operational and financial systems,
procedures and controls; and
- - hire, train, manage, retain and motivate qualified personnel.
These measures may place additional burdens on our management and our
internal resources.
THE MARKET FOR OUR ECOMMERCE
PRODUCTS AND SERVICES IS NEW AND EVOLVING AND CUSTOMERS MAY NOT ACCEPT OUR
PRODUCTS
The market for our products and services is at an early stage of
development and is rapidly evolving. This market may not continue to develop and
grow, and companies may not elect to utilize our products and services rather
than attempt to develop applications internally or through other sources.
Companies that have already invested substantial resources in other methods of
conducting commerce may be reluctant to adopt a new approach that may replace,
limit or compete with their existing systems. We expect that we will continue to
need intensive marketing and sales efforts to educate prospective customers
about the uses and benefits of our products and services. Therefore, demand for
and market acceptance of our products and services will be subject to a high
level of uncertainty.
NEW TECHNOLOGIES COULD RENDER OUR PRODUCTS OBSOLETE OR REQUIRE US TO REWRITE OUR
SOFTWARE IN NEW COMPUTER LANGUAGES OR FOR OTHER OPERATING SYSTEMS
The market for software and services that enable eCommerce is
characterized by rapid technological change, changes in customer requirements,
frequent new product and service introductions and enhancements, and emerging
industry standards. Advances in Internet technology or in applications software
directed at eCommerce, or the development of entirely new technologies to
9
<PAGE> 10
replace existing software, could lead to new competitive products that have
better performance or lower prices than our products and could render our
products obsolete and unmarketable. In addition, if a new software language or
operating system becomes standard or is widely adopted in our industry, we may
need to rewrite portions of our products in another computer language or for
another operating system to remain competitive. If we are unable to develop
products that respond to changing technology, our business could be harmed.
It is common for software companies to acquire other companies as a means
of introducing new products or emerging technologies. If a new technology or
product emerges that may displace our product lines, competitors with large
market capitalizations or cash reserves would be better positioned than we are
to acquire such new technology or product.
IF WE LOSE KEY PERSONNEL, WE COULD EXPERIENCE REDUCED SALES, DELAYED PRODUCT
DEVELOPMENT AND DIVERSION OF MANAGEMENT RESOURCES
Our success depends largely on the continued contributions of our key
management, engineering, sales and marketing and professional services
personnel, many of whom would be difficult to replace. If one or more members of
our senior management were to resign, the loss of personnel could result in loss
of sales, delays in new product development and diversion of management
resources.
BECAUSE COMPETITION FOR QUALIFIED PERSONNEL IS INTENSE, WE MAY NOT BE ABLE TO
RECRUIT OR RETAIN PERSONNEL, WHICH COULD IMPACT THE DEVELOPMENT OR SALES OF OUR
PRODUCTS
Our success depends on our ability to attract and retain additional
qualified engineering, sales and marketing and professional services personnel.
Competition for these types of personnel is intense, especially in Silicon
Valley. If we are unable to retain our existing key personnel, or attract and
train additional qualified personnel, our growth may be limited due to our lack
of capacity to develop and market our products.
ACQUISITIONS, SUCH AS OUR ACQUISITION OF FIRSTFLOOR, MAY BE COSTLY AND DIFFICULT
TO INTEGRATE, DIVERT MANAGEMENT RESOURCES OR DILUTE STOCKHOLDER VALUE
As part of our business strategy, we have in the past and may in the
future make acquisitions of, or investments in companies, products or
technologies that complement our current products, augment our market coverage,
enhance our technical capabilities or that may otherwise offer growth
opportunities. For example, in 1998 we acquired FirstFloor Software. We
encountered the following difficulties in our acquisition of FirstFloor and
would anticipate similar difficulties in future acquisitions:
- - difficulties in the assimilation of acquired personnel, operations,
technologies or products;
- - unanticipated costs associated with the acquisition;
- - diversion of management's attention from other business concerns; and
- - adverse effects on existing business relationships with suppliers and
customers.
Future acquisitions could also pose risks of entering markets where we
have no or limited prior experience and require us to use substantial portions
of our available cash to consummate the acquisition.
In addition, in connection with any future acquisitions, we could:
- - issue equity securities which would dilute current stockholders' percentage
ownership;
- - incur substantial debt; or
- - assume significant liabilities.
These actions by us could materially adversely affect our operating
results and/or the price of our common stock.
10
<PAGE> 11
WE INTEND TO PURSUE RELATIONSHIPS WITH EMERGING ECOMMERCE BUSINESSES THAT MAY
HAVE NO PROVEN RECORD OF SUCCESS
We intend to pursue relationships with and foster development of emerging
eCommerce-based businesses at an early stage of their development. We may pursue
these new ventures by acquisition, joint venture, or other alternative
investment. We cannot be certain that these new ventures will be successful, or
that we will generate any revenue from these new ventures. In addition to the
risks posed by traditional acquisitions, these new ventures may have no proven
record of success, and may fail, causing us to lose our investment, and may
divert management time and resources.
WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES AND THE LOSS OR
INABILITY TO MAINTAIN THESE LICENSES COULD RESULT IN INCREASED COSTS OR DELAY
SALES OF OUR PRODUCTS
We license technology from several software providers for our application
servers, our search capability software, a licensing mechanism, and quote grid
technology. We anticipate that we will continue to license technology from third
parties in the future. This software may not continue to be available on
commercially reasonable terms, if at all. Some of the software we license from
third parties could be difficult to replace. The loss of any of these technology
licenses could result in delays in the license of our products until equivalent
technology, if available, is developed or identified, licensed and integrated.
In addition, the effective implementation of our products depends upon the
successful operation of third-party licensed products in conjunction with our
products, and therefore any undetected errors in these licensed products could
prevent the implementation or impair the functionality of our products, delay
new product introductions and/or injure our reputation. The use of additional
third-party software would require us to enter into license agreements with
third parties, which could result in higher royalty payments and a loss of
product differentiation.
SOFTWARE DEFECTS AND SYSTEM ERRORS COULD DIMINISH DEMAND FOR OUR PRODUCTS AND
RESULT IN LOSS OF REVENUE, DELAY IN MARKET ACCEPTANCE AND INJURY TO OUR
REPUTATION
Complex software products like ours may contain undetected errors or
defects, including year 2000 related errors, that may be detected at any point
in the life of the product. We have in the past discovered software errors in
our products and as a result have experienced delays in shipment of products
during the period required to correct these errors. The latest version of the
Calico eSales Suite was only introduced in June 1999. Errors may be found from
time to time in our new or enhanced products after commencement of commercial
shipments, such as this latest version of our suite, resulting in loss of
revenue, delay in market acceptance and sales, diversion of development
resources, injury to our reputation or increased warranty and repair costs.
Our products are generally used in systems with other vendors' products,
and as a result our products must integrate successfully with these existing
systems. System errors, whether caused by our products or those of another
vendor, could adversely affect the market acceptance of our products, and any
necessary revisions could cause us to incur significant expenses.
IF WE BECOME SUBJECT TO PRODUCT LIABILITY LITIGATION, IT COULD BE COSTLY AND
TIME CONSUMING TO DEFEND
Since our products are used for company-wide, integral computer
applications with potentially strong impact on our customers' sales of their
products, errors, defects or other performance problems could result in
financial or other damages to our customers. Although our license agreements
generally contain provisions designed to limit our exposure to product liability
claims, existing or future laws or unfavorable judicial decisions could negate
such limitation of liability provisions. Product liability litigation, even if
it were unsuccessful, would be time consuming and costly to defend.
11
<PAGE> 12
IF OUR SYSTEMS AND THE SYSTEMS OF OUR KEY SUPPLIERS AND CUSTOMERS ARE NOT YEAR
2000 COMPLIANT, WE COULD INCUR INCREASED COSTS, DELAY OR LOSS OF REVENUE,
DIVERSION OF DEVELOPMENT RESOURCES OR DAMAGE TO OUR REPUTATION
Our products are generally integrated into computer systems involving
sophisticated hardware and complex software products, which may not be year 2000
compliant. The failure of our customers' systems to be year 2000 compliant could
impede the success of applications that we or our partners have developed for
them. Accordingly, known or unknown defects that affect the operation of our
software, including any defects or errors in applications that include our
products, could result in delay or loss of revenue, diversion of development
resources, damage to our reputation, or increased service or warranty costs and
litigation costs.
We need to ensure year 2000 compliance of our own internal computer and
other systems, to continue testing our software products and to audit the year
2000 compliance status of our suppliers and business partners. We have not
completed our year 2000 investigation and overall compliance initiative, and the
total cost of our year 2000 compliance may be substantial. We may experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology used in our internal systems. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000
Compliance" on page 34 for a discussion of the status of our year 2000
compliance review.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY WE MAY LOSE A VALUABLE
ASSET OR INCUR COSTLY LITIGATION TO PROTECT OUR RIGHTS
Our success and ability to compete depend upon our proprietary technology.
We rely on patent, trademark, trade secret and copyright laws to protect our
intellectual property. Despite our efforts to protect our intellectual property,
a third party could copy or otherwise obtain our software or other proprietary
information without authorization, or could develop software competitive to
ours. Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around our patents or other intellectual property. In addition, the
laws of some foreign countries do not protect our proprietary rights to as great
an extent as do the laws of the United States, and we expect that it will become
more difficult to monitor the use of our products if we increase our
international presence.
We may have to litigate to enforce our intellectual property rights, to
protect our trade secrets or know-how or to determine their scope, validity or
enforceability. Enforcing or defending our proprietary technology is expensive,
could cause the diversion of our resources and may not prove successful. Our
protective measures may prove inadequate to protect our proprietary rights. Any
failure to enforce or protect our rights could cause us to lose a valuable
asset. If we are unable to protect our intellectual property, we may lose a
valuable asset or incur costly litigation to protect our rights.
IF THE FUNCTIONALITY OF OUR PRODUCTS OVERLAPS A COMPETITORS' PRODUCTS AND WE
BECOME SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, THESE CLAIMS COULD
BE COSTLY AND TIME-CONSUMING TO DEFEND, DIVERT MANAGEMENT ATTENTION OR CAUSE
PRODUCT DELAYS
There has been substantial litigation in the software and Internet
industries regarding intellectual property rights. It is possible that, in the
future, third parties may claim that we or our current or potential future
products infringe their intellectual property. We expect that software product
developers and providers of eCommerce solutions will increasingly be subject to
infringement claims as the number of products and competitors in our industry
grows and the functionality of products overlaps. Any claims, with or without
merit, could be costly and time-consuming to defend, divert our management's
attention, or cause product delays. If our products were found to infringe a
third party's proprietary rights, we could be required to enter into
12
<PAGE> 13
royalty or licensing agreements in order to be able to sell our products.
Royalty and licensing agreements, if required, may not be available on terms
acceptable to us or at all.
IF USE OF THE INTERNET DOES NOT CONTINUE TO DEVELOP AND RELIABLY SUPPORT THE
DEMANDS PLACED ON IT BY ECOMMERCE, IT MAY NOT DEVELOP AS A COMMERCIAL
MARKETPLACE, CAUSING US TO FAIL TO ACHIEVE ANTICIPATED SALES GROWTH
Growth in sales of our products and services depends upon the continued
and increased use of the Internet as a medium for commerce and communication.
Although the Internet is experiencing growth in the number of users and traffic,
such rapid growth is a recent phenomenon and may not continue. In addition, the
Internet infrastructure may not be able to support the demands placed on it by
increased usage and bandwidth requirements. Other risks associated with
commercial use of the Internet could slow its growth, including:
- - inadequate security of information distributed over the Internet, resulting
in privacy concerns;
- - inadequate reliability of the network infrastructure;
- - slow development of enabling technologies and complementary products; and
- - limited accessibility and ability to deliver quality service.
In addition, the recent growth in the use of the Internet has caused
frequent periods of poor or slow performance, requiring components of the
Internet infrastructure to be upgraded. Delays in the development or adoption of
new equipment and standards or protocols required to handle increased levels of
Internet activity, or increased government regulation, could cause the Internet
to lose its viability as a commercial medium. If the Internet infrastructure
does not develop sufficiently to address these concerns, it may not develop as a
commercial marketplace, necessary for us to increase sales.
INCREASING GOVERNMENT REGULATION OF THE INTERNET COULD LIMIT THE MARKET FOR OUR
PRODUCTS AND SERVICES, OR IMPOSE ON US GREATER TAX BURDENS OR LIABILITY FOR
TRANSMISSION OF PROTECTED DATA
As eCommerce and the Internet continue to evolve, we expect that federal,
state and foreign governments will adopt laws and regulations covering issues
such as user privacy, taxation of goods and services provided over the Internet,
pricing, content and quality of products and services. If enacted, these laws
and regulations could limit the market for eCommerce, and therefore the market
for our products and services. Although many of these regulations may not apply
directly to our business, we expect that laws regulating the solicitation,
collection or processing of personal or consumer information could indirectly
affect our business.
The Telecommunications Act of 1996 prohibits certain types of information
and content from being transmitted over the Internet. The prohibition's scope
and the liability associated with a Telecommunications Act violation are
currently unsettled. The imposition upon us and other software and service
providers of potential liability for information carried on or disseminated
through our applications could require us to implement measures to reduce our
exposure to this liability. These measures could require us to expend
substantial resources or discontinue certain services. In addition, although
substantial portions of the Communications Decency Act (the Act through which
the Telecommunications Act of 1996 imposes criminal penalties) were held to be
unconstitutional, similar legislation may be enacted and upheld in the future.
It is possible that this legislation could expose companies involved in
eCommerce to liability, which could limit the growth of eCommerce generally.
Legislation like the Telecommunications Act and the Communications Decency Act
could dampen the growth of Internet usage and decrease its acceptance as a
communications and commercial medium.
13
<PAGE> 14
RESTRICTIONS ON EXPORT OF ENCRYPTED TECHNOLOGY COULD CAUSE US TO INCUR DELAYS IN
INTERNATIONAL PRODUCT SALES
Our software utilizes encryption technology, the export of which is
regulated by the United States government. If our export authority is revoked or
modified, if our software is unlawfully exported or if the United States adopts
new legislation restricting export of software and encryption technology, we may
experience delay or reduction in shipment of our products internationally.
Current or future export regulations could limit our ability to distribute our
products outside of the United States. While we take precautions against
unlawful exportation of our software, we cannot effectively control the
unauthorized distribution of software across the Internet.
IF WE DO NOT EXPAND OUR INTERNATIONAL OPERATIONS, WE MAY NOT ACHIEVE ANTICIPATED
SALES GROWTH
In order to increase our international sales opportunities, we will need
to develop further our international sales, professional services and support
organizations, and we will need to form additional relationships with partners
worldwide. If we are unable to expand our international operations and
international sales on a timely basis, we may not achieve anticipated sales
growth. This expansion may be more difficult or take longer than we anticipate,
and we may not be able to successfully market, sell, deliver and support our
products internationally.
If successful in our international expansion, we will be subject to a
number of risks associated with international operations, including:
- - longer accounts receivable collection cycles;
- - expenses associated with localizing products for foreign markets;
- - difficulties in managing operations across disparate geographic areas;
- - difficulties in hiring qualified local personnel;
- - difficulties associated with enforcing agreements and collecting receivables
through foreign legal systems; and
- - unexpected changes in regulatory requirements that impose multiple
conflicting tax laws and regulations.
Our international sales are currently U.S. dollar-denominated. As a
result, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive in international markets. In
the future, we may elect to invoice some of our international customers in local
currencies. Doing so will subject us to fluctuations in exchange rates between
the U.S. dollar and the particular local currency. Our operating results could
also be adversely affected by the seasonality of international sales and the
economic conditions of our overseas markets.
WE HAVE DISCRETION AS TO THE USE OF THE PROCEEDS FROM THIS OFFERING AND MAY NOT
OBTAIN A SIGNIFICANT RETURN ON THE USE OF THESE PROCEEDS
Our management has complete 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. We cannot predict that investment of the proceeds
will yield a favorable return. See "Use of Proceeds" on page 17 for further
discussion of how we intend to use the proceeds from this offering.
OUR DIRECTORS AND EXECUTIVE OFFICERS WILL
RETAIN SIGNIFICANT CONTROL OVER CALICO AFTER THE OFFERING, WHICH MAY LEAD TO
CONFLICTS WITH OTHER STOCKHOLDERS OVER CORPORATE GOVERNANCE
Following the completion of this offering, our directors, executive
officers, and holders of 5% or more of our outstanding common stock will
beneficially own approximately 54.6% of our outstanding common stock. These
stockholders, acting together, would be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors and significant corporate transactions, such as mergers or other
business combination
14
<PAGE> 15
transactions. This control may have the effect of delaying or preventing a third
party from acquiring or merging with us.
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER OR CHANGE IN OUR
CONTROL THAT A STOCKHOLDER MAY CONSIDER FAVORABLE
Provisions in our Certificate of Incorporation and Bylaws may have the
effect of delaying or preventing a merger or acquisition of us or a change in
our control or changes in our management. See "Description of Capital
Stock -- Delaware Anti-Takeover Law and Charter Provisions" on page 63 for
further discussion of the specific provisions in our charter documents and of
Delaware law that may delay or prevent a change in our control.
OUR STOCK PRICE MAY BE VOLATILE, WHICH MAY LEAD TO LOSSES BY INVESTORS
There has been no public market for our shares prior to this offering, and
after the offering, an active public market for the shares may not develop. We
will negotiate and determine the initial public offering price with the
representatives of the underwriters based on several factors. This price will
likely vary from the market price of the common stock after the offering. The
stock market has experienced price and volume fluctuations and the market prices
of securities of technology companies in particular have been highly volatile.
You may not be able to resell your shares at or above the initial public
offering price.
WE MAY BE SUBJECT TO SECURITIES CLASS ACTION LITIGATION IF OUR STOCK PRICE IS
VOLATILE
In the past, securities class action litigation has often been instigated
against a company following periods of volatility in the company's stock price.
If this were to happen to Calico, litigation would be expensive and would divert
management's attention.
FUTURE SALES OF OUR STOCK COULD CAUSE OUR STOCK PRICE TO FALL
Sales of a substantial number of shares of our common stock in the public
market after this offering could cause the market price of our common stock to
decline. In addition, the sale of these shares could impair our ability to raise
capital through the sale of additional equity securities. Upon completion of
this offering, we will have approximately 31,520,127 shares of common stock
outstanding, approximately 32,180,127 if the underwriters' over-allotment option
is exercised in full, based on shares outstanding as of June 30, 1999.
Our officers and directors and substantially all of our existing
stockholders have agreed with Goldman, Sachs & Co. not to sell or otherwise
dispose of any of their shares for a period of 180 days after the date of this
offering. When these lock-up agreements expire, these shares and the shares
underlying any options held by these individuals will become eligible for sale,
in some cases subject only to the volume, manner of sale and notice requirements
of Rule 144 of the Securities Act of 1933. See "Shares Eligible for Future Sale"
on page 65 for further discussion of the shares that will be freely tradeable
after the date of this prospectus.
THE PURCHASERS OF SHARES IN THE OFFERING WILL EXPERIENCE IMMEDIATE DILUTION
We expect that the initial public offering price will be substantially
higher than the pro forma net tangible book value per share of our outstanding
common stock. Accordingly, if we were liquidated for book value immediately
following this offering, each stockholder purchasing in this offering would
receive less than the price they paid for their common stock. In addition,
because our success is so heavily dependent on our ability to attract and retain
talented personnel, we expect to offer a significant number of stock options to
employees in the future. If other stockholders exercise options or warrants to
purchase our common stock, you will experience further dilution. See "Dilution"
on page 19 for further discussion of the dilution that new investors will incur.
15
<PAGE> 16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates" and similar expressions. Because these
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by these forward-looking
statements for a number of reasons, including those discussed under "Risk
Factors" and elsewhere in this prospectus.
You should read statements that contain those words carefully because they
discuss our expectations about our future performance, contain projections of
our future operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in our common stock, you should
be aware that the occurrence of any of the events described in these risk
factors and elsewhere in this prospectus could substantially harm our business,
results of operations and financial condition and that upon the occurrence of
any of these events, the trading price of our common stock could decline and you
could lose all or part of your investment.
16
<PAGE> 17
USE OF PROCEEDS
We estimate that we will receive net proceeds of $51.6 million from the
sale of the 4,400,000 shares of common stock in this offering, assuming an
initial public offering price of $13.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses of $5.6
million. If the underwriters' over-allotment option is exercised in full, we
estimate that our net proceeds will be $59.6 million.
We intend to use the net proceeds of the offering primarily for general
corporate purposes, including working capital, sales and marketing activities,
product development and support and capital expenditures. In connection with our
proposed move or expansion of our headquarters facility, we expect that we may
expend up to $3.0 million or more of the offering proceeds. We may, if
appropriate opportunities arise, use an undetermined portion of the net proceeds
to acquire or invest in complementary companies, product lines, products or
technologies. We do not have any agreements or commitments with respect to any
acquisition or investment and we are not involved in any negotiations with
respect to any transaction. Pending such uses, we will invest the net proceeds
in investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid cash dividends. We do not anticipate paying cash
dividends in the forseeable future. Under the terms of our line of credit
facilities, we may not declare or pay any dividends without the prior consent of
the lenders under each of the credit facilities.
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<PAGE> 18
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
- - on an actual basis;
- - on a pro forma basis to reflect the conversion of all outstanding shares of
preferred stock into 15,626,928 shares of common stock; and a 3-for-2 stock
split of our outstanding common stock; and
- - on a pro forma as adjusted basis to reflect this conversion and the
application of the estimated net proceeds from the sale of 4,400,000 shares
of common stock in this offering, after deducting the estimated underwriting
discounts and commissions and estimated offering expenses.
The outstanding share information excludes 5,293,222 shares of common
stock issuable upon the exercise of options outstanding under our option plans
with a weighted average exercise price of $6.41 per share, 31,463 shares of
common stock issuable upon exercise and conversion of preferred stock options at
a weighted average exercise price of $2.68 per share, and 133,249 shares of
common stock issuable upon exercise and conversion of outstanding preferred
stock warrants at a weighted average exercise price of $1.31 per share. The
outstanding share information also excludes 2,848,121 shares of common stock
available for issuance under our 1997 Stock Option Plan and 750,000 shares of
common stock reserved for issuance under our 1999 Employee Stock Purchase Plan.
Of the total shares outstanding, 2,302,561 shares are subject to our right of
repurchase.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes to the consolidated financial statements.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------
PRO
FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- --------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Notes payable, current portion.............................. $ 682 $ 682 $ 682
======== ======== ========
Capital lease obligations, current portion.................. 247 247 247
======== ======== ========
Notes payable, non-current.................................. $ 497 $ 497 $ 497
-------- -------- --------
Capital lease obligations, non-current...................... 125 125 125
-------- -------- --------
Mandatorily Redeemable Convertible Preferred Stock.......... 32,541 -- --
-------- -------- --------
Stockholders' equity (deficit):
Preferred Stock; $0.001 par value; 15,000,000 shares
authorized; no shares issued and outstanding actual,
pro forma and pro forma as adjusted.................... -- -- --
Common Stock; $0.001 par value; 150,000,000 shares
authorized; 11,493,199 shares issued and outstanding,
actual; 27,120,127 shares issued and outstanding, pro
forma; 31,520,127 shares issued and outstanding, pro
forma as adjusted...................................... 11 27 32
Additional paid-in capital................................ 17,894 50,419 102,010
Notes receivable from stockholders........................ (2,211) (2,211) (2,211)
Unearned compensation..................................... (2,265) (2,265) (2,265)
Accumulated deficit....................................... (34,401) (34,401) (34,401)
-------- -------- --------
Total stockholders' equity (deficit)................... (20,972) 11,569 63,165
-------- -------- --------
Total capitalization.............................. $ 12,191 $ 12,191 $ 63,787
======== ======== ========
</TABLE>
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<PAGE> 19
DILUTION
Our pro forma net tangible book value at June 30, 1999 was $7.5 million or
$0.28 per share based upon 27,120,127 shares outstanding. Pro forma net tangible
book value per share represents total tangible assets less total liabilities,
divided by the number of shares outstanding as of June 30, 1999, after giving
effect to the conversion into common stock of all of our outstanding shares of
preferred stock. After giving effect to the sale in this offering of 4,400,000
shares of common stock at an assumed initial public offering price of $13.00 per
share, and after deducting the estimated underwriters' discounts and commissions
and estimated offering expenses payable by us, our pro forma net tangible book
value as of June 30, 1999 would have been approximately $59.1 million or $1.87
per share. This represents an immediate increase in net tangible book value of
$1.59 per share to existing stockholders and an immediate dilution in net
tangible book value of $11.13 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 13.00
Pro forma net tangible book value per share as of June 30,
1999................................................... $ 0.28
Increase per share attributable to new investors.......... 1.59
--------
Pro forma net tangible book value per share after this
offering.................................................. 1.87
--------
Dilution per share to new investors......................... $ 11.13
========
</TABLE>
The following table summarizes, as of June 30, 1999, assuming conversion
into common stock of all of our outstanding shares of preferred stock, the total
cash consideration paid to us and the average price per share paid by existing
stockholders and by new investors at the assumed initial public offering price
of $13.00 per share, before deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
-------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- -------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 27,120,127 86.0% $ 34,697 37.8% $ 1.28
New investors............................. 4,400,000 14.0 57,200 62.2 13.00
---------- ------- -------- ----
Total........................... 31,520,127 100% $ 91,897 100%
========== ======= ======== ====
</TABLE>
As of June 30, 1999, there were outstanding options to purchase an
aggregate of 5,293,222 shares of common stock at a weighted average exercise
price of $6.41 per share, options to purchase 31,463 shares of preferred stock
at a weighted average exercise price of $2.68 per share and warrants to purchase
133,249 shares of preferred stock at a weighted average exercise price of $1.31
per share. To the extent that any of these options or warrants is exercised,
there will be further dilution to new investors.
19
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes and
other financial information included elsewhere in this prospectus. The selected
consolidated statement of operations data for Calico for each of the years ended
March 31, 1997, 1998 and 1999, and the consolidated balance sheet data as of
March 31, 1998 and 1999, are derived from our consolidated financial statements
included elsewhere in this prospectus. The selected consolidated statement of
operations data for Calico for the period from inception on April 14, 1994 to
March 31, 1995, the year ended March 31, 1996, and the consolidated balance
sheet data as of March 31, 1995, 1996 and 1997, are derived from our
consolidated financial statements that are not included in this prospectus. The
consolidated statements of operations data for the three months ended June 30,
1998 and 1999 and the consolidated balance sheet data as of June 30, 1999 are
derived from unaudited condensed consolidated financial statements included
elsewhere in this prospectus. In the opinion of management, the unaudited
condensed consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the results of these periods. The consolidated statement of
operations data for the fiscal year ended March 31, 1999 include the results of
operations of FirstFloor subsequent to our acquisition of FirstFloor in August
1998. Historical results are not necessarily indicative of results to be
expected in any future period.
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS
APRIL 14, 1994 YEAR ENDED MARCH 31, ENDED JUNE 30,
(INCEPTION) TO --------------------------------------- ------------------
MARCH 31, 1995 1996 1997 1998 1999 1998 1999
-------------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue:
License......................................... $ 93 $ 1,521 $ 3,940 $ 6,965 $ 10,482 $ 2,932 $ 3,457
Services........................................ 227 749 1,963 4,894 10,931 1,721 3,976
------- ------- ------- -------- -------- ------- -------
Total net revenue............................. 320 2,270 5,903 11,859 21,413 4,653 7,433
------- ------- ------- -------- -------- ------- -------
Cost of net revenue:
License......................................... 2 7 178 265 1,179 101 137
Services........................................ 66 433 2,122 3,115 7,272 1,367 2,660
------- ------- ------- -------- -------- ------- -------
Total cost of net revenue..................... 68 440 2,300 3,380 8,451 1,468 2,797
------- ------- ------- -------- -------- ------- -------
Gross profit...................................... 252 1,830 3,603 8,479 12,962 3,185 4,636
------- ------- ------- -------- -------- ------- -------
Operating expenses:
Sales and marketing............................. 98 1,972 5,950 7,593 14,138 2,758 4,558
Research and development........................ 132 458 2,224 3,342 5,677 972 2,666
General and administrative...................... 25 480 1,486 2,222 3,988 641 1,452
Stock compensation.............................. -- 990 864 780 2,007 424 514
Acquired in-process research and development.... -- -- -- -- 1,840 -- --
Amortization of goodwill........................ -- -- -- -- 550 -- 240
------- ------- ------- -------- -------- ------- -------
Total operating expenses...................... 255 3,900 10,524 13,937 28,200 4,795 9,430
------- ------- ------- -------- -------- ------- -------
Loss from operations.............................. (3) (2,070) (6,921) (5,458) (15,238) (1,610) (4,794)
Interest and other income, net.................... 31 100 21 (41) (23) (35) 71
------- ------- ------- -------- -------- ------- -------
Net income (loss)................................. $ 28 $(1,970) $(6,900) $ (5,499) $(15,261) $(1,645) $(4,723)
======= ======= ======= ======== ======== ======= =======
Net income (loss) per share:
Basic and diluted............................... $ -- $ (0.69) $ (2.12) $ (1.08) $ (2.27) $ (0.27) $ (0.59)
======= ======= ======= ======== ======== ======= =======
Weighted average shares......................... 6,000 2,856 3,248 5,079 6,710 6,040 7,961
======= ======= ======= ======== ======== ======= =======
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents......................... $ 83 $ 1,780 $ 1,921 $ 2,514 $ 15,441 $10,528
Working capital (deficit)......................... (42) 1,683 353 44 10,187 5,276
Total assets...................................... 252 2,800 4,356 7,692 31,368 27,223
Debt and capital leases, long-term portion........ -- 90 815 814 877 622
Total Mandatorily Redeemable Convertible Preferred
Stock........................................... -- 3,842 9,500 14,505 32,535 32,541
Total stockholders' deficit....................... (21) (2,012) (8,854) (13,428) (16,780) (20,972)
</TABLE>
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with
"Selected Consolidated Financial Data" and our consolidated financial statements
and the notes to those statements included elsewhere in this prospectus. This
discussion contains forward looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward looking statements involve risks and uncertainties. Our actual
results could differ materially from those indicated in these forward looking
statements as a result of certain factors, as more fully described in the "Risk
Factors" section and elsewhere in this prospectus. We undertake no obligation to
update publicly any forward looking statements for any reason, even if new
information becomes available or other events occur in the future.
OVERVIEW
We provide software and services that enable companies to interact
directly with their customers over the Internet and other platforms to improve
the interactive buying and selling of complex products and services.
We were incorporated in April 1994. From May 1994 through March 1997, we
generated revenue primarily from the license of products based upon our first
generation configuration technology. In March 1997, we released our first
product designed for use over the Internet and corporate networks. In December
1998, we released Calico eSales 2.0, an integrated suite of products that
extended the Internet-based architecture and included Calico eSales Catalog
(since re-named Calico eSales InfoGuide), a product that allows targeted
delivery of information without the need to modify existing applications or
information sources. Calico eSales InfoGuide was the first product release based
upon technology obtained from our August 1998 acquisition of FirstFloor. In May
1999, we released Calico eSales Loyalty Builder, which incorporates technology
also obtained from our acquisition of FirstFloor. In June 1999, we released
Calico eSales 2.5, an integrated suite that incorporates eSales Loyalty Builder,
eSales Quote and improved versions of our other products.
We derive revenue principally from the license of our Calico eSales Suite
of products and the delivery of associated implementation and support services.
Initial implementations have typically included the majority of the
functionality provided by the product suite available at implementation, with
additional user licenses and Calico eSales Engines added as use expands. The mix
of products and services sold varies by customer, and follow-on sales typically
reflect an expansion of the use of our products within the customer's business,
rather than a migration to different products. To date, our sales have been
primarily within the computer hardware and network and telecommunications
equipment industries. Revenues from international sales have not been material
to date.
For contracts with multiple elements, and for which vendor-specific
objective evidence of fair value exists for the undelivered elements, we
recognize revenue for the delivered elements based upon the residual contract
value as prescribed by SOP 98-9. Revenue from license fees is recognized when
persuasive evidence of an agreement exists, delivery of the product has
occurred, no significant obligations of Calico with regard to implementation
exist, the fee is fixed or determinable, and collection is probable. Provisions
for sales returns are made at the time of revenue recognition based upon
estimated returns. License revenue from contracts involving customization or
services which are essential to the functionality of the software is recognized
under contract accounting using the completed contract or
percentage-of-completion methods as appropriate. During fiscal 1997, 100% of our
license revenue was generated from new customer deployments, during fiscal 1998,
91% of our license revenue was generated from new customer deployments, and in
fiscal 1999, 78% of our license revenue was generated from new customer
deployments. A new deployment may include deployments in additional divisions of
an existing customer.
21
<PAGE> 22
Services revenue primarily comprises revenue from consulting services,
maintenance contracts and training. Services revenue from consulting and
training is generally recognized as the service is performed. Maintenance
contracts include the right to unspecified upgrades and ongoing support.
Maintenance revenue is deferred and recognized on a straight-line basis as
services revenue over the life of the related contract, which is typically one
year. Our customers generally purchase maintenance contracts with their initial
software implementation and deployment.
Revenue from contracts involving significant implementation, customization
or services essential to the functionality of the software is recognized over
the period of each engagement, primarily using the percentage-of-completion
method of contract accounting. Labor hours completed is generally used as the
measure of progress towards completion. A provision for estimated losses on
engagements is made in the period in which the loss becomes probable and can be
reasonably estimated.
We bill customers in accordance with contract terms. Customer advances and
amounts billed to customers in excess of revenue recognized are recorded as
deferred revenue. Amounts recognized as revenue in advance of billing are
recorded as unbilled receivables.
Services revenue as a percentage of total net revenue was 33% in fiscal
1997, 41% in fiscal 1998, 51% in fiscal 1999, 37% in the quarter ended June 30,
1998 and 53% in the quarter ended June 30, 1999. As we develop additional
relationships with service partners, we anticipate that an increasing share of
professional services will be provided by third parties. As a result, we expect
that a higher percentage of total net revenue may be attributable to license
revenue in the future. Although services revenue may continue to increase in
absolute dollars if we increase the professional services we provide, services
revenue has a lower gross margin than license revenue. Our overall gross profit
can therefore fluctuate based on the mix of license revenue compared to services
revenue.
Our cost of license revenue consists primarily of amortization of
purchased technology, sub-licensing fees paid for embedded technology, and to a
lesser extent other product-related costs. Our cost of services revenue consists
primarily of salary expense and other related costs for our consulting and
support organizations, as well as third-party contractor expenses.
Our operating expenses are classified as sales and marketing, research and
development, and general and administrative. We classify all charges to these
operating expense categories based on the nature the expenses incurred. All
operating expense categories contain common recurring expenditures, including
salaries, employee benefits, incentive pay, travel and entertainment, costs for
contract staff and professional advisory services, rent and utilities. The sales
and marketing category contains additional expenditures specific to the sales
and marketing group, such as public relations, trade show participation,
advertising, sales lead generation, and commissions. Commission expense is
recorded upon contract signing. To date, all software development costs in
research and development have been expensed as incurred. General and
administrative expenses include our executive, financial, human resources and
information technology departments, and include additional expenditures related
to legal and financial advisors, as well as bad debt reserves.
In connection with the granting of stock options to our employees, we have
recorded unearned stock compensation totaling $5.6 million through June 30,
1999, of which $2.3 million remains to be amortized. This amount represents the
difference between the exercise price and the estimated fair value of our common
stock on the date these stock options were granted. This amount is included as a
component of stockholders' equity and is being amortized by charges to
operations over the vesting period of the options, consistent with the method
described in Financial Accounting Standards Board, or
22
<PAGE> 23
FASB, Interpretation No. 28. We recorded amortization of unearned stock
compensation of $780,000 for fiscal 1998, $2.0 million for fiscal 1999, $424,000
for the three months ended June 30, 1998 and $514,000 for the three months ended
June 30, 1999. The amortization of the remaining unearned stock compensation at
March 31, 1999 will result in additional charges to operations through fiscal
2003. The amortization of stock compensation is classified as a separate
component of operating expenses in our consolidated statement of operations.
Effective August 21, 1998, we acquired all of the outstanding shares of
FirstFloor, a developer and marketer of interactive marketing systems for
business-to-business communications, in exchange for 1,248,423 shares of our
Series D preferred stock, valued at $4.558 per share. In addition, we assumed
all of the outstanding options to purchase FirstFloor common stock and converted
them into options to acquire 47,203 shares of our Series D preferred stock. We
accounted for the acquisition using the purchase method of accounting. Of the
total purchase price, valued at approximately $6.1 million, approximately $1.8
million was allocated to in-process research and development and immediately
charged to operations, $360,000 to tangible assets, $1.5 million to existing
products and core technology, $2.0 million to liabilities assumed, and $4.3
million to goodwill. The intangible assets will be amortized over their
estimated useful lives which range from seven to 48 months. We structured the
acquisition as a tax-free exchange of stock; therefore, the differences between
the recognized fair values of acquired assets, including tangible and intangible
assets, and their historical tax bases are not deductible for tax purposes.
Since our inception, we have incurred quarterly and annual losses, and we
expect to continue to incur losses on both a quarterly and annual basis for the
foreseeable future. We incurred net losses of $6.9 million for fiscal 1997, $5.5
million for fiscal 1998, $15.3 million for fiscal 1999 and $4.7 million for the
three months ended June 30, 1999. As of June 30, 1999, we had an accumulated
deficit of $34.4 million. We expect that our operating expenses will continue to
increase substantially in future quarters as we increase sales and marketing
operations, develop new distribution channels, expand our professional services
organization, and continue to fund research and development.
We have recently experienced a period of rapid growth and expansion, and
expect to continue to expand through multiple growth strategies. To manage this
growth effectively, we will have to improve our existing operational and
financial systems and hire additional qualified personnel. In addition, we
expect to expand our current headquarters or move to new facilities during the
first half of fiscal 2000. The expenses related to this expansion or move may be
greater than our obligations for our current facility.
23
<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, selected
consolidated
financial data as a percentage of total net revenue.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31, JUNE 30,
-------------------- ------------
1997 1998 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenue:
License............................................ 67% 59% 49% 63% 47%
Services........................................... 33 41 51 37 53
---- --- --- --- ---
Total net revenue............................... 100 100 100 100 100
---- --- --- --- ---
Cost of net revenue:
License............................................ 3 2 6 2 2
Services........................................... 36 26 33 30 36
---- --- --- --- ---
Total cost of net revenue....................... 39 28 39 32 38
---- --- --- --- ---
Gross profit......................................... 61 72 61 68 62
---- --- --- --- ---
Operating expenses:
Sales and marketing................................ 101 64 65 59 61
Research and development........................... 38 28 27 21 36
General and administrative......................... 25 19 19 14 20
Stock compensation................................. 14 7 9 9 7
Acquired in-process research and development....... -- -- 9 -- --
Amortization of goodwill........................... -- -- 3 -- 3
---- --- --- --- ---
Total operating expenses........................ 178 118 132 103 127
---- --- --- --- ---
Loss from operations................................. (117) (46) (71) (35) (65)
Interest and other income, net....................... -- -- -- -- 1
---- --- --- --- ---
Net loss............................................. (117)% (46)% (71)% (35)% (64)%
==== === === === ===
</TABLE>
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUE
Total net revenue increased 60% from $4.7 million in the three months
ended June 30, 1998 to $7.4 million in the three months ended June 30, 1999.
This increase is attributable to a significant increase in services revenue
associated with an increase in the number and scope of consulting engagements.
LICENSE. License revenue increased 18% from $2.9 million in the three
months ended June 30, 1998 to $3.5 million in the three months ended June 30,
1999. License revenue as a percentage of total net revenue was 63% in the three
months ended June 30, 1998 and 47% in the three months ended June 30, 1999. The
increase in license revenue in absolute dollars is attributable to an increase
in the average size of license transactions recognized during the quarter.
During the three months ended June 30, 1999, 97% of our license revenue was
attributable to new customer deployments.
SERVICES. Services revenue increased 131% from $1.7 million in the three
months ended June 30, 1998 to $4.0 million in the three months ended June 30,
1999. Services revenue as a percentage of total net revenue was 37% in the three
months ended June 30, 1998 and 53% in the three months ended June 30, 1999. The
increase in services revenue in absolute dollars and as a percentage of total
net revenue is attributable to a significant increase in the number and size of
consulting engagements, as well as an increase in the installed base of
customers and in the average size of maintenance
24
<PAGE> 25
contracts. This increase in services revenue as a percentage of total net
revenue has resulted in reduced overall gross margins, since services revenue
typically has lower gross margins than license revenue. During the three months
ended June 30, 1999, 66% of our maintenance revenue came from initial
maintenance contracts, with the remainder from maintenance renewals. As of June
30, 1999 we had 32 customers on active maintenance contracts, compared with 26
as of June 30, 1998. In some cases, a single customer consists of multiple
deployments within one corporate entity.
COST OF REVENUE
LICENSE. Cost of license revenue increased 36% from $101,000 in the three
months ended June 30, 1998 to $137,000 in the three months ended June 30, 1999.
Cost of license revenue as a percentage of license revenue was 3% in the three
months ended June 30, 1998 and 4% in the three months ended June 30, 1999. The
increase in cost of license revenue in absolute dollars and as a percentage of
license revenue is primarily due to the amortization of existing products and
core technology acquired in the acquisition of FirstFloor.
SERVICES. Cost of services revenue increased 95% from $1.4 million in the
three months ended June 30, 1998 to $2.7 million in the three months ended June
30, 1999. Cost of services revenue as a percentage of services revenue was 79%
in the three months ended June 30, 1998 and 67% in the three months ended June
30, 1999. The increase in cost of services revenue in absolute dollars is
primarily due to costs associated with increased personnel in our services
organization, representing 42% of the increase, as well as increased costs for
third-party contractors used to staff consulting engagements, representing 40%
of the increase. The decrease in cost of services revenue as a percentage of
services revenue is primarily due to economies of scale in the professional
services organization, as well as improved billing rate realization.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased 65% from $2.8
million in the three months ended June 30, 1998 to $4.6 million in the three
months ended June 30, 1999. Sales and marketing expenses as a percentage of
total net revenue increased from 59% in the three months ended June 30, 1998 to
61% in the three months ended June 30, 1999. Sales and marketing expenses
increased in absolute dollars primarily due to increased personnel-related
costs, which represented 88% of the increase. Sales and marketing expenses as a
percentage of total net revenue increased as a result of our continued
investment in the development of our international direct sales and indirect
sales and marketing organizations.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 174%
from $972,000 in the three months ended June 30, 1998 to $2.7 million in the
three months ended June 30, 1999. Research and development expenses as a
percentage of total net revenue increased from 21% in the three months ended
June 30, 1998 to 36% in the three months ended June 30, 1999. Research and
development expenses increased in absolute dollars and as a percentage of total
net revenue as a result of increased engineering and product development
personnel partially attributable to personnel added as a result of our
acquisition of FirstFloor in the quarter ended September 30, 1998.
Personnel-related expenses accounted for 82% of the increase in absolute
dollars.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
127% from $641,000 in the three months ended June 30, 1998 to $1.5 million in
the three months ended June 30, 1999. General and administrative expenses as a
percentage of total net revenue were 14% in the three months ended June 30, 1998
and 20% in the three months ended June 30, 1999. General and administrative
expenses increased in absolute dollars and as a percentage of total net revenue
as a result of increased personnel-related costs resulting from the
25
<PAGE> 26
growth of our finance, human resources and information systems staff,
representing 47% of the increase in absolute dollars, as well as increased
spending for legal and financial advisory services, representing 37% of the
increase.
STOCK COMPENSATION. In connection with the granting of stock options to
our employees, we recorded aggregate unearned compensation totalling $5.6
million. The unearned compensation represents the difference between the
exercise price of stock option grants and the deemed fair value of our common
stock at the time of the grants. We recorded expenses related to stock
compensation of $424,000 in the three months ended June 30, 1998 and $514,000 in
the three months ended June 30, 1999. Stock compensation expenses as a
percentage of total net revenue were 9% in the three months ended June 30, 1998
and 7% in the three months ended June 30, 1999.
AMORTIZATION OF GOODWILL. During the three months ended June 30, 1999, we
recorded $240,000 in amortization, reflecting the amortization of goodwill
acquired as part of the FirstFloor acquisition.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, improved from $35,000 of net interest
expense in the three months ended June 30, 1998 to $71,000 of net interest
income in the three months ended June 30, 1999. The improvement is primarily due
to interest earned on increased cash and equivalents.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1997, 1998 AND 1999
REVENUE
Total net revenue increased 101% from $5.9 million in fiscal 1997 to $11.9
million in fiscal 1998 and 81% to $21.4 million in fiscal 1999.
LICENSE. License revenue increased 77% from $3.9 million in fiscal 1997 to
$7.0 million in fiscal 1998, and 50% to $10.5 million in fiscal 1999. License
revenue as a percentage of total net revenue was 67% in fiscal 1997, 59% in
fiscal 1998 and 49% in fiscal 1999. The increases in absolute dollars were
primarily due to increased market acceptance of our products, increases in the
average size of transactions, as well as the introduction of versions of our
product that included functionality for Internet and corporate network use.
During fiscal 1999, 78% of our license revenue came from new customer
deployments.
SERVICES. Services revenue increased 149% from $2.0 million in fiscal 1997
to $4.9 million in fiscal 1998 and 123% to $10.9 million in fiscal 1999.
Services revenue at a percentage of total net revenue was 33% in fiscal 1997,
41% in fiscal 1998 and 51% in fiscal 1999. The increases in absolute dollars and
as a percentage of total net revenue were primarily due to an increase in the
number and size of customer deployments, additional follow-on consulting
services for existing customers, an increase in the installed base of customers
on maintenance contracts and renewals of prior period maintenance contracts.
COST OF REVENUE
LICENSE. Cost of license revenue increased 49% from $178,000 in fiscal
1997 to $265,000 in fiscal 1998, and 345% to $1.2 million in fiscal 1999. Cost
of license revenue as a percentage of license revenue was 5% in fiscal 1997, 4%
in fiscal 1998 and 11% in fiscal 1999. The increase in absolute dollars in
fiscal 1998 was primarily due to costs associated with sub-licensing of third-
party software used in our products. The increase in absolute dollars and as a
percentage of license revenue in fiscal 1999 was primarily due to the
amortization of existing products and core technology acquired in the
acquisition of FirstFloor in the quarter ended September 30, 1998.
We may from time to time in the future enter into various technology
sub-licensing arrangements with third parties which may require payments that do
not coincide with the timing and magnitude of license revenue. In addition, the
cost of amortization of our existing products and core technology does not vary
with recognized license revenue. As a result, our cost of license revenue may
vary
26
<PAGE> 27
significantly from quarter to quarter in both absolute dollars and as a
percentage of license revenue.
SERVICES. Cost of services revenue increased 47% from $2.1 million in
fiscal 1997 to $3.1 million in fiscal 1998 and 133% to $7.3 million in fiscal
1999. Cost of services revenue as a percentage of services revenue was 108% in
fiscal 1997, 64% in fiscal 1998 and 67% in fiscal 1999. The increase in absolute
dollars was primarily due to increased professional services personnel engaged
in deployment, training and technical support, representing 67% of the increase
in fiscal 1998 and 58% of the increase in fiscal 1999. In 1997, our cost of
services revenue exceeded our services revenue because the actual cost of
providing consulting services exceeded the fixed-price payment received from the
customer. During this period, we provided our services under low margin fixed-
price contracts, and subsequently agreed to provide services in excess of those
originally agreed for no additional fees, in order to gain market share.
However, we generally do not enter into and do not intend to enter into
fixed-price payment arrangements for our consulting services.
Cost of services revenue declined as a percentage of services revenue in
fiscal 1998 primarily due to improved billing rate realization as well as an
increase in revenue from maintenance contracts during fiscal 1998. Cost of
services revenue as a percentage of services revenue increased in fiscal 1999
due to increased use of contract personnel. We expect cost of services revenue
to increase in the future in absolute dollars as we expand our service capacity
to meet anticipated demand. Cost of services revenue as a percentage of services
revenue may vary significantly from quarter to quarter depending upon the mix of
services that we provide and the utilization rate of our services personnel.
Additionally, we may seek to gain more flexibility by staffing engagements with
increasing use of third-party contractors, whose expenses may exceed those of
employees.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased 28% from $6.0
million in fiscal 1997 to $7.6 million in fiscal 1998 and 86% to $14.1 million
in fiscal 1999. Sales and marketing expenses as a percentage of total net
revenue were 101% in fiscal 1997, 64% in fiscal 1998 and 65% in fiscal 1999. The
increases in absolute dollars were primarily due to an increase in sales and
marketing personnel, representing 88% of the increase in fiscal 1998 and 69% of
the increase in fiscal 1999. Sales and marketing expenses decreased as a
percentage of total net revenue in fiscal 1998 primarily due to revenue growth
and increased in fiscal 1999 due to the investments in sales and marketing
described above. We believe sales and marketing expenses will continue to
increase in absolute dollars as we expand our sales and marketing organization,
initiate additional marketing programs, expand our distribution channels and
expand geographically. Sales and marketing expenses may increase or fluctuate as
a percentage of total net revenue from period to period.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 50%
from $2.2 million in fiscal 1997 to $3.3 million in fiscal 1998 and 70% to $5.7
million in fiscal 1999. Research and development expenses as a percentage of
total net revenue were 38% in fiscal 1997, 28% in fiscal 1998 and 27% in fiscal
1999. The increase in fiscal 1998 in absolute dollars was primarily due to
increases in engineering and development personnel, representing 69% of the
increase. The increase in fiscal 1999 was due to our addition of engineering and
development personnel, both through new hiring and as a result of our FirstFloor
acquisition. Personnel-related expenses accounted for 96% of the increase in
fiscal 1999. Research and development expenses as a percentage of total net
revenue declined in fiscal 1998 and fiscal 1999 due to the higher rate of
revenue growth during the periods.
We believe that continued investment in research and development is
critical to attaining our strategic objectives, and as a result we expect that
research and
27
<PAGE> 28
development expenses will increase in absolute dollars in future periods, and
may increase or fluctuate significantly as a percentage of total net revenue
from period to period.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
50% from $1.5 million in fiscal 1997 to $2.2 million in fiscal 1998, and 79% to
$4.0 million in fiscal 1999. General and administrative expenses as a percentage
of total net revenue were 25% in fiscal 1997, 19% in fiscal 1998 and 19% in
fiscal 1999. The increase in general and administrative expenses in absolute
dollars was primarily due to increased personnel to support our expanding
operations. Personnel-related expenses represented 70% of the increase in fiscal
1998 and 43% of the increase in fiscal 1999. General and administrative expenses
also increased in absolute dollars in fiscal 1999 due to the relocation of our
corporate headquarters which resulted in a charge of $660,000 for the minimum
lease payments committed under our previous leased facility and losses on
disposal of certain fixed assets.
We believe that general and administrative expenses will continue to
increase in absolute dollars as we expand our operations and assume the
responsibilities of a public company, and may fluctuate as a percentage of total
net revenue from period to period.
STOCK COMPENSATION. In fiscal 1998 and 1999 we recorded aggregate unearned
compensation totalling $5.6 million. The unearned compensation represents the
difference between the exercise price of stock option grants and the deemed fair
value of our common stock at the time of the grants. We recorded expenses
related to stock compensation of $864,000 during fiscal 1997, $780,000 during
fiscal 1998 and $2.0 million during fiscal 1999.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with our
acquisition of FirstFloor, we acquired one existing product and two in-process
projects. The existing product provides customers with the ability to
automatically update their sales force with the latest information. The first
acquired in-process project, a marketing information delivery system, is a
complete rewrite of the acquired product, and replaced the product upon its
release. While the solution remains the same, the functionality has been
completely re-engineered. This development effort increased the product's
utility as well as its scalability on larger intranets, which increases the
possible number of users, and provides a variety of data sources instead of just
one central database. The second in-process project, a personalization solution,
provides customers with the ability to obtain in-depth information and critical
data needed to build stronger customer relationships with the objective of
increasing revenue and reducing sales cost. We ascribed $1.8 million to the in-
process research and development projects, which was charged to operations in
the quarter ended September 30, 1998.
The amount of purchase price allocated to in-process research and
development was determined using appropriate valuation techniques, including
percentage-of-completion, which utilizes research and development cost metrics
and key milestones to estimate the stage of development of each in-process
research and development project at the date of acquisition, estimating cash
flows resulting from the revenue expected to be generated from these projects,
and discounting the net cash flows back to their present value. The discount
rate includes a factor that takes into account the uncertainty surrounding the
successful development of the purchased in-process technology. The remaining
identified intangibles, including the value of acquired existing products and
core technology, is amortized over the periods of benefit ranging from seven to
36 months.
The value assigned to acquired in-process research and development was
determined by identifying two specific research and development projects -- a
marketing information delivery system and a personalization solution -- for
which technological feasibility had not been established. The first project
reached technological feasibility and was commercially released in December
1998. The second project reached technological feasibility and
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was commercially released in May 1999. In assigning value to the in-process
projects, consideration was given, as appropriate, to the stage of completion,
the complexity of the work completed to date, the difficulty of completing the
remaining development, costs already incurred and the projected cost to complete
the projects, adjusting for the relative value and contribution of the core
technology. The value assigned to acquired in-process research and development
was based on the assumptions set forth in the following paragraph.
Net cash flows from these projects were determined based on our estimates
of revenue, cost of sales, research and development costs, selling, general and
administrative costs, and income taxes associated with the projects. Revenue
growth rates for each technology was developed considering, among other things,
the then-current and expected industry trends, acceptance of the technologies
and historical growth rates for similar industry products. Estimated total
revenue from the acquired in-process research and development projects generally
peak in fiscal 2000 and decline through fiscal 2001 as other new products are
expected to be introduced. We assumed no synergies as a result of the
acquisition and the revenue projections are within the historical growth rates
of Firstfloor product introductions. Projected gross margins approximate
Firstfloor's recent historical performance. The estimated selling, general and
administrative costs are consistent with Firstfloor's historical cost structure.
These revenue projections were based on our management's estimate of market size
and growth, expected trends in technology and the expected timing of new product
introductions. We applied a royalty charge as a percentage of operating income
for each in-process project to attribute value for dependency on predecessor
core technology. Royalty rates were developed based on published documentation
of royalty rates and the specific facts and circumstances, and in our view, are
considered reasonable approximations of fair value rates for the respective
types of technology under exclusive, perpetual, worldwide licenses. The
estimated net cash flows of each project were discounted back to their present
value using discount rates of 30% for the marketing information delivery system
and 40% for the personalization solution, which represents a premium over our
cost of capital of 20% to reflect the risk associated with the stage of
completion of the in-process technologies. The estimated
percentage-of-completion of the in-process research and development projects
were 82% for the marketing information delivery system and 47% for the
personalization solution.
The actual development timeline and costs of the marketing information
delivery system and the personalization solution were in line with the estimates
used to compute the estimated percentage-of-completion used in the valuation of
the in-process research and development projects. These products were just
recently released and it is premature to compare the actual revenue with those
projected. To date, our cash flow and other assumptions have not materially
changed.
AMORTIZATION OF GOODWILL. During fiscal 1999, we recognized $550,000 in
amortization, reflecting the amortization of goodwill acquired as part of the
FirstFloor acquisition.
INTEREST AND OTHER INCOME, NET
Interest and other income, net declined from $21,000 of net interest
income in fiscal 1997 to $41,000 of net interest expense in fiscal 1998, and
improved to $23,000 of net interest expense in fiscal 1999, representing less
than one percent of total net revenue in each period.
INCOME TAXES
No provision for federal and state income taxes was recorded for fiscal
1997, 1998 or 1999 because we incurred net operating losses in each of those
periods.
As of March 31, 1999, we had net operating loss carryforwards for federal
income tax reporting purposes of $12.1 million that expire in various amounts
beginning in fiscal 2011. We also had net
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operating loss carryforwards for state income tax reporting purposes of $9.7
million that expire in various amounts beginning in fiscal 2003. We had net
deferred tax assets, including our net operating loss carryforwards and tax
credits of $8.8 million as of March 31, 1999. A valuation allowance has been
recorded for the net deferred tax asset balance as a result of uncertainties
regarding the realization of the asset balance. See note 5 of the notes to the
consolidated financial statements.
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QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our unaudited consolidated statement of
operations data for each of the nine quarters in the period ended June 30, 1999,
as well as that data expressed as a percentage of our total net revenue for the
quarters presented. We have prepared this unaudited consolidated information on
a basis consistent with our audited consolidated financial statements, and in
the opinion of our management, this information reflects all normal recurring
adjustments necessary for a fair presentation of our operating results for the
quarters presented. You should read this information in conjunction with our
consolidated financial statements and related notes included elsewhere in this
prospectus. You should not draw any conclusions about our future results from
the operating results for any quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1998 1998 1998 1998 1999 1999
-------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue:
License.................... $ 1,285 $ 1,162 $ 2,305 $ 2,213 $ 2,932 $ 2,657 $ 2,560 $ 2,333 $ 3,457
Services................... 780 1,371 1,150 1,593 1,721 2,628 3,155 3,427 3,976
------- ------- ------- ------- ------- ------- ------- ------- -------
Total net revenue........ 2,065 2,533 3,455 3,806 4,653 5,285 5,715 5,760 7,433
Cost of net revenue:
License.................... 20 53 97 95 101 265 350 463 137
Services................... 815 597 828 875 1,367 1,742 2,036 2,127 2,660
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of net
revenue................ 835 650 925 970 1,468 2,007 2,386 2,590 2,797
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................. 1,230 1,883 2,530 2,836 3,185 3,278 3,329 3,170 4,636
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing........ 1,768 1,962 1,824 2,039 2,758 3,066 3,699 4,615 4,558
Research and development... 670 776 934 962 972 1,232 1,684 1,789 2,666
General and
administrative........... 542 610 573 497 641 1,459 934 954 1,452
Stock compensation......... 11 160 252 357 424 469 582 532 514
Acquired in-process
research and
development.............. -- -- -- -- -- 1,840 -- -- --
Amortization of goodwill... -- -- -- -- -- 78 234 238 240
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 2,991 3,508 3,583 3,855 4,795 8,144 7,133 8,128 9,430
------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations......... (1,761) (1,625) (1,053) (1,019) (1,610) (4,866) (3,804) (4,958) (4,794)
Interest and other income,
net........................ (36) (6) 7 (6) (35) (46) 54 4 71
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss..................... $(1,797) $(1,631) $(1,046) $(1,025) $(1,645) $(4,912) $(3,750) $(4,954) $(4,723)
======= ======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL NET
REVENUE:
Net revenue:
License.................... 62% 46% 67% 58% 63% 50% 45% 41% 47%
Services................... 38 54 33 42 37 50 55 59 53
------- ------- ------- ------- ------- ------- ------- ------- -------
Total net revenue........ 100 100 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of net revenue:
License.................... 1 2 3 2 2 5 6 8 2
Services................... 39 24 24 23 30 33 36 37 36
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of net
revenue................ 40 26 27 25 32 38 42 45 38
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................. 60 74 73 75 68 62 58 55 62
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing........ 86 77 53 55 59 58 65 80 61
Research and development... 32 31 27 25 21 23 29 31 36
General and
administrative........... 26 24 16 13 14 28 17 17 20
Stock compensation......... 1 6 7 9 9 9 10 9 7
Acquired in-process
research and
development.............. -- -- -- -- -- 35 -- -- --
Amortization of goodwill... -- -- -- -- -- 1 4 4 3
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 145 138 103 102 103 154 125 141 127
------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations......... (85) (64) (30) (27) (35) (92) (67) (86) (65)
Interest and other income,
net........................ (2) -- -- -- -- (1) 1 -- 1
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss..................... (87)% (64)% (30)% (27)% (35)% (93)% (66)% (86)% (64)%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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FACTORS AFFECTING QUARTERLY RESULTS
Total net revenue has increased during each of the nine quarters ended
June 30, 1999 due to an increase in the number of our customers, an increase in
the average transaction size and an increase in follow-on orders from existing
customers. We experience significant variability in license revenue from quarter
to quarter due to the timing and size of transactions. License revenue declined
sequentially in each of the three quarters ended March 31, 1999, primarily due
to delays in recognition of revenue under a few large contracts entered into
during those quarters. License revenue increased significantly in the quarter
ended June 30, 1999, due to the recognition of revenue associated with one
significant order, as well as progress on several other percentage-of-completion
and milestone-based contracts.
Services revenue has increased significantly during the comparison
periods, but is also subject to significant variability driven by transaction
timing, contract terms and billing rate realization. Services revenue declined
in the quarter ended December 31, 1997 due to the recognition of services
revenue in the previous quarter upon completion of one large project. Services
revenue increased significantly as a percentage of total net revenue in the five
quarters ended June 30, 1999 primarily as a result of several large
implementation projects during those periods.
Cost of license revenue increased in the three quarters ended March 31,
1999 as a result of the amortization of acquired products and core technology
subsequent to our acquisition of FirstFloor. Cost of license revenue declined
significantly in the quarter ended June 30, 1999 due to the completion of
amortization of one of the two products acquired. Cost of services revenue
increased significantly in the quarter ended June 30, 1998 primarily due to
costs associated with the hiring and training of new professional services
personnel who were not yet fully utilized.
Sales and marketing expenses increased significantly in the quarter ended
June 30, 1998 primarily due to the expansion of our domestic sales force, as
well as the establishment of our international sales office, and increased in
the quarter ended March 31, 1999 due to commissions related to the signing of a
few large orders and further expansion of our sales force. Research and
development expenses increased significantly in the four quarters ended June 30,
1999 due to an increase in product development personnel added in conjunction
with our acquisition of FirstFloor and through new hires. General and
administrative expenses increased significantly in the quarter ended September
30, 1998 due to the relocation of our corporate headquarters which resulted in a
$660,000 charge for the minimum lease payments committed under our previous
leased facility and losses on disposal of fixed assets, and increased in the
quarter ended June 30, 1999 primarily as a result of increased legal and
financial advisory fees, which represented 45% of the increase.
Our quarterly operating results have varied significantly in the past and
we expect that they will vary significantly from quarter to quarter in the
future. These variations are caused by a number of factors, including the length
of our sales cycle, demand for and market acceptance of our products and
services, the timing of orders and deployment of our products and services, the
impact of our revenue recognition policies, changes in technology and changes
caused by the rapidly evolving eCommerce market and the impact of year 2000
investments by us and our customers.
As a result of these and other factors, we believe that period-to-period
comparisons of our historical results of operations are not necessarily
meaningful and are not a good predictor of our future performance. Our operating
results may be below the expectations of public market analysts and investors in
future quarters, which could cause volatility in the price of our stock.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations and met our capital
expenditure requirements primarily through the sale of
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private equity securities, and to a lesser extent, notes payable and capital
equipment leases. As of June 30, 1999, we had $10.5 million of cash and cash
equivalents, compared with $15.4 million as of March 31, 1999. Cash used in
operating activities was $4.3 million for fiscal 1997, $3.3 million for fiscal
1998 and $7.4 million for fiscal 1999, and was $298,000 in the quarter ended
June 30, 1998 and $3.4 million in the quarter ended June 30, 1999. Cash used in
operations resulted primarily from net losses and increases in our accounts
receivable, offset in part by the growth in accrued liabilities, deferred
revenue, and non-cash expenses including depreciation and stock compensation.
Net cash used in investing activities of $930,000 for fiscal 1997, $1.4
million for fiscal 1998, $1.8 million for fiscal 1999, $271,000 for the quarter
ended June 30, 1998 and $1.3 million for the quarter ended June 30, 1999,
related to purchases of computer equipment and to a lesser extent software and
office furniture to support our expanding operations.
Financing activities provided net cash of $5.4 million for fiscal 1997,
$5.3 million for fiscal 1998, $22.1 million for fiscal 1999, $319,000 for the
quarter ended June 30, 1998 and used cash of $187,000 in the quarter ended June
30, 1999. Financing activities were primarily the sale of our common and
preferred stock. We have also used debt and leases to partially finance our
operations and capital purchases. At June 30, 1999 we also had $1.2 million in
current and noncurrent debt as well as $372,000 in current and noncurrent lease
obligations.
Included in the amounts above are four variable rate installment notes
with a bank that are secured by the equipment financed by the bank. The notes
bear interest at the bank prime rate and are due between March 2001 and February
2002. Also included are three notes payable to an equipment financing company
that bear interest at 7% per year and are due between June 2000 and October
2000, and three capital leases for the lease of computer and office equipment
due through January 2003.
Our borrowings under the variable rate installment notes require us to
comply with quarterly financial tests, including minimum operating results, and
liquidity, leverage and debt service ratios. As of March 31, 1999 and June 30,
1999, we were not in compliance with the minimum operating results covenant. We
obtained a waiver from the lender for the periods in which we were not in
compliance. The total amount outstanding under these variable rate installment
notes as of June 30, 1999 was approximately $818,000.
At March 31, 1999, we also had noncancelable operating leases for office
space and equipment of approximately $1.6 million which are payable through
fiscal 2004.
Although we have no material long-term commitments for capital
expenditures, we anticipate a substantial increase in our capital expenditures
and lease commitments consistent with anticipated growth in operations,
infrastructure and personnel. We believe that existing cash and cash
equivalents, together with the net proceeds of this offering, will be sufficient
to meet our working capital needs for at least the next 12 months. However, we
may need to raise additional funds in order to support more rapid expansion of
our sales force, develop new or enhanced products or services, respond to
competitive pressures, acquire complementary businesses or technologies or
respond to unanticipated requirements. If we seek to raise additional funds, we
may not be able to obtain funds on terms which are favorable or otherwise
acceptable to us. If we raise additional funds through the issuance of equity
securities, the percentage ownership of our stockholders would be reduced.
Furthermore, these securities may have rights, preferences or privileges senior
to our common stock.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position No. 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use". SOP No. 98-1 will become effective during the year ending March 31, 2000.
SOP No. 98-1 provides
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guidance over accounting for computer software developed or obtained for
internal use including the requirement to capitalize specified costs and
amortization of these costs. We do not expect the adoption of SOP No. 98-1 to
have a material effect on our results of operations, financial position or cash
flows.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivatives and Hedging Activities". This statement
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 will become effective during the year ending
March 31, 2001. The adoption of SFAS No. 133 is not expected to have a material
effect on our results of operations, financial position or cash flows.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, and to a lesser extent in Europe and Asia. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. Because nearly
all of our revenue is currently denominated in U.S. dollars, a strengthening of
the dollar could make our products less competitive in foreign markets. Our
interest income is sensitive to changes in the general level of U.S. interest
rates, particularly since the majority of our investments are in short-term
instruments. Due to the short-term nature of our investments, we do not believe
that we have a material risk exposure. Because some of our debt arrangements are
based on variable rates of interest, our interest expense is sensitive to
changes in the general level of U.S. interest rates. Since these obligations
represent a small percentage of our total capitalization, we believe that there
is not a material risk exposure.
YEAR 2000 COMPLIANCE
The "year 2000" issue refers generally to the problems that some software
may have in determining the correct century for the year. Software with date
sensitive information that is not year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in system failures
or the creation of erroneous results. We are subject to potential year 2000
problems affecting our products, our internal systems and the systems of our
suppliers and customers, any of which could harm our business.
We believe that all current versions of our products are year 2000
compliant, so long as they are configured and used in accordance with our
specifications, and provided that the underlying operating systems and any other
software used with our products are also year 2000 compliant. However, since our
products are integrated with our customers' systems, the failure of our
customers' systems to be year 2000 compliant could impede the success of our
applications in their systems. Accordingly, known or unknown defects or errors
that affect the operation of our software, including any defects or errors in
systems that include our products, could result in delay or loss of revenue,
diversion of development resources, damage to our reputation, or increased
service or warranty costs, any of which could harm our business.
We have initiated an assessment of our internal systems and are not
currently aware of any material operational issues or costs associated with
preparing our internal systems for the year 2000. However, we may experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology used in our internal systems.
In conjunction with our year 2000 assessment, we have begun to contact our
major suppliers to determine whether their operations and the products and
services they provide are year 2000 compliant. Where practicable, we will
attempt to mitigate our risks with respect to the failure of suppliers to be
year 2000 compliant. However, these failures remain a possibility and could harm
our business.
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We are in the process of developing a contingency plan to address
situations that may result if our products, our internal systems, or the systems
of our suppliers or customers are not year 2000 compliant.
We have funded our year 2000 plan from available cash and have not
separately accounted for these costs. To date, these costs have not been
material and are not expected to be material. However, we may experience
unanticipated problems and costs with year 2000 compliance that could harm our
business.
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BUSINESS
We are a leading provider of eCommerce software and services focused on
the purchasing customer, to companies worldwide in the telecommunications,
financial services, retail, computer hardware and manufacturing industries. Our
products enable companies to create a buying experience that engages and guides
customers through the purchasing process, resulting in more successful purchases
and enhancing repeat business.
Our eCommerce software is broadly applicable to a wide range of industries
and markets, products and services. Our current customers include a number of
companies that have adopted aggressive eBusiness strategies, such as Best Buy,
Cisco, Dell, Gateway, Merrill Lynch, Nortel Networks, Qwest, Siemens, Telia and
US West, who represented an aggregate of 67% of our total net revenue for fiscal
1999.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND ECOMMERCE
The rapid growth of the Internet is revolutionizing the way in which
businesses and consumers communicate, share information and conduct business.
The Internet has created a new means for businesses to reach and interact
directly with new and existing customers worldwide, transforming the traditional
ways companies market, sell and support their product and services offerings.
For some organizations, the Internet acts as a means to improve the
effectiveness of existing distribution channels. For others, it is replacing
those channels or enabling entirely new business models in a world where
traditional barriers to entry are rapidly dissolving. Forrester Research
estimates that the total value of U.S. business trade on the Internet will grow
to approximately $1.3 trillion by 2003.
Driven by rapidly accelerating global competition, companies are seeking
to improve their operations by improving collaboration and communication along
the supply chain, increasing their responsiveness to customers, and offering a
wider range of products and services which can be dynamically matched with
customers' specific needs. In order to capitalize on this opportunity, companies
are adopting more sophisticated approaches to eCommerce and are increasing their
investment in eCommerce infrastructure. These approaches are characterized by
enhanced interactivity, greater personalization and the ability to offer a broad
array of complex configurable products and services, all at the time of
purchase. Forrester Research estimates that the U.S. market for
eCommerce-enabling software solutions is expected to grow from $235 million in
1998 to $3.8 billion in 2002.
ECOMMERCE REQUIRES A NEW CLASS OF SOFTWARE
Over the past two decades, many major corporations have invested large
amounts of time and money automating their internal business processes through
the deployment of enterprise resource planning and sales force automation
software. These systems have enabled companies to centralize and better manage
important company-wide data and business processes, and provide sales
representatives with updated product information, contact management and data to
trace sales leads. While these systems have become an important element of
company-wide information technology processes and have brought many operational
benefits, they were developed prior to the commercial use of the Internet, and
were not designed for large scale, Internet-based, customer-driven interactions
and commerce. Because these process automation systems were designed for a
limited universe of internal users, they have not generally scaled to
accommodate the significant number of users or transactions made possible by the
Internet and have not provided the level of intuitive graphical user interface
that is necessary for engaging customer interactions.
As commercial use of the Internet began to develop, early eCommerce
vendors developed custom websites and transactions systems using general purpose
Internet publishing tools, such as HTML editors and
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specialized database tools. These tools enabled companies to post static product
catalogs and brochure content on the Internet, but generally allowed only
limited real-time interactivity and did not provide proven reliability and
scalability. Recently, packaged eCommerce applications have emerged, focusing
primarily on enabling transactions by providing security, credit card validation
and the management of "shopping baskets". In addition, a variety of point
solution software applications have been developed to provide functionality in
discrete aspects of the selling process, such as personalization and content
delivery. While these early packaged applications and point solutions have
helped to automate online transactions, they generally have not provided
well-integrated functionality or capabilities for the online purchasing of
complex and configurable products and services, such as computers, network
equipment or financial services.
We believe that the rapid growth and evolution of eCommerce requires a new
class of software solutions designed specifically for eCommerce interactions
with customers, resellers and partners. This new class of software must leverage
companies' large investments in company-wide business applications, and combine
the proven reliability of traditional enterprise systems with the scalability
and flexibility of Internet software. In addition, this software must be
customer-driven, integrate a broad range of sophisticated functionality and
enable the sale of complex products and services.
THE CALICO SOLUTION
The Calico eSales Suite is designed to allow companies to interact
directly with their customers over the Internet and other platforms. Using our
software, companies can create a web-based guided selling experience that can be
customized based upon the needs of the customer. Our software can enable
companies to provide tailored information to their customers, identify
constraints in the buying process, propose alternatives to the items chosen and
deliver quotes.
Buyers can use our software to research, evaluate, weigh trade-offs on
price, performance and other attributes, configure in real-time and buy complex
goods and services.
Our solutions provide the following advantages:
HIGHLY STRATEGIC. Our software is designed to help suppliers increase
their revenue by capitalizing on new eCommerce opportunities and reduce their
costs by enhancing operating efficiency and order accuracy. For example, our
tailored solutions enable suppliers to provide personalized products and
services, to recommend additional or related complementary items to a buyer
during the purchase process, resulting in improved sales effectiveness and order
accuracy and reduced cost of returned items. This functionality also reduces the
time to market of new products and services. As a result, we believe our
software can provide a significant return on investment and generally is viewed
by our customers as a means of achieving strategic and competitive advantage.
CUSTOMER-DRIVEN. Unlike traditional enterprise applications, our software
is designed specifically for interacting directly with customers, resellers and
other partners. Our "user-guided behavior" technology enables users to define
the purchasing process according to their own needs and to flexibly configure
complex goods and services at the point of sale in real time. In addition, our
agent technology delivers personalized information during the purchase process,
enabling companies to proactively engage the customer, anticipate customer
needs, provide real-time information and speed product delivery. By keeping the
customer at the center of the buying experience, focus can be shifted from the
transaction to the customer relationship, creating a key source of competitive
differentiation for companies.
INTEGRATED. By combining advanced configuration, information delivery,
content management and personalization functionality, we offer a broad,
integrated suite of eCommerce software, providing significant benefits to
customers who wish to launch or
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improve comprehensive eCommerce functionality quickly. In addition, our software
enables customers to develop highly intuitive, interactive, graphical and
content-rich eCommerce sites. We also provide professional consulting and
implementation services, complemented by our relationships with third-party
implementation partners, to provide a tailored solution for each company's
needs.
SCALABLE AND FLEXIBLE. Our product architecture is designed to be highly
scalable, enabling enterprises to interact directly with large numbers of
customers via the Internet and other platforms. The Calico eSales Suite employs
highly flexible modeling and tools to facilitate connections between computer
applications, designed to enable our software to be rapidly integrated with
other computer applications maintained by a company. These other computer
applications include enterprise resource planning, sales force automation and
supply chain management software programs, and their underlying databases.
DEPLOYABLE ACROSS MULTIPLE MODES OF DISTRIBUTION. The Calico eSales Suite
is designed to connect buyers and sellers, including distributors, resellers,
telemarketers and direct sales forces, to end users. To reach these audiences,
the Calico eSales Suite can be deployed across the Internet, intranets,
extranets and corporate networks and can be accessed through desktop and mobile
computers and retail kiosks. The Calico eSales Suite uses a single set of
business rules, enhancing consistency of user experience and reducing
maintenance.
STRATEGY
Our objective is to be the leading provider of eCommerce software to
customers worldwide. The key elements of our strategy include:
INCREASE THE BREADTH AND DEPTH OF OUR ECOMMERCE SOLUTIONS. Our strategy is
to provide software that enhances customer interaction by adding new features to
our Calico eSales Suite and by adding new products that provide marketing and
post-sales service functionality. We plan to accomplish this through internal
product development, licensing and acquisitions of third-party technology and
partnering. Our acquisition of FirstFloor provided agent technology which
enables targeted, personalized information delivery, a key element in our Calico
eSales solution. The introduction of personalized products which provide
marketing functionality will enable our customers to tailor Internet sites to
help build relationships with their most important customers. In addition, we
intend to facilitate integration of our products with a broad range of
enterprise and Internet software applications through the development of
additional tools for integration of our software with other computer
applications and additional application programming interfaces.
ALIGN WITH ECOMMERCE LEADERS AND EXPAND IN OTHER TARGETED VERTICAL
MARKETS. Our eCommerce software is broadly applicable to a range of industries
and markets. To date, our customers have been concentrated in two major industry
groups -- computer hardware and network and telecommunications equipment. Our
strategy has been to pursue relationships with leading participants in key
industries who have adopted aggressive eBusiness strategies. In addition, we
plan to continue to expand in additional industries where eCommerce software is
highly strategic and promote significant competitive advantage, including
manufacturing, retail, telecommunications services, and financial services.
ENHANCE SALES AND IMPLEMENTATION SERVICES THROUGH INCREASED ALLIANCES. Our
strategy is to increase our revenue base by complementing our direct sales force
and professional services organization with strategic partnerships and
alliances. These partnerships are intended to increase geographic sales coverage
worldwide, address new industry market segments, and provide our customers with
access to additional design, modeling and implementation resources. In addition,
our goal is to form additional marketing and distribution alliances with
eCommerce software vendors and resellers to broaden distribution or provide
complementary functionality to our applications. We also intend to provide
company-wide integration of
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our software through alliances with systems integrators and vendors focused on
providing software and integration services for connecting computer applications
from multiple business software providers.
EXTEND TECHNOLOGY LEADERSHIP. Our Calico eSales Suite is based on advanced
expert systems technology which allows matching of user requirements with
suppliers' product and service offerings. For example, the bill of materials
created by our Calico eSales Quote product is described in extensible markup
language, or XML, enabling dynamic and intelligent exchange among eCommerce
applications. Our strategy is to continue to develop leading technologies in
order to deliver more advanced functionality in our software to our customers.
IDENTIFY AND CAPITALIZE ON NEW ECOMMERCE-BASED BUSINESSES. Our strategy is
to pursue relationships with and foster the development of emerging
eCommerce-based businesses at an early stage of their development. By entering
into a variety of arrangements with these emerging leaders, we believe we can
further capitalize on the growth of eCommerce and remain at the forefront of
eCommerce trends and technology.
PRODUCTS AND SERVICES
We have developed a suite of applications, integration tools and services
for building eCommerce solutions.
In a typical interaction with the Calico eSales Suite, a user at a retail
kiosk or other mode of interaction views pages on a vendor's web site that
describe a complex product or service the user wishes to purchase. The web
server supporting the web site connects to the various Calico eSales Suite
modules through industry-standard protocols, such as JHTML, ASP and JSP. The
Calico Enterprise Connectors or other published Java application programming
interfaces then integrate the Calico eSales Suite modules with the vendor's
order entry or other computer systems, enabling user interaction by providing
data flow to the Calico eSales Suite modules and the web site.
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[CALICO eSALES ARCHITECTURE CHART]
THE CALICO ESALES SUITE
The Calico eSales Suite is an integrated family of interactive user-guided
software products that provide our customers with the ability to create aspects
of person-to-person selling in an on-line environment. Companies can use our
suite of products to support multiple sales channels, including direct sales,
in-store, resellers, value added resellers, telesales and sales over the
Internet. Our products can be deployed individually or as part of the entire
suite, depending on customer preference.
Initial implementations by customers typically include the majority of the
functionality provided by our product line. Additional user licenses and Calico
eSales Engines, together with any additional functionality, may be added
following the initial implementation.
The Calico eSales Suite includes the following software modules:
CALICO ESALES CONFIGURATOR. At the heart of the Calico eSales Suite is the
Calico eSales Configurator, an expert system that matches customer requirements
with product attributes, guiding customers to products and services that meet
their needs. The Calico eSales Configurator employs our "user-guided behavior"
technology to explore different combinations of solution elements. This
technology enables users to evaluate trade-offs on price, performance or other
attributes, while at the same time determining that the configured product or
service meets business or legal constraints set by the vendor. The Calico eSales
Configurator uses dynamic models of customer requirements and product attributes
developed using the Calico eSales Workbench. Once the models have been created,
they can be loaded into
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an application running standalone or in a multi-user setting. A single model can
be deployed across multiple sales channels, including direct sales, in-store,
resellers, value added resellers, telesales, and sales over the Internet,
streamlining maintenance and permitting significant flexibility.
In this way, customers can select and purchase complex products and
services without the individual attention of a sales person and speed the
process of creating complete and correct complex product configurations.
CALICO ESALES LOYALTY BUILDER. The Calico eSales Loyalty Builder is
designed to address the challenge of building and maintaining customer loyalty
on-line. Calico eSales Loyalty Builder personalizes the Internet-based guided
selling experience from the customer's initial expression of interest through
configuring and ordering products. This personalized guided selling experience
enables companies to proactively engage customers to build stronger customer
relationships with the objective of increasing revenue and reducing sales costs.
The Calico eSales Loyalty Builder is an integral part of the Calico eSales
Suite, and provides organizations with customer-driven eCommerce software for
personalized buying over the Internet. The Calico eSales Loyalty Builder's Java
and XML-based architecture is designed to enable customers to adopt the
technology within their existing web infrastructure.
CALICO ESALES QUOTE. The Calico eSales Quote provides customized sales
quotations to customers for selected products and stores quotes for later
retrieval or immediate entry into an order management system. The Calico eSales
Quote is designed to enable unification of product requirements, complex
configurations and pricing and acts as the intermediary to automating order
entry. The Calico eSales Quote is built using the Java programming language and
XML-based architecture. This enables companies to integrate the quoting and
pricing functions of the Calico eSales Suite with existing order entry,
enterprise resource planning and external pricing tools and software programs.
In addition, the core functionality of the Calico eSales Quote can be extended
via the Java-based application programming interfaces provided with the Calico
eSales Quote.
CALICO ESALES INFOGUIDE. The Calico eSales InfoGuide, previously called
Calico eSales Catalog, delivers targeted marketing information, such as
brochures, product datasheets, product reviews and competitive comparisons,
directly to customers during the on-line buying process. The Calico eSales
InfoGuide is a Java-based programming tool that pairs content-sensitive
selections and browser clicks with content from any source, even pre-existing
content stored in multiple file formats. The Calico eSales Configurator, Calico
eSales Quote and Calico eSales InfoGuide are integrated so that at any point
within the buying process the customer can request additional information and
have targeted information delivered.
CALICO ESALES WORKBENCH. The Calico eSales Workbench is a flexible toolset
for creating product, pricing and content models for use by the Calico eSales
Configurator. This toolset is used to develop models that describe how each
product can be configured and priced and establishes the relationship between
the requirements and the products to be configured. The Calico eSales Workbench
does not require significant computer programming or advanced technical
expertise to develop or maintain models.
CALICO ESALES ENGINE. The Calico eSales Engine runs the models created
with the Calico eSales Workbench. The Calico eSales Engine is a constraint-based
sales engine, deployable on platforms ranging from laptops to high-end servers.
Because the engine allows users to access the same model, regardless of whether
they are using ActiveX-, Java- or HTML-based user interfaces, each modification
and update of a model only needs to be made once. Calico eSales Engines are
included with each Calico eSales Configurator. Additional Calico eSales Engines
can be added to run the same model, thereby accommodating increased traffic
while continuing to provide rapid response time.
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CUSTOMER CASE STUDIES
The following case studies discuss the benefits provided by the Calico
eSales Suite to three of our representative customers.
NORTEL NETWORKS
Communication networking leader Nortel Networks has implemented our Calico
eSales Suite to enable its customers to buy Nortel Networks Carrier Solutions
products interactively via the Internet.
Using the Calico eSales Suite, Nortel Networks Carrier customers have
access to up-to-date and customizable product and pricing information for
optical and access product portfolios, enabling them to make informed purchasing
decisions. The Calico eSales Suite guides Nortel customers through the
purchasing process, drastically reducing the time it takes to configure and
place orders for optical and access networking products and enhancing order
accuracy.
Nortel believes our interactive, customer-focused guided selling approach
will result in bigger near-term sales and enhanced customer satisfaction. Nortel
Networks is also working with us to deploy and integrate our eSales Suite as a
part of its future eBusiness initiatives.
INTERNATIONAL GAME TECHNOLOGY
IGT designs, develops and manufactures slot, video and progressive gaming
devices and software systems. To meet the increasing demand for its products and
better serve its customers and prospects, IGT needed a sales force automation
solution that would enable its direct sales force to pursue new sales
opportunities and configure products at the point of sale. The solution required
functionality to deliver information about IGT's extensive and complex product
line, as well as state-by-state gaming requirements, from within a single
computer system. The Calico eSales Configurator, together with a sales
automation application provided by Clarify, Inc., created a seamless interface
between IGT's mobile sales organization and networked users and its back-end
enterprise resource planning system. This integrated software solution provided
IGT's sales representatives with the ability to match those customer needs with
the appropriate IGT product configuration.
EDU.COM
edu.com is a national marketing and distribution channel that focuses
exclusively on the purchasing needs of college students. edu.com brokers
programs with vendors to deliver favorable pricing on significant purchases.
Through edu.com, students receive "student-only" prices on a variety of branded
products and services including computers, software, textbooks, and health &
beauty care products, as well as banking, phone and travel services.
edu.com utilizes shopping wizards based on the Calico eSales Configurator
to help students make educated purchasing decisions. The wizards prompt students
with questions specific to the category of products they are shopping for, then
offer a list of choices that meet their criteria. Students unfamiliar with the
product they are buying can use the wizards to easily identify appropriate
selections. Informed shoppers can use the wizards to locate products quickly and
easily.
PROFESSIONAL SERVICES
We offer a range of professional and support services including
requirements analysis and definition, creation and evolution of sample customer
deployments based on customer input, design, data analysis, process modification
advice, implementation consultation, education, and post-deployment maintenance.
Our staff of professionals and consultants who define the implementation
specifications for deploying our software work with customers to capture and
model the business logic and policies that reflect marketing and selling
practices. Our professional services consultants also help with the integration
of our applications into other company-wide computer software systems. Our
professional services team and our consulting partners use the Calico eSales
Workbench to design, create and finalize graphical user interfaces which meet
specific
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customer requirements, delivering a personalized buying experience. These
professionals have backgrounds in user interface design, systems integration,
technology strategy, and project management.
We use our Opportunity Assessment Methodology in working with customers to
define the opportunity set, priorities, business justification, project costs
and roadmap to implementation relating to each project. This methodology
includes a series of cross-functional interviews at many levels of our
customer's project team. This series of interviews results in an analytical
comparison, known as the Calico eSales Proficiency Matrix, which is used to
determine how our customer's sales practices compare to other sales practices in
their industry. This analysis enables the customer to build cross-functional
action plans, including economic justification and a cohesive and knowledgeable
project team. The methodology may recommend that a prototype be created to
demonstrate the concept and set expectations for our engagement.
MAINTENANCE AND CUSTOMER SERVICE
We offer a broad range of maintenance and customer service options to meet
the varying needs of each customer. Customers covered by maintenance agreements
can report application problems, make enhancement requests and obtain update
releases. Our help desk is staffed with technical support engineers experienced
in a variety of programming languages. For deployed customers or those using
in-house modeling resources, our remote consulting staff provides ongoing
consulting, limited continuing education and customer-specific model support.
Our implementation support is targeted at customers who have completed their
modeling and require assistance in implementing a client/server or Internet
server deployment. We also help troubleshoot problems with network bandwidth,
network access and configurations as they pertain to our products.
SALES AND MARKETING
We market and sell our products primarily through our direct sales force
located at our headquarters in San Jose, and our regional sales and service
offices in Atlanta, Boston, Chicago, England, and Sweden. As of June 30, 1999,
our total sales and marketing organization consisted of 67 employees. We intend
to increase our domestic and international direct sales organizations, in part
by increasing our direct sales force in Australia, the Benelux, Germany,
Singapore and Japan during fiscal 2000. We are also complementing our direct
sales force through additional distribution channels, including systems
integrators and value added resellers, both domestically and internationally.
For example, we have entered into an agreement with an entity to provide sales
distribution and services in Japan.
We have multi-disciplined sales teams that consist of sales, technical and
support professionals. Our senior management also takes an active role in our
sales efforts. We often develop a pilot or custom demonstration which we or our
partners can then use to design a model for a full scale implementation. Our
sales efforts are typically directed to senior executives at our customers'
organizations, including the chief executive officer, the chief information
officer and the vice presidents of sales and marketing.
To support our direct sales efforts and to actively promote our Calico
eSales brand, we conduct comprehensive marketing programs and market research,
including public relations, print advertisements, online advertisements, trade
shows, speaking engagements and ongoing customer communications.
STRATEGIC ALLIANCES
We are pursuing marketing, implementation and resale alliances with
eCommerce software vendors, systems integrators, professional services
organizations and application services providers. These alliances are intended
to increase geographic sales coverage worldwide and address new vertical markets
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and market segments. In addition, these partnerships and alliances allow us to
provide our customers with access to additional resources to design, install and
customize our solutions. As of June 30, 1999, these alliances were in their
early phase of development and we had not yet generated significant revenue from
these alliances.
As part of this strategy, we have formed marketing and distribution
alliances with eCommerce software vendors. For example, we have entered into
joint marketing relationships with Silknet Software, a provider of
Internet-based customer support solutions, and with Netcentives, a provider of
Internet loyalty, direct marketing and promotion products and services designed
to drive eCommerce. We have also recently entered into a joint marketing
agreement with Vignette to share sales and marketing leads, provide
complementary training of each other's sales teams and develop joint marketing
materials. Vignette is a provider of Internet relationship management software
products and services. In addition, we have a cooperative marketing agreement
with IBM. These relationships enable us to broaden distribution of our products
and provide complementary functionality to our applications.
Under these joint marketing arrangements, each party agrees to provide
each other with reasonable marketing and sales assistance.
We also intend to expand the professional services offered to our
customers by enhancing existing relationships with systems integrators and
professional services organizations, such as Cap Gemini and DRT Systems. We are
also developing additional relationships with other professional services
organizations who specialize in offering consulting services for the
installation and implementation of software products such as the Calico eSales
Suite. In addition, we have entered into a joint marketing agreement with
USWeb/CKS, an Internet professional services firm, where USWeb/CKS may provide
its Internet integration expertise in our customer deployments.
We also participate in the Oracle Partner Program, which assists us in
marketing the Calico eSales suite of products to Oracle customers. Since our
products are built to be database independent, they can be easily integrated
with Oracle's products.
We are a Microsoft Certified Solution Provider and a member of the
Microsoft Developer Network, providing us with co-marketing and advertising
opportunities.
SIGNIFICANT CUSTOMERS
We have provided eCommerce software primarily to customers concentrated in
two major industry groups -- computer hardware and network and
telecommunications equipment. We are continuing to expand in other markets, such
as manufacturing, retail, telecommunication services and financial services. In
fiscal 1999, Gateway and Dell each represented more than 10% of our total net
revenue. In fiscal 1998, Micron Electronics accounted for more than 10% of our
total net revenue. In fiscal 1997, Amdahl, Lanier and US Robotics (subsequently
acquired by 3Com) each accounted for more than 10% of our total net revenue. A
substantial portion of our revenue in any given quarter has been, and is
expected to continue to be, generated from a limited number of customers with
large financial commitment contracts.
The following is a partial list of customers who have purchased our
products and services and that we believe are representative of our overall
customer base, based upon the revenues generated from these customers and the
industries represented:
<TABLE>
<S> <C>
Best Buy Qwest
Cabletron Siemens
Cisco Starhub
Dell Sunrise Medical
Gateway Telia
Merrill Lynch Telxon
Motorola US West
MTD Products Zurn Industries
Nortel Networks
</TABLE>
These customers accounted for 87% of our total net revenue for fiscal 1999
and 82%
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of our total net revenue for the three months ended June 30, 1999.
TECHNOLOGY
Our software architecture provides the platform for our eCommerce
software. Our technology is designed to provide interactive, scalable, and
easily maintained advanced eCommerce applications. The user interface component
of the Calico eSales Configurator is powered by Microsoft Active Server Pages
and therefore operates only on Windows NT. The Calico eSales Loyalty Builder,
Calico eSales Quote, Calico eSales InfoGuide and Calico eSales Engine each
operate on Unix and Windows NT. We intend to develop user interface components
to allow our customers to use either a Unix-based or Windows NT-based Web
server. If we are unable to promptly or successfully develop the Unix version,
the scalability of our Calico eSales Configurator may be adversely impacted for
certain customer applications due to the scalability limitations of Windows NT.
The elements of our technology consist of the following:
USER-GUIDED BEHAVIOR TECHNOLOGY
We have developed proprietary "user-guided behavior" technology that is
based upon expert systems that provide the ability to match user requirements
with specific product and service offerings from companies, subject to a number
of constraints. The user-guided behavior technology offers the following
benefits:
- - Our data maintenance system allows data to be entered in tabular form for
concise expression of relationships between data, thereby reducing the
system's maintenance requirements.
- - Applications that are constructed from the models created with the Calico
eSales Workbench require only constraints, product content information and
user interface information. Since models can be loaded into an application
running standalone or in a multi-user setting, the same application can be
targeted to run on laptops, desktops and the Internet.
- - Constraints, together with our user-guided behavior technology, provide
options to the end user and explain why particular configurations are not
valid.
The Calico eSales Engine is designed to handle complex configurations. Our
technology allows for composite modeling, which permits the configuration to
expand to accommodate numerous sites at the user's request. The Calico eSales
Configurator supports multiprocessor servers as well as server clusters. This
enables organizations to scale their deployments readily to accommodate traffic.
Because session state information is stored in multiple locations, a user's
configuration session can proceed uninterrupted even in the event of a server
failure.
ACCESS TO ENTERPRISE DATA
Our proprietary agent technology allows customers to quickly and easily
access their company-wide business data and content, as well as external content
from their intranet and the Internet as part of an advanced eCommerce system,
without re-creating the content or re-submitting each document to a new system.
Automatic notification and delivery of documents and other important information
is possible without needing to modify existing software applications or
information sources.
ADHERENCE TO INDUSTRY STANDARDS
The Calico eSales Loyalty Builder, Calico eSales Quote and Calico eSales
InfoGuide have been designed based on XML, an emerging standard for data
representation and computer-to-computer exchange of information supporting
eCommerce. Software systems that support XML provide customers with the ability
to reduce application development time, easily integrate with prior generations
of business software and hardware systems and build applications that span the
business processes of a company, its suppliers, distributors and customers.
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In addition, Calico eSales Loyalty Builder, Calico eSales Quote and Calico
eSales InfoGuide have all been designed using Java, a programming language that
enables compatibility across multiple platforms and facilitates Internet-based
performance. Java is emerging as a development language for electronic business
and other Internet applications.
Our architecture is designed to comply with widely accepted commercial
software industry standards for building large-scale Internet applications. In
addition to XML, we use other widely accepted standards in developing our
products, including structured query language, Java database connectivity and
open database connectivity for accessing relational database management systems,
HTTP for Internet access and HTML for Web information presentation. The Calico
eSales Configurator can be operated in conjunction with enterprise applications
provided by Oracle, Baan, SAP and JD Edwards. Integration with these and other
applications is facilitated by our support of open standards.
RESEARCH AND DEVELOPMENT
Our future success will depend in part upon our ability to enhance the
Calico eSales Suite of products, develop new products and capitalize on our
technological leadership to provide eCommerce software to a global customer
base. Our immediate focus is to extend the existing company-wide business
application integration capabilities of our product suite to Oracle Order Entry
and SAP Order Entry. In addition, we are seeking to broaden our current product
line by improving performance, platform independence, adaptation to standards,
integration with company-wide business applications, ease of modeling and
applicability to commercial products and services.
To foster development, definition, adoption and implementation of open
standards that can be leveraged by the Calico eSales Suite, we work with several
industry standards organizations such as the World Wide Web Consortium,
RosettaNet, Commercenet, the American Association of Artificial Intelligence,
the Institute for Electrical and Electronic Engineering and the Association for
Computing Machinery. For example, through these organizations we are actively
promoting the use of XML technology for data representation and computer-to-
computer exchange of information.
Our research and development expenses were $2.2 million for fiscal 1997,
$3.3 million for fiscal 1998, $5.7 million for fiscal 1999, $972,000 for the
three months ended June 30, 1998 and $2.7 million for the three months ended
June 30, 1999. We expect to continue to invest significantly in research and
development in the future. We have experienced technical personnel in the areas
of agent-based technology, artificial intelligence, expert systems, user
interface design, enterprise and middleware software development.
PROPRIETARY RIGHTS
Our success and ability to compete are substantially dependent on our
internally developed technology and software applications. We have two U.S.
patents. While we rely on patent, trademark, service mark, copyright and trade
secret laws and restrictions in the United States and other jurisdictions,
together with contractual restrictions, to protect our proprietary rights,
patent, trademark, copyright and trade secret protection may not be available in
every country in which we distribute our products.
We also typically enter into confidentiality and invention assignment
agreements with our employees and contractors, and nondisclosure agreements with
our customers, suppliers and strategic partners in order to limit access to and
distribution and disclosure of our proprietary information. However, despite our
efforts to protect our proprietary rights, unauthorized parties could copy or
otherwise obtain and use our products or technology or develop products with the
same functionality as our products. Policing unauthorized use is difficult, and
the steps we have taken may not prevent misappropriation of our technology. In
addition, the laws of some foreign countries provide less protection of
proprietary rights
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than do the laws of the United States, and we expect that it will become more
difficult to monitor the use of our products if we increase our international
presence.
We utilize technology provided by BEA Systems, Inc. for our application
servers, from Verity, Inc. for our search capability software, from Rainbow
Software, Inc. to provide a licensing mechanism, from TideStone Technologies,
Inc. for quote grid technology and from Rogue Wave Software, Inc. for
development software. Should this third-party software no longer continue to be
available at an acceptable cost, our products could be delayed until equivalent
software could be developed or licensed and integrated into our products.
However, we do not believe that our business could be considered to be
substantially dependent on any one of these license agreements.
Substantial litigation regarding intellectual property rights exists in
the software industry. We expect that software products may increasingly be
subject to third-party infringement claims as the number of competitors
supplying eCommerce applications and solutions grows, and the functionality in
other industry segments overlaps. Some of our competitors may have filed or
intend to file patent applications covering aspects of their technology that
they claim our technology infringes. Our competitors may make a claim of
infringement against us with respect to our products and technology. These
claims could result in litigation subjecting us to significant liability for
damages, or in invalidation of our proprietary rights. Any claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management's attention and resources or require us to enter into royalty
or licensing agreements in order to be able to sell our products. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, or at all.
COMPETITION
The market for software and services that enable eCommerce for the
interactive buying and selling of products is new, intensely competitive, highly
fragmented and rapidly changing.
We believe that our ability to compete depends on many factors, both
within and beyond our control, including:
- - the performance, functionality, scalability and flexibility of our software
solutions;
- - the timing and market acceptance of new products and product enhancements to
the Calico eSales Suite of products;
- - the effectiveness of our sales and marketing efforts; and
- - the quality and performance of our professional services.
Although we believe that we currently compete favorably as to each of
these factors, particularly as to performance, functionally and flexibility of
our software solutions, we expect competition to persist and intensify. Our
primary competition currently comes from companies developing solutions in-house
and from a large number of emerging companies focused on eCommerce. We also
compete with vendors of enterprise class application software, including
BroadVision, Siebel Systems, Oracle, SAP, Baan and Microsoft. Within our Calico
eSales Configurator product line, our competitors include Trilogy, pcOrder.com,
Selectica and FirePond.
Many of our competitors and potential competitors have a number of
significant advantages over us, including:
- - a longer operating history;
- - preferred vendor status with our customers;
- - more extensive name recognition and marketing power; and
- - significantly greater financial, technical, marketing and other resources,
giving them the ability to respond more quickly to new or changing
opportunities, technologies and customer requirements.
We also expect that competition will increase as a result of software
industry consolidation. For example, a number of enterprise software companies
have
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announced acquisitions of point solution providers to expand their product
lines. Our competitors may also bundle their products in a manner that may
discourage users from purchasing our products. Current and potential competitors
may establish cooperative relationships among themselves or with third parties
or adopt aggressive pricing policies to gain market share. In addition, new
competitors could emerge and rapidly capture market share.
LEGAL PROCEEDINGS
We are currently involved in litigation with a former employee arising out
of the alleged sexual harassment and wrongful termination of the employee. We
have responded to the lawsuit by filing an answer that denies all of the
material allegations. The lawsuit was filed by Susan D. Quinn on June 11, 1997
in the Santa Clara County Superior Court for the State of California, naming us
and one of our former employees as defendants. The case is currently in the
early stages of pre-trial discovery. The lawsuit seeks unspecified monetary
amounts for lost wages and benefits, emotional and physical distress and
punitive damages.
We believe that we have meritorious defenses against the alleged claims,
and intend to defend ourselves vigorously. However, due to the nature of
litigation and the fact that discovery is still in its early stages, we cannot
determine the possible loss, if any, that may ultimately be incurred either in
the context of a trial or as a result of a negotiated settlement. We may also
incur substantial legal fees in this matter. After consideration of the nature
of the claims and facts relating to the litigation, we believe that the
resolution of this matter will not harm our business. However, the results of
these proceedings, including any potential settlement, are uncertain and there
can be no assurance that they will not harm our business.
EMPLOYEES
As of June 30, 1999, we had 210 employees. Of that total, 65 were
primarily engaged in product development, engineering or systems engineering, 67
were engaged in sales and marketing, 54 were engaged in professional services
and 24 in operational, financial and administrative functions.
None of our employees is represented by a labor union, and we have never
experienced a work stoppage. Our relations with our employees are good.
FACILITIES
Our headquarters are located in approximately 38,600 square feet in San
Jose, California, occupied under a sublease expiring on August 31, 1999. We also
lease office space in Pleasanton, California; Boston, Massachusetts; Atlanta,
Georgia; Chicago, Illinois; Reading, England; and Stockholm, Sweden, under
leases for terms expiring from August 1999 to January 2002. We have additional
leased space in San Jose and Mountain View, California, some of which we have
sublet to unrelated third parties.
We are currently searching for new space to occupy upon expiration of our
principal office lease. We believe that suitable additional space will be
available and that this additional space, together with our other current
facilities, will be adequate to meet our needs for the foreseeable future.
However, if we are unable to identify suitable space or if the change in
location of our principal offices is unexpectedly disruptive, time-consuming or
costly, our business would be harmed.
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MANAGEMENT
OFFICERS AND DIRECTORS
Our executive officers, other officers and directors as of June 30, 1999
are:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Alan P. Naumann(1)................... 39 President, Chief Executive Officer and
Director
David E. Barrett(1).................. 43 Executive Vice President and Chief Operating
Officer
Matthew S. DiMaria(1)................ 38 Vice President, Marketing
Arthur F. Knapp, Jr.(1).............. 50 Vice President and Chief Financial Officer
H. Tayloe Stansbury(1)............... 38 Vice President, Engineering
David J. Cardinal.................... 39 Vice President and Chief Technical Officer
Lynn Butler Corsiglia................ 40 Vice President, Human Resources
Paul S. Greenfield................... 47 Vice President and Managing Director, Eurasia
Steve P. Leahy....................... 40 Vice President, Americas
Alan W. MacMurray.................... 42 Vice President, Professional Services
Joseph A. Moran...................... 42 Vice President, Finance
Amanda A. North...................... 42 Vice President, New Ventures
Barton P. O'Brien.................... 43 Vice President, Strategic Sales
Michael M. Ouye...................... 45 Vice President, Advanced Development
William G. Paseman................... 44 Vice President, Research and Development and
Chairman of the Board
Beverly A. Powell-Goldman............ 45 Vice President, Business Development
Bernard J. Lacroute.................. 55 Director
William D. Unger..................... 49 Director
</TABLE>
- -------------------------
(1) Executive Officer. The individuals identified above who are not executive
officers or directors are deemed to be significant employees who make or are
expected to make significant contributions to our business.
ALAN P. NAUMANN has served as President, Chief Executive Officer and a
director of Calico since September 1997. From November 1995 to September 1997,
Mr. Naumann served as Vice President and General Manager at Cadence Design
Systems, a software company. From 1988 to November 1995, Mr. Naumann held
director and vice president positions in sales and field operations at Cadence.
From 1982 to 1987, Mr. Naumann served in various sales and business development
positions at Hewlett Packard. Mr. Naumann holds a B.S. degree in Computer
Engineering from Iowa State University.
DAVID E. BARRETT has served as our Executive Vice President and Chief
Operating Officer since May 1999, and from February 1998 to May 1999, Mr.
Barrett served as our Executive Vice President, Business Operations. From
December 1996 until he joined Calico, Mr. Barrett served as Senior Vice
President, Worldwide Sales and Customer Services at Pure Atria/Rational Software
Corporation, an enterprise software development automation company. From March
1996 to December 1996, Mr. Barrett served as Vice President, Sales, Marketing
and Services at Nets, Inc., an eCommerce company. Mr. Barrett served as Vice
President, Field Sales & Services for Lotus Development Corporation, which was
subsequently acquired by IBM, from July 1994 to March 1996. From March 1992 to
July 1994, Mr. Barrett served concurrently as General Manager, Government Sales
and Marketing and Senior Director Strategic Sales and Operations at Lotus, and
from June 1984 to March 1992, Mr. Barrett held various senior management
positions in sales, marketing and services at Lotus. Mr. Barrett holds a B.S.
degree in Marketing
49
<PAGE> 50
Management from the University of Rhode Island.
MATTHEW S. DIMARIA has served as our Vice President, Marketing since
September 1998. Mr. DiMaria joined Calico as Vice President of Product Marketing
in March 1998. From March 1995 to February 1998, Mr. DiMaria served as Vice
President of Americas, Marketing for Symantec Corporation, a software company.
From July 1994 to February 1995, Mr. DiMaria served as a partner of Presence
Corporation, a high technology consulting company which he co-founded. From June
1986 to June 1994, Mr. DiMaria held various sales and marketing positions at
Ingres Corporation, a software provider. Mr. DiMaria holds a B.S. degree in
Information Systems Management from the University of Maryland.
ARTHUR F. KNAPP, JR. has served as our Vice President and Chief Financial
Officer since June 1999. From 1991 to March 1999 Mr. Knapp served as Senior Vice
President and Chief Financial Officer at Boole & Babbage, a systems management
software company. From 1984 to 1991, Mr. Knapp served as Chief Financial Officer
at Legent Corporation, a systems management software company. Mr. Knapp holds a
B.S. degree in Finance from the Pennsylvania State University and is a Certified
Public Accountant and a Certified Management Accountant.
H. TAYLOE STANSBURY has served as our Vice President, Engineering since
January 1999. From July 1996 to January 1999, Mr. Stansbury served as Vice
President, Document Management Systems for Xerox Corporation. From December 1994
to June 1996, Mr. Stansbury served as Director, then Vice President, of Software
Engineering for Xerox's XSoft division. Mr. Stansbury holds a B.S. degree in
Applied Mathematics and Computer Science from Harvard University.
DAVID J. CARDINAL has served as our Vice President and Chief Technical
Officer since August 1998 when we acquired FirstFloor, which Mr. Cardinal
co-founded in October 1992. From October 1992 to April 1996, Mr. Cardinal was
Chairman, Chief Executive Officer and President of FirstFloor, and from April
1996 to August 1998, Mr. Cardinal was Chairman and Chief Technical Officer of
FirstFloor. Prior to that time, Mr. Cardinal served as General Manager of
Desktop Software at Sun Microsystems and held various positions at Amdahl
Corporation and MICA, Inc., a supplier of training and consulting solutions. Mr.
Cardinal holds a B.S. degree in Electrical Engineering from Princeton
University.
LYNN BUTLER CORSIGLIA has served as our Vice President, Human Resources
since March 1998. From November 1995 until she joined Calico, Ms. Butler
Corsiglia served as Director of Human Resources at Netscape Communications
Corporation. Ms. Butler Corsiglia held human resource management positions at
Sybase Incorporated from October 1992 to October 1995 and served in various
human resource management positions at Ungermann-Bass from July 1986 to October
1992.
PAUL S. GREENFIELD has served as our Vice President and Managing Director,
Eurasia since June 1998. From May 1994 to June 1998, Mr. Greenfield was Vice
President, European Operations at Avant! Corporation, a provider of software
used to implement integrated circuits on silicon chips. From June 1993 to May
1994, Mr. Greenfield served as Vice President, Northern European Operations at
Redwood Design Automation. Mr. Greenfield holds an H.N.C. degree from
Hammersmith College of Commerce in London.
STEVE P. LEAHY has served as our Vice President, Americas since August
1998. From August 1997 until he joined Calico, Mr. Leahy served as Vice
President, Northeast at Informix Software, an enterprise database and data
management company. From August 1994 to August 1997, Mr. Leahy was Director of
Sales for Pure Software, which later merged to become Pure Atria/Rational
Software Corporation, where he continued as Director of Sales for the Eastern US
and Canada. During the five year period prior to that date, Mr. Leahy held
various positions at Sun Microsystems in various sales capacities. Mr. Leahy
holds a B.A. degree in History from Bowdoin College.
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<PAGE> 51
ALAN W. MACMURRAY has served as our Vice President, Professional Services
since April 1997. From January 1995 until he joined Calico, Mr. MacMurray served
as Vice President, Professional Services at TravelNet, Inc., an eCommerce
software company. From March 1988 to December 1994, Mr. MacMurray held four
services and support positions at Aspect Telecommunications, a supplier of
automated call distributors. From December 1984 to March 1988, he was employed
by the Rolm Division of IBM where he held various sales and services roles
including Branch Manager. He has a B.S. degree in Economics from Harvard College
and an M.B.A. degree in Marketing and Finance from the University of Chicago.
JOSEPH A. MORAN has served as our Vice President, Finance since June 1997,
and as Chief Financial Officer from June 1997 to June 1999. From 1991 to 1997,
Mr. Moran held various positions at Sybase, including Vice President, Finance,
Enterprise Business Group from June 1996 to June 1997, and Director of Finance
from January 1993 to June 1996. Mr. Moran holds a B.S. degree in Economics from
the University of California at Berkeley and an M.B.A. degree in Finance and
International Business from the University of Chicago.
AMANDA A. NORTH has served as our Vice President, New Ventures since
September 1998. From November 1997 to September 1998, Ms. North served as
Calico's Vice President, Corporate Marketing. From October 1993 to November
1997, Ms. North held various positions at Studio Archetype, a developer of
complex and high visibility web sites. Ms. North was President of Studio
Archetype from October 1996 to October 1997. Ms. North holds B.A. degrees in
Economics and Politics from Princeton University and an M.B.A. degree from
Stanford University.
BARTON P. O'BRIEN has served as our Vice President, Strategic Sales, since
he co-founded Calico in January 1994. Prior to joining Calico, Mr. O'Brien held
sales positions at RSA Data Security, a developer of encryption and
authentication technology. Mr. O'Brien holds a B.S. degree in Business
Administration from the University of Florida and an M.S. degree in Industrial
Administration from Carnegie-Mellon Graduate School of Industrial
Administration.
MICHAEL M. OUYE has served as our Vice President, Advanced Development,
since August 1996 when Calico acquired FirstFloor, where he had been Vice
President, Engineering since April 1994. From February 1987 to April 1994, Mr.
Ouye was involved in the formation of GO Corporation and EO, Inc., developing
the concepts and software around pen-based computing as Director of Engineering
and Vice President, Engineering, respectively. Mr. Ouye has a B.S. degree in
Computer Science from California State University in Sacramento and an M.S.
degree in Computer Science from the University of Santa Clara.
WILLIAM G. PASEMAN, the Chairman of the board of directors of Calico and a
director since he founded Calico, served as Calico's President until January
1996, and has since served as Calico's Vice President, Research and Development.
From 1990 to 1994, Mr. Paseman was a consultant at Paseman & Associates, a
consulting firm that he co-founded. From 1986 to 1990, Mr. Paseman co-founded
Atherton Technology, Inc., a software company, where he served as Vice President
of Technology. Mr. Paseman holds a B.S. degree in Chemical Engineering, a B.S.
degree in Electrical Engineering, and an M.S. degree in Chemical Engineering
from Rice University. He also holds an M.S. degree in Computer Science from
Massachusetts Institute of Technology.
BEVERLY A. POWELL-GOLDMAN has served as our Vice President, Business
Development since December 1998. From October 1997 to December 1998, Ms.
Powell-Goldman served as Executive Vice President, Worldwide Sales and Business
Development at Extricity Software, a provider of business-to-business
integration software. From June 1996 to October 1997, Ms. Powell-Goldman served
as Vice President, Strategic Alliances at Siebel Systems, a supplier of
enterprise relationship management software. From September 1991 to October
1995, Ms. Powell-Goldman served
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<PAGE> 52
as General Manager and Senior Vice President at Hyperion Software/Pillar Corp.
Ms. Powell-Goldman holds a B.S. degree in Business Administration and Economics
from San Jose State University.
BERNARD J. LACROUTE has been a director of Calico since June 1995. Mr.
Lacroute has been a partner with Kleiner Perkins Caufield & Byers since 1989.
Prior to joining Kleiner Perkins Caufield & Byers, Mr. Lacroute held a number of
senior executive positions in high technology firms including Digital Equipment
Corporation and Sun Microsystems. Mr. Lacroute is a director of Brio Technology,
Inc., a software provider, and a director of several privately held companies.
Mr. Lacroute holds graduate degrees in Physics from the University of Grenoble
and in Engineering from the Ecole Nationale Superiere d'Ingenieurs, as well as
an M.S. degree in Electrical Engineering from the University of Michigan.
WILLIAM D. UNGER has been a director of Calico since June 1995. Mr. Unger
joined Mayfield Fund, a venture capital firm, in 1983, and has been a general
partner of several venture capital firms affiliated with Mayfield Fund since
1987. Before joining Mayfield, Mr. Unger founded the executive recruitment firm
Positek. Mr. Unger is a director of several privately held companies. Mr. Unger
holds a B.A. Degree in Elementary Education from the University of Illinois.
BOARD OF DIRECTORS
Upon completion of the offering, the terms of the board of directors will
be divided into three classes: Class I, whose term will expire at the annual
meeting of stockholders to be held in 1999; Class II, whose term will expire at
the annual meeting of stockholders to be held in 2000; and Class III, whose term
will expire at the annual meeting of stockholders to be held in 2001. The Class
I directors are Mr. Naumann and Mr. Paseman, and the Class II directors are Mr.
Lacroute and Mr. Unger. At each annual meeting of stockholders after the initial
classification, the successors to directors whose term expires will be elected
to serve a term of three years. This classification of directors may have the
effect of delaying or preventing changes in our control. Our board of directors
consists of four members. Our bylaws provide that the authorized number of
directors may be changed by resolution of the board of directors.
Executive officers are elected by the board of directors annually. There
are no family relationships among any of our directors, officers or key
executives.
BOARD COMMITTEES
The board of directors has established an audit committee and a
compensation committee.
The audit committee reviews and monitors our corporate financial reporting
and our external audits, including, among other things, our control functions,
the results and scope of the annual audit and other services provided by our
independent accountants and our compliance with legal matters that have a
significant impact on our financial reports. The audit committee also consults
with management and our independent accountants prior to the presentation of
financial statements to stockholders and, as appropriate, initiates inquiries
into aspects of our financial affairs. In addition, the audit committee has the
responsibility to consider and recommend the appointment of, and to review fee
arrangements with our independent accountants. The current members of the audit
committee are Messrs. Lacroute and Unger.
The compensation committee reviews and makes recommendations to the board
of directors regarding our compensation policies and all forms of compensation
to be provided to our executive officers and directors, including among other
things, annual salaries and bonuses and stock option and other incentive
compensation arrangements. The current members of the compensation committee are
Messrs. Lacroute and Unger. Prior to the creation of our compensation committee
in February 1999, all compensation decisions were made by our full board.
Neither Mr. Naumann nor Mr. Paseman
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<PAGE> 53
participated in discussions by our board of directors with respect to his
compensation.
DIRECTOR COMPENSATION
Our directors do not currently receive any compensation for their service
as directors, other than reimbursement of all reasonable out-of-pocket expenses
for attendance at meetings of the board of directors. Members of the board of
directors are eligible to receive discretionary option grants and stock
issuances under our 1997 Stock Option Plan and employee-directors will be able
to participate in our 1999 Employee Stock Purchase Plan.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee. During fiscal 1999, all compensation decisions were made by our full
board. In August, 1999, we issued 198,752 shares of our Series D preferred stock
to entities affiliated with Mr. Unger in connection with our acquisition of
FirstFloor, and in September 1999 we issued 329,090 shares of our Series E
preferred stock to entities affiliated with Mr. Lacroute and 548,488 shares of
our Series E preferred stock to entities affiliated with Mr. Unger in connection
with our Series E preferred stock financing.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to our chief
executive officer and each of our other executive officers whose total salary
and bonus exceeded $100,000 for the fiscal year ended March 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION(S) SALARY BONUS OPTIONS
------------------------------ -------- -------- ------------
<S> <C> <C> <C>
Alan P. Naumann........................................... $175,000 $ 37,148 299,999
President and Chief Executive Officer
David E. Barrett.......................................... 175,000 179,018 --
Executive Vice President and Chief Operating Officer
Matthew S. DiMaria........................................ 155,000 19,380 --
Vice President, Marketing
</TABLE>
OPTION GRANTS IN FISCAL YEAR ENDED
MARCH 31, 1999
The following table sets forth information for stock options granted
during the fiscal year ended March 31, 1999 to our chief executive officer and
each of our other executive officers who earned in excess of $100,000.
All of these options were granted under our 1997 Stock Option Plan.
Options granted under the 1997 Option Plan generally vest over a four-year
period with 25% of the shares vesting at the first anniversary of the grant date
and the remaining shares vesting in equal monthly installments over the next 36
months.
The percentages in the column entitled "Percent of Total Options Granted
to Employees in Fiscal 1999" was based on an aggregate of 3,687,949 options
granted to our employees under our 1997 Stock Option Plan during fiscal 1999.
The exercise price of each option is equal to the fair market value of our
common stock as determined by the board of
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<PAGE> 54
directors on the date of grant, taking into account the purchase price paid by
investors for shares of our preferred stock, the liquidation preferences and
other rights, privileges and preferences associated with the preferred stock and
an evaluation by the board of directors of our revenues, operating history and
prospects.
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. For purposes of these columns, we assumed stock
appreciation of 5% and 10% as required by the Securities and Exchange
Commission. These rates of appreciation do not represent our prediction of our
stock price performance. The potential realizable values at 5% and 10%
appreciation are calculated by assuming that the estimated fair market value on
the date of grant, based upon an assumed initial public offering price of
$13.00, appreciates at the indicated rate for the entire term of the options and
that the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED PRICE APPRECIATION
UNDERLYING TO EMPLOYEES FOR OPTION TERM
OPTIONS DURING EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL 1999 PER SHARE DATE 5% 10%
---- ---------- ---------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alan P. Naumann...... 299,999 8.1% $1.73 4/29/08 $5,833,670 $9,642,543
David E. Barrett..... -- -- -- -- -- --
Matthew S. DiMaria... -- -- -- -- -- --
</TABLE>
AGGREGATE OPTION EXERCISES AND OPTION VALUES
The following table presents for our chief executive officer and each of
our other highest-paid executive officers the number of options exercised during
the fiscal year ended March 31, 1999 and the number and value of securities
underlying unexercised options that are held by our chief executive officer and
other highest-paid executive officers as of March 31, 1999. Each of the options
listed in the table is immediately exercisable in full at the date of grant, but
shares purchased on exercise of unvested options are subject to a repurchase
right in our favor that entitles us to repurchase unvested shares at their
original exercise price on termination of the employee's services with us. The
heading "Vested" refers to shares no longer subject to repurchase; the heading
"Unvested" refers to shares subject to repurchase as of March 31, 1999. The
numbers in the column "Value of Unexercised In-the-Money Options at March 31,
1999" are based on the assumed initial public offering price of $13.00 per
share, less the exercise price payable for the shares.
OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 1999 AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT MARCH 31, 1999 OPTIONS AT MARCH 31, 1999
ACQUIRED ON VALUE ------------------------- --------------------------
NAME EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED
---- ----------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alan P. Naumann....... 299,999 $180,000 -- -- $ -- $ --
David E. Barrett...... 412,500 68,950 -- -- -- --
Matthew S. DiMaria.... -- -- -- -- -- --
</TABLE>
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<PAGE> 55
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
All options granted to Mr. Naumann may accelerate in full upon a change in
our control. Acceleration will occur if (i) the acquiring corporation does not
assume the options or replace them with substantially equivalent options or (ii)
within 36 months following the change in control, Mr. Naumann is terminated
without cause or resigns for good reason.
The options granted to Mr. Barrett may also accelerate upon a change in
our control. Mr. Barrett's options will accelerate from 70% to full
acceleration, depending on the date of the change in our control. Acceleration
will occur if (i) the acquiring corporation does not assume the options or
replace them with substantially equivalent options or (ii) within 12 months
following the change in our control, Mr. Barrett is terminated without cause or
resigns for good reason.
BENEFIT PLANS
1995 STOCK OPTION PLAN
Our 1995 stock option plan provides for the grant of incentive stock
options to employees, within the meaning of Section 422 of the Internal Revenue
Code, and for the grant of nonstatutory stock options to employees, non-employee
directors and consultants. The terms of the 1995 stock option plan are
substantially identical to the terms of our 1997 stock option plan. The board of
directors has determined that no further options will be granted under the 1995
stock option plan, although options granted under the 1995 stock option plan
will remain outstanding in accordance with their terms.
1997 STOCK OPTION PLAN
Our 1997 stock option plan was adopted by the board of directors in June
1997 and by the stockholders in July 1997. The 1997 stock option plan provides
for the grant of incentive stock options to employees, within the meaning of
Section 422 of the Internal Revenue Code, and for the grant of nonstatutory
stock options to employees, non-employee directors and consultants. However, no
incentive stock options may be granted under the 1997 stock option plan after
June 2007.
The maximum number of shares issuable under the plan is 14,715,000 shares.
The share reserve will automatically be increased on the first day of each
fiscal year beginning on or after April 1, 2001 by an amount equal to 5% of the
number of shares of our common stock which were issued and outstanding on the
last day of the preceding fiscal year. Notwithstanding the foregoing, the
maximum number of shares issuable at any time under the plan will be reduced by
the number of outstanding shares that were issued under the 1995 stock option
plan, plus the number of shares subject to outstanding options which were
granted under the 1995 stock option plan, which together was 3,867,926 shares as
of June 30, 1999. As of June 30, 1999, 7,343,624 shares had been issued upon the
exercise of options under our 1995 and 1997 stock option plans, options to
purchase a total of 5,293,222 shares at a weighted average exercise price of
$6.41 per share were outstanding under these plans, and 2,848,121 shares were
available for future grants under the 1997 stock option plan.
The 1997 stock option plan is administered by the board of directors, or a
committee of the board. Subject to the provisions of the plan, the board of
directors or its committee has the authority to select the persons to whom
options are granted and determine the terms of each option, including:
- - the number of shares of common stock covered by the option;
- - when the option becomes exercisable;
- - the per share option exercise price, which, in the case of incentive stock
options, must be at least 100% of the fair market value of a share of common
stock as of the date of grant or 110% of fair market value for incentive
stock options granted to 10% stockholders, and, in the case of nonstatutory
stock options, must be at least 85% of the fair market value of a share of
common stock as of the date of grant; and
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<PAGE> 56
- - the duration of the option, which may not exceed ten years, or five years
for incentive stock options granted to a 10% stockholder.
Generally, options granted under the 1997 stock option plan vest over four
years, and are non-transferable other than by will or the laws of descent and
distribution. In the event of a change in our control, if the acquiring or
successor corporation does not assume or substitute for options outstanding
under the plan, the options shall terminate. Options granted to four of our
executive officers provide for acceleration upon a change in our control.
FIRSTFLOOR OPTIONS
In connection with the acquisition of FirstFloor, we assumed the options
granted under the FirstFloor 1993 stock option plan and converted the options
into options to purchase 47,203 shares of our Series D preferred stock. At June
30, 1999, options to purchase 31,463 shares of Series D preferred stock were
outstanding at a weighted average exercise price of $2.68 per share. We do not
intend to grant further options to purchase our Series D preferred stock.
401(k) PLAN
In 1995, we adopted a tax-qualified employee savings and retirement plan
which covers our eligible full-time U.S. employees. Under the 401(k) plan,
employees may elect to reduce their current annual compensation up to the lesser
of 15% or the statutorily prescribed limit, which is $10,000 in calendar year
1999, and have the amount of the reduction contributed to the 401(k) plan. The
plan permits, but does not require us to make matching contributions to the
401(k) plan. To date we have not made any matching contributions to the 401(k)
plan. The 401(k) plan is intended to qualify under Sections 401(a) and 401(k) of
the Internal Revenue Code, so that contributions by us or our employees to the
401(k) plan, and income earned on plan contributions, are not taxable to
employees until withdrawn from the 401(k) plan. Salary deferred contributions
are held in trust. Each participant may direct the investment of his or her
account among the investment options offered by the 401(k) plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
In July 1999, the board of directors adopted the 1999 employee stock
purchase plan, subject to stockholder approval. We have reserved a total of
750,000 shares of common stock for issuance under the employee stock purchase
plan, none of which has yet been issued. The employee stock purchase plan will
become effective as of the effective date of this offering and will be
administered by the board of directors or by a committee appointed by the board
of directors. Employees are eligible to participate if they are customarily
employed by us for at least 20 hours per week and more than five months in any
fiscal year.
The employee stock purchase plan permits an eligible employee to purchase
our common stock at a discount through accumulated payroll deductions of up to
15% of his or her compensation. Participants generally may not purchase more
than 750 shares on any purchase date or stock having a value measured at the
beginning of the offering period, greater than $25,000 in any calendar year. The
employee stock purchase plan also provides that all participants, in aggregate,
may not purchase more than 150,000 shares on any purchase date.
Unless the board of directors or a committee of the board of directors
determines otherwise, the first offering period starts on the effective date of
this offering and will run for approximately 24 months and will be divided into
four consecutive purchase periods of approximately six months. The first
offering period and the first purchase period commence on the date of this
prospectus. Subsequent offering periods will generally have a duration of 12
months and will be divided into two consecutive purchase periods of
approximately six months. Offering periods and purchase periods after the
initial offering will commence on May 1 and November 1 of each year. The board
of directors may change the dates or duration of one or more
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<PAGE> 57
offerings, but no offering period may exceed 27 months. Participants will
purchase shares on the last day of each purchase period.
The price at which shares are purchased under the employee stock purchase
plan is equal to 85% of the lower of the fair market value of a share of common
stock on the first day of the offering period, or the last day of the purchase
period. In the event of a change in our control, our board of directors may
accelerate the purchase date of the then current purchase period to a date prior
to the change in control, or the acquiring corporation may assume or replace the
outstanding purchase rights under the employee stock purchase plan. Participants
may end their participation in the employee stock purchase plan at any time, and
participation automatically ends on termination of employment. The board of
directors may amend or terminate the employee stock purchase plan at any time as
long as such amendment or termination does not impair outstanding purchase
rights.
LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION
As permitted by the Delaware General Corporation Law, we have adopted
provisions in our certificate of incorporation and bylaws that limit or
eliminate the personal liability of our directors for a breach of their
fiduciary duty of care as a director. The duty of care generally requires that,
when acting on behalf of the corporation, directors exercise an informed
business judgment based on all material information reasonably available to
them. Consequently, a director will not be personally liable to us or our
stockholders for monetary damages or breach of fiduciary duty as a director,
except liability for:
- - any breach of the director's duty of loyalty to us or our stockholders;
- - acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- - unlawful stock repurchases, redemptions or other distributions or unlawful
payments of dividends; or
- - any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation and bylaws also allow us to indemnify our
officers, directors and other agents to the fullest extent permitted by Delaware
law. We intend to enter into separate indemnity agreements with each of our
officers and directors which gives these officers and directors additional
indemnification. The indemnity agreements may require us, among other things,
to:
- - indemnify our officers and directors against liabilities that may arise by
reason of their status or service as directors or officers;
- - advance expenses as incurred to our officers and directors in connection
with any legal proceeding as to which they could be indemnified, subject to
limited exceptions; or
- - obtain directors' and officers' liability insurance.
We also intend to purchase an insurance policy covering our directors and
officers for claims they may otherwise be required to pay or for which we may be
required to indemnify them.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification is sought. We
are not aware of any threatened litigation or proceeding which may result in a
claim for indemnification.
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<PAGE> 58
TRANSACTIONS WITH RELATED PARTIES AND INSIDERS
We have raised capital primarily through the sale of our stock. On May 26,
1995 and May 31, 1995, we sold 5,999,998 shares of Series A preferred stock at a
price of $0.67 per share. On June 7, 1996, we sold an aggregate of 3,600,000
shares of Series B preferred stock at a price of $1.60 per share. On July 23,
1997, we sold an aggregate of 2,083,331 shares of Series C preferred stock at a
price of $2.40 per share. On August 21, 1998 we exchanged 1,248,423 shares of
Series D preferred stock for all of the issued and outstanding shares of capital
stock of FirstFloor in connection with our acquisition of FirstFloor. From
September 4, 1998 through September 23, 1998, Calico sold an aggregate of
2,687,580 shares of Series E preferred stock at a price of $4.558 per share.
The following holders of more than 5% of our voting securities purchased
shares of Series A, Series B, Series C and Series E preferred stock or were
shareholders of FirstFloor and received shares of Series D preferred stock in
exchange for their shares of capital stock of FirstFloor:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF
SERIES A SERIES B SERIES C SERIES D SERIES E
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
PURCHASER STOCK STOCK STOCK STOCK STOCK
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Entities Affiliated with Kleiner Perkins
Caufield & Byers...................... 2,999,999 1,500,000 520,833 -- 329,090
Entities Affiliated with Mayfield
Fund.................................. 2,999,999 1,500,000 520,833 198,752 513,390
Entities Affiliated with Integral
Capital Partners...................... -- 600,000 1,041,667 -- 175,515
</TABLE>
The preferred stock purchased by these affiliates was purchased on the
same terms and conditions as the preferred stock purchased by other investors.
Entities affiliated with Kleiner Perkins Caufield & Byers are together
considered a 5% stockholder of ours. Bernard J. Lacroute, a director of Calico,
is a general partner of Kleiner Perkins Caufield & Byers. Entities affiliated
with Mayfield Fund are together considered a 5% stockholder of ours. William D.
Unger, a director of Calico, is a general partner of Mayfield Fund. Entities
affiliated with Integral Capital Partners are together considered a 5%
stockholder of ours.
In connection with our offering of the Series A and Series B preferred
stock, 1,650,000 shares and 600,000 shares of common stock held by William G.
Paseman, one of our founders, were exchanged for 1,650,000 shares of Series A
and 600,000 shares of Series B preferred stock which were then sold by Mr.
Paseman independently of the shares sold by us.
At the time of our acquisition of FirstFloor, Mayfield Fund held
approximately 22.5% of our outstanding capital stock, and approximately 17.6% of
the outstanding capital stock of FirstFloor. At the time of the acquisition, the
Series D preferred stock issued to Mayfield Fund in exchange for shares of
FirstFloor's capital stock was valued at $4.558 per share, or approximately
$905,900.
In connection with our acquisition of FirstFloor, David J. Cardinal, our
Chief Technology Officer and a co-founder of FirstFloor, exchanged his existing
shares of FirstFloor capital stock for 91,654 shares of Calico Series D
preferred stock.
Our preferred stockholders, our 5% stock holders and our director William
G. Paseman, are entitled to registration rights in respect of their common stock
issued or issuable upon conversion of preferred stock held by them. See
"Description of Capital Stock -- Registration Rights" on page 60 for further
discussion of these registration rights.
On July 18, 1997, we loaned $240,000 to Alan P. Naumann, our Chief
Executive Officer,
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<PAGE> 59
in connection with his purchase of 1,199,999 shares of our common stock for
$0.20 per share upon exercise of stock options. The notes accrue interest at the
rate of 6.65% per year and are due on July 18, 2001. On June 30, 1998, we loaned
$520,000 to Mr. Naumann, in connection with the purchase of 299,999 shares of
our common stock for $1.73 per share upon exercise of stock options. The notes
accrue interest at 5.77% per year and are due on June 30, 2002. The principal
amount of the notes remain outstanding. This loan is full recourse and is
secured by a pledge of the stock purchased upon exercise of the stock option.
On April 28, 1998, we loaned $343,750 to David E. Barrett, our Executive
Vice President and Chief Operating Officer, in connection with his purchase of
412,500 shares of our common stock for $0.83 per share upon exercise of stock
options. The notes accrue interest at the rate of 5.59% per year and are due on
April 28, 2002. The principal amount of the notes remain outstanding. This loan
is full recourse and is secured by a pledge of the stock purchased upon exercise
of the stock option.
On February 26, 1998, we loaned $141,750 to Matthew DiMaria, our Vice
President, Marketing, in connection with his purchase of 202,500 shares of our
common stock for $0.70 per share upon exercise of stock options. The notes
accrue interest at the rate of 5.69% per year and are due on February 26, 2002.
The principal amount of the notes remain outstanding. This loan is full recourse
and is secured by a pledge of the stock purchased upon exercise of the stock
option.
All loan amounts outstanding as of June 30, 1999 are reflected as a
reduction of equity in the consolidated balance sheet.
We intend to enter into indemnity agreements with each of our directors
and officers. These indemnity agreements will require us to indemnify these
officers and directors against liabilities that may arise by reason of their
status or service as officers or directors, and to advance expenses incurred as
a result of any proceedings against them as to which they could be indemnified.
We believe that all transactions with our officers, directors, principal
stockholders and other affiliates described above were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties.
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<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common
stock as of June 30, 1999, by:
- - each person who is known by us to beneficially own more than 5% of our
common stock;
- - our chief executive officer, each of the executive officers named in the
summary compensation table and each of our directors; and
- - all of our executive officers and directors as a group.
Unless otherwise indicated, the address of each of the named individuals
is c/o Calico Commerce, Inc., 333 West San Carlos Street, Suite 300, San Jose,
California 95110. Unless otherwise indicated below, and subject to the rights of
any spouse under applicable community property laws, we believe that the persons
named in the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
Percentage of ownership on the table is based on 27,120,127 shares
outstanding as of June 30, 1999 and 31,520,127 shares outstanding immediately
following the completion of this offering, assuming the underwriters'
over-allotment option is not exercised and assuming the conversion of all shares
of preferred stock into common stock. Of the total shares outstanding, 2,302,561
shares are subject to our right of repurchase. Beneficial ownership is
determined under the rules and regulations of the Securities and Exchange
Commission. All shares of common stock subject to options currently exercisable
or exercisable within 60 days after June 30, 1999 are deemed to be outstanding
for the purpose of computing the percentage of ownership of the person holding
the options, but are not deemed to be outstanding for computing the percentage
of ownership of any other person. Entries denoted by an asterisk represent an
amount less than 1%.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
NUMBER OF SHARES ---------------------------------
BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------ --------------- --------------
<S> <C> <C> <C>
Mayfield Fund(1)........................ 5,732,974 21.1% 18.2%
2800 Sand Hill Road,
Menlo Park, California 94025
Kleiner Perkins Caufield & Byers(2)..... 5,349,922 19.7 17.0
2750 Sand Hill Road,
Menlo Park, California 94025
Integral Capital Partners(3)............ 1,817,182 6.7 5.8
2750 Sand Hill Road,
Menlo Park, California 94025
Alan P. Naumann(4)...................... 1,499,998 5.5 4.8
Dave E. Barrett(5)...................... 412,500 1.5 1.3
Matthew S. DiMaria(6)................... 202,500 * *
William G. Paseman...................... 3,750,000 13.8 11.9
Bernard J. Lacroute(2).................. 5,349,922 19.7 17.0
2750 Sand Hill Road,
Menlo Park, California 94025
William D. Unger(7)..................... 5,583,782 20.6 17.7
2800 Sand Hill Road,
Menlo Park, California 94025
All executive officers and directors as
a group (8 persons)(8)................ 17,211,202 63.5 54.6
</TABLE>
60
<PAGE> 61
- ---------------
(1) The shares listed represent 4,996,191 shares held by Mayfield VII; 262,824
shares held by Mayfield Associates Fund II; 289,667 shares held by Mayfield
Software Partners; and 184,290 shares held by e-trust, a revocable trust.
Mr. Unger, one of our directors, is a general partner of Mayfield
Associates Fund II and Mayfield VII Management Partners, a California
Limited Partnership, which is the general partner of Mayfield VII. Mayfield
VII is one of the general partners of Mayfield Software Partners. Mr. Unger
disclaims beneficial ownership of all other shares except for his pecuniary
interest.
(2) Mr. Lacroute is a partner of Kleiner Perkins Caufield & Byers. The shares
listed represent 4,047,724 shares held by Kleiner Perkins Caufield & Byers
VII, 1,174,961 shares held by KPCB Java Fund, and 127,237 shares held by
KPCB Information Sciences Zaibatsu Fund II. Mr. Lacroute disclaims
beneficial ownership of all shares except for his pecuniary interest.
(3) The shares listed represent 1,462,620 shares held by Integral Capital
Partners III, L.P., and 354,562 shares held by Integral Capital Partners
International III, L.P. The general partner of Integral Capital Partners
III, L.P. and Integral Capital Partners International III, L.P., is
Integral Capital Management III, L.P. A majority of the general partners of
Integral Capital Management III, L.P. is required to exercise voting and
dispositive control of these shares.
(4) Includes 837,500 shares subject to repurchase by Calico in the event Mr.
Naumann ceases to be an employee of Calico prior to full vesting of the
shares. The right of repurchase lapses at the rate of 31,250 shares per
month until July 18, 2001, after which date the right to repurchase lapses
at the rate of 6,249 shares per month.
(5) Includes 275,000 shares subject to repurchase by Calico in the event Mr.
Barrett ceases to be an employee of Calico prior to full vesting of the
shares. The right of repurchase lapses at the rate of 8,594 shares per
month.
(6) Includes 135,000 shares subject to repurchase by Calico in the event Mr.
DiMaria ceases to be an employee of Calico prior to full vesting of the
shares. The right of repurchase lapses at the rate of 4,220 shares per
month.
(7) The shares listed represent 4,996,191 shares held by Mayfield VII; 262,824
shares held by Mayfield Associates Fund II; 289,667 shares held by Mayfield
Software Partners; and 35,098 shares held by the Unger-Luchsinger Family
Trust U/D/T 12/1999, a revocable trust for the benefit of the
Unger-Luchsinger Family. Except for those shares held by the
Unger-Luchsinger Family Trust U/D/T 12/1999, Mr. Unger disclaims beneficial
ownership of all other shares except for his pecuniary interest.
(8) Includes 1,247,500 shares subject to repurchase by Calico upon cessation of
employment prior to full vesting of the shares, and options to purchase
412,500 shares that are immediately exercisable.
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
As of June 30, 1999, there were 27,120,127 shares outstanding held by 239
shareholders of record. Upon completion of this offering, our authorized capital
stock will consist of 150,000,000 shares of common stock, $0.001 par value per
share, and 15,000,000 shares of preferred stock, $0.001 par value per share. The
following description of our capital stock gives effect to the amendments to the
certificate of incorporation to be filed upon completion of this offering. Our
certificate of incorporation and bylaws, to be effective after the closing of
this offering, provide further information about our capital stock.
COMMON STOCK
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of our common stock are entitled to the
following rights:
- to receive dividends at such times and in such amounts as the board of
directors may determine out of funds legally available for dividends;
- one vote for each share held on all matters submitted to a vote of
stockholders; and
- upon our liquidation, dissolution or winding up, share ratably in all
assets remaining after payment of liabilities and the liquidation
preference of any preferred stock.
Because our certificate of incorporation does not authorize cumulative
voting for the election of directors, the holders of a majority of the shares
voted can elect all of the directors then standing for election. The common
stock is not entitled to preemptive rights and is not subject to conversion or
redemption. 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 completion of this offering, all outstanding shares of preferred
stock will be converted on a one-to-one basis into shares of common stock.
However, following this conversion, under our certificate of incorporation, the
board of directors will have the authority, without further action or
authorization by the stockholders, to designate and issue up to 15,000,000
shares of preferred stock in one or more series. The board of directors can fix
the rights, preferences and privileges of the shares of each series of preferred
stock and any qualifications, limitations or restrictions on these shares.
The 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 common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of entrenching our board of directors
and making it more difficult for a third party to acquire, or discourage a third
party from acquiring, a majority of our outstanding voting stock. Furthermore,
the preferred stock may have other rights, including economic rights, senior to
the common stock. We have no current plans to issue any shares of preferred
stock.
WARRANTS
At June 30, 1999, we had issued warrants to purchase a total of 133,249
shares of common stock on an as-converted basis. Warrants to purchase 42,000
shares of common stock at $0.67 per share will expire in November 2002. Warrants
to purchase 34,999 shares of common stock at $1.60 per share will expire in
November 2004 and warrants to purchase 56,250 shares of common stock at $1.60
per share will expire in June 2007.
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<PAGE> 63
REGISTRATION RIGHTS
Following this offering, under the terms of an amended investor rights
agreement, the holders of approximately 20,594,272 shares of our common stock,
including shares issuable upon conversion of preferred stock and warrants and
options to purchase preferred stock, will have rights to require us to register
those registration shares under the Securities Act. Subject to limitations in
this investor rights agreement, the holders of at least 30% of these shares may
require, on two occasions, that we use our best efforts to register these shares
for public resale. If we register any common stock for our own account, other
than a registration relating solely to employee benefit plans, a registration
relating solely to transactions under Rule 145 of the Securities Act, or a
registration on any registration form which does not permit secondary sales, or
for the account of other security holders, the holders of these shares are
entitled to include their shares of common stock in the registration, subject to
the ability of the underwriters to limit the number of shares included in the
offering. The holders of these shares may also require us to register all or a
portion of their registrable securities on Form S-3 when we are eligible to use
this form, provided, among other limitations, that the proposed aggregate price
of the offering to the public is at least $500,000. We will pay all fees, costs
and expenses of these registrations, other than underwriting discounts and
commissions.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER PROVISIONS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make it more difficult for a third party to acquire us by means of a
tender offer, proxy contest, or otherwise, and could make the removal of
incumbent officers and directors more difficult. These provisions could
discourage coercive takeover practices and takeover bids and encourage persons
seeking to acquire control of us to negotiate first with us.
We will be subject to Section 203 of the Delaware General Corporation Law,
which generally prohibits a publicly held Delaware corporation from engaging in
any business combination with an interested stockholder for three years
following the date the stockholder became an interested stockholder, unless:
- - prior to that date, the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder;
- - upon completion of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
began; or
- - on or following that date, the business combination is approved by the board
of directors and authorized at an annual or special meeting of stockholders,
and not by written consent, by the affirmative vote of at least two-thirds
of the outstanding voting stock not owned by the interested stockholder.
Section 203 defines a business combination to include:
- - any merger or consolidation involving the corporation and the interested
stockholders;
- - any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholders;
- - subject to limited exceptions, any transaction that results in the issuance
or transfer by the corporation of any stock of the corporation to the
interested stockholders;
- - any transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholders; or
- - the receipt by the interested stockholders of the benefit of any loans,
advances,
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<PAGE> 64
guarantees, pledges or other financial benefits provided by or through the
corporation.
In general, Section 203 defines an interested stockholder as an entity or
person who, together with affiliates and associates, owns 15% or more of the
corporation's outstanding voting stock.
Upon filing after the closing of this offering, our certificate of
incorporation will provide that our board of directors will be divided into
three classes of directors serving staggered three-year terms. As a result, only
one of the three classes of our board of directors will be elected each year.
The classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of us
and may maintain the incumbency of our board of directors, as the classification
of the board generally increases the difficulty of replacing a majority of the
directors. Our directors will be removable only for cause upon the affirmative
vote of the holders of at least a majority of the voting power of all
outstanding shares of voting stock, voting as a single class. Our board of
directors has the exclusive right to set the authorized number of directors and
to fill vacancies on our board of directors. Our certificate of incorporation
requires that any action required or permitted to be taken by stockholders must
be effected at a duly called annual or special meeting of the stockholders and
may not be effected by a consent in writing. In addition, special meetings of
the stockholders may be called only by our board of directors, the Chairman of
our board of directors, or our chief executive officer or by the holders of not
less than ten percent of all of the shares entitled to vote at the meeting.
Advance notice must be given by stockholders of any stockholder proposals or
director nominations or other business to be brought by stockholders at
stockholders' meetings. Our certificate of incorporation authorizes undesignated
preferred stock, which makes it possible for the board of directors to issue
preferred stock with voting or other rights or preferences that could discourage
potential acquisition proposals and could delay or prevent a change in our
control or management. These provisions may be amended only by the affirmative
vote of at least two-thirds of all the outstanding voting stock. These
provisions may have the effect of deferring hostile takeovers or delaying
changes in our control or management.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is BankBoston, N.A.,
whose address is 150 Royall Street, Canton, Massachusetts 02021 and whose
telephone number is (781) 575-2200.
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<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there was no public market for our common stock.
Future sales of substantial amounts of common stock in the public market,
including shares issued upon exercise of outstanding options or warrants, could
adversely affect the market price of our common stock.
Upon completion of this offering, we will have 31,520,127 shares of common
stock outstanding, assuming no exercise of options after June 30, 1999. Of these
shares, the 4,400,000 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except for
any shares purchased by affiliates of Calico as that term is defined in Rule 144
under the Securities Act. Shares purchased by affiliates may generally only be
sold pursuant to an effective registration statement under the Securities Act or
in compliance with the limitations of Rule 144 as described below.
We issued and sold the remaining 18,080,115 shares of common stock held by
existing stockholders in reliance on exemptions from the registration
requirements of the Securities Act and are "restricted securities" as that term
is defined in Rule 144 under the Securities Act. All of these restricted
securities will be subject to lock-up agreements generally providing that the
stockholder will not offer, sell, or otherwise dispose of any of the shares of
common stock owned by them, for a period of 180 days after the date of this
offering, without the prior written consent of Goldman, Sachs & Co. Following
the expiration of the lock-up period, 23,452,227 restricted shares will be
available for sale in the public market, all of which are subject to limitations
under Rule 144, except for 1,087,477 shares eligible for sale under Rule 144(k)
and 5,324,703 shares eligible for sale under Rule 701, subject in some cases to
repurchase rights in favor of Calico.
Immediately after the completion of this offering, we intend to file a
registration statement on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under our 1997
Stock Option Plan and our 1999 employee stock purchase plan. Based upon the
number of shares subject to outstanding options as of June 30, 1999 and
currently reserved for issuance under both of these plans, this registration
statement would cover approximately 8,891,305 shares. Shares registered under
the registration statement will generally be available for sale in the open
market immediately after the 180 day lock-up agreements expire.
Also beginning six months after the date of this offering, holders of
20,594,314 shares of our common stock, including shares issuable upon conversion
of preferred stock and warrants and of options to purchase preferred stock will
be entitled to certain rights with respect to registration of these shares for
sale in the public market. See "Description of Capital Stock -- Registration
Rights". Registration of these shares under the Securities Act would result in
these shares becoming freely tradable without restriction under the Securities
Act immediately upon effectiveness of the registration.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year, including a person who may be deemed an
affiliate, is entitled to sell in "brokers' transactions" or to market makers,
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, which will
equal approximately 315,201 shares immediately after this offering; or
- - the average weekly trading volume of our common stock on the Nasdaq National
Market during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale.
Sales under Rule 144 are also subject to restrictions relating to the
manner of sale, notice and the availability of current public information about
us.
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<PAGE> 66
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been an affiliate of
Calico 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, is entitled to sell
the shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, "144(k) shares" may be sold immediately upon the completion of this
offering.
RULE 701
In general, under Rule 701 as currently in effect, any of our employees,
directors, officers, consultants or advisors who purchase shares from us in
connection with a compensatory stock or option plan or other written agreement
before the effective date of this offering is entitled to sell the shares 90
days after the effective date of this offering in reliance on Rule 144 without
having to comply with the holding period and notice requirements of Rule 144
and, in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice provisions of Rule 144.
The Securities and Exchange Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject to
the reporting requirements of the Securities Exchange Act of 1934, along with
the shares acquired upon exercise of the options, including exercises after the
date of this prospectus. Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than affiliates subject only to the manner of sale provisions of
Rule 144 and by affiliates under Rule 144 without compliance with its one year
minimum holding period requirements.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Calico by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. As of June
30, 1999, an investment partnership of Gray Cary Ware & Freidenrich owned an
aggregate of 5,485 shares of our Series E preferred stock, which was purchased
on September 4, 1998 for $4.558 per share. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of Calico Commerce, Inc. as of
March 31, 1998 and 1999 and for each of the three years in the period ended
March 31, 1999 included in this Prospectus have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of FirstFloor Software, Inc. at December 31, 1996
and 1997, and for each of the two years in the period ended December 31, 1997,
appearing in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon,
appearing elsewhere in this prospectus, which contains an explanatory paragraph
describing conditions that raise substantial doubt about FirstFloor's ability to
continue as a going concern as described in note 1 to the financial statements,
and are included in reliance upon such report, given upon the authority of such
firm as experts in accounting and auditing.
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<PAGE> 67
WHERE YOU CAN FIND MORE 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 shares of
common stock offered by this prospectus. This prospectus does not contain all of
the information set forth in the registration statement and the exhibits and
schedule filed with it. For further information with respect to Calico and the
common stock offered in this offering, please read the registration statement
and the exhibits and schedules that we have filed. A copy of the registration
statement and the exhibits and schedules filed with it may be inspected without
charge at the public reference facilities maintained by the SEC in Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048, and copies of all or any part of the registration
statement may be obtained from these offices upon the payment of the fees
prescribed by the SEC. The SEC maintains a world wide web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the site is
http://www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, and will file periodic reports, proxy statements and other information
with the SEC. These periodic reports, proxy statements and other information
will be available for inspection and copying at the regional offices, public
reference facilities and web site of the SEC referred to above.
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<PAGE> 68
CALICO COMMERCE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CALICO COMMERCE, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Consolidated Balance Sheet.................................. F-3
Consolidated Statement of Operations........................ F-4
Consolidated Statement of Stockholders' Deficit............. F-5
Consolidated Statement of Cash Flows........................ F-6
Notes to Consolidated Financial Statements.................. F-7
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
Overview.................................................... F-29
Pro Forma Combined Consolidated Statement of Operations..... F-30
Notes to Pro Forma Combined Consolidated Financial
Information............................................... F-31
FIRSTFLOOR SOFTWARE, INC.
Report of Independent Auditors.............................. F-32
Balance Sheets.............................................. F-33
Statements of Operations.................................... F-34
Statements of Shareholders' Equity (Net Capital
Deficiency)............................................... F-35
Statements of Cash Flows.................................... F-36
Notes to Financial Statements............................... F-38
</TABLE>
F-1
<PAGE> 69
REPORT OF INDEPENDENT ACCOUNTANTS
The recapitalization and reincorporation described in Note 1 to the consolidated
financial statements has not been consummated at August 25, 1999. When it has
been consummated, we will be in a position to furnish the following report:
"To the Board of Directors and Stockholders of
Calico Commerce, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
Calico Commerce, Inc. and its subsidiaries at March 31, 1998 and 1999, and
the results of their operations and their cash flows for each of the three
years in the period ended March 31, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above."
PricewaterhouseCoopers LLP
San Jose, California
July 13, 1999, except for Note 12,
which is as of August 24, 1999
F-2
<PAGE> 70
CALICO COMMERCE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
MARCH 31, EQUITY AT
------------------- JUNE 30, JUNE 30,
1998 1999 1999 1999
-------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 2,514 $ 15,441 $ 10,528
Accounts receivable, net.................... 2,952 7,443 7,358
Other current assets........................ 379 1,417 1,883
-------- -------- --------
Total current assets..................... 5,845 24,301 19,769
Property and equipment, net................... 1,847 2,532 3,387
Intangible and other assets, net.............. -- 4,535 4,067
-------- -------- --------
$ 7,692 $ 31,368 $ 27,223
======== ======== ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................ $ 1,197 $ 1,728 $ 2,183
Accrued liabilities......................... 1,813 5,448 5,729
Deferred revenue............................ 2,361 6,054 5,652
Current portion of notes payable............ 330 628 682
Current portion of capital lease
obligations.............................. 100 256 247
-------- -------- --------
Total current liabilities................ 5,801 14,114 14,493
Notes payable, non-current.................... 644 700 497
Capital lease obligations, non-current........ 170 177 125
Other liabilities............................. -- 622 539
-------- -------- --------
6,615 15,613 15,654
-------- -------- --------
Mandatorily Redeemable Convertible Preferred
Stock (Note 6).............................. 14,505 32,535 32,541 $ --
-------- -------- --------
Commitments and contingencies (Note 10)
Stockholders' equity (deficit):
Preferred Stock; $0.001 par value; 15,000
shares authorized; no shares issued and
outstanding actual and pro forma
(unaudited).............................. -- -- -- --
Common Stock; $0.001 par value; 150,000
shares authorized; 9,498, 11,436 and
11,493 (unaudited) shares issued and
outstanding; 150,000 shares authorized;
27,120 shares issued and outstanding, pro
forma (unaudited)........................ 9 11 11 27
Additional paid-in capital.................. 3,658 17,877 17,894 50,419
Notes receivable from stockholders.......... (712) (2,211) (2,211) (2,211)
Unearned compensation....................... (1,966) (2,779) (2,265) (2,265)
Accumulated deficit......................... (14,417) (29,678) (34,401) (34,401)
-------- -------- -------- --------
Total stockholders' equity (deficit)..... (13,428) (16,780) (20,972) $ 11,569
======== ======== ======== ========
$ 7,692 $ 31,368 $ 27,223
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 71
CALICO COMMERCE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------------ -------------------
1997 1998 1999 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue:
License.......................... $ 3,940 $ 6,965 $ 10,482 $ 2,932 $ 3,457
Services......................... 1,963 4,894 10,931 1,721 3,976
------- ------- -------- ------- --------
Total net revenue............. 5,903 11,859 21,413 4,653 7,433
------- ------- -------- ------- --------
Cost of net revenue:
License.......................... 178 265 1,179 101 137
Services......................... 2,122 3,115 7,272 1,367 2,660
------- ------- -------- ------- --------
Total cost of net revenue..... 2,300 3,380 8,451 1,468 2,797
------- ------- -------- ------- --------
Gross profit....................... 3,603 8,479 12,962 3,185 4,636
------- ------- -------- ------- --------
Operating expenses:
Sales and marketing.............. 5,950 7,593 14,138 2,758 4,558
Research and development......... 2,224 3,342 5,677 972 2,666
General and administrative....... 1,486 2,222 3,988 641 1,452
Stock compensation (Notes 8 and
9)............................ 864 780 2,007 424 514
Acquired in-process research and
development (Note 2).......... -- -- 1,840 -- --
Amortization of goodwill (Note
2)............................ -- -- 550 -- 240
------- ------- -------- ------- --------
Total operating expenses...... 10,524 13,937 28,200 4,795 9,430
------- ------- -------- ------- --------
Loss from operations............... (6,921) (5,458) (15,238) (1,610) (4,794)
Interest expense................... (40) (154) (314) (66) (50)
Interest income and other.......... 61 113 291 31 121
------- ------- -------- ------- --------
Net loss........................... $(6,900) $(5,499) $(15,261) $(1,645) $ (4,723)
======= ======= ======== ======= ========
Net loss per share:
Basic and diluted................ $ (2.12) $ (1.08) $ (2.27) $ (0.27) $ (0.59)
======= ======= ======== ======= ========
Weighted average shares.......... 3,248 5,079 6,710 6,040 7,961
======= ======= ======== ======= ========
Pro forma net loss per share:
Basic and diluted................ $ (0.74) $ (0.20)
======== ========
Weighted average shares.......... 20,689 23,588
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 72
CALICO COMMERCE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON NOTES
STOCK ADDITIONAL RECEIVABLE TOTAL
--------------- PAID-IN FROM UNEARNED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT DEFICIT
------ ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996.... 4,416 $ 4 $ 2 $ -- $ -- $ (2,018) $ (2,012)
Exercise of stock options.... 2,823 3 186 (166) -- -- 23
Exchange of founder's Common
Stock for Preferred Stock
(Note 9)................... (600) (1) 1 -- -- -- --
Issuance of Common Stock..... 218 -- 35 -- -- -- 35
Net loss..................... -- -- -- -- -- (6,900) (6,900)
------ ---- ------- ------- ------- -------- --------
Balance at March 31, 1997.... 6,857 6 224 (166) -- (8,918) (8,854)
Exercise of stock options.... 2,936 3 707 (574) -- -- 136
Repayments of notes
receivable................. -- -- (16) 28 -- -- 12
Issuance of Common Stock..... 8 -- 2 -- -- -- 2
Repurchase of Common Stock... (303) -- (5) -- -- -- (5)
Unearned compensation (Note
8)......................... -- -- 2,746 -- (2,746) -- --
Amortization of unearned
compensation (Note 8)...... -- -- -- -- 780 -- 780
Net loss..................... -- -- -- -- -- (5,499) (5,499)
------ ---- ------- ------- ------- -------- --------
Balance at March 31, 1998.... 9,498 9 3,658 (712) (1,966) (14,417) (13,428)
Exercise of stock options.... 1,526 2 1,811 (1,660) -- -- 153
Issuance of Common Stock..... 1,053 1 9,999 -- -- -- 10,000
Repayments of notes
receivable................. -- -- (92) 161 -- -- 69
Repurchase of Common Stock... (641) (1) (501) -- -- -- (502)
Issuance of Common Stock
options to non-employees... -- -- 148 -- -- -- 148
Unearned compensation (Note
8)......................... -- -- 2,854 -- (2,854) -- --
Amortization of unearned
compensation (Note 8)...... -- -- -- -- 2,041 -- 2,041
Net loss..................... -- -- -- -- -- (15,261) (15,261)
------ ---- ------- ------- ------- -------- --------
Balance at March 31, 1999.... 11,436 11 17,877 (2,211) (2,779) (29,678) (16,780)
Exercise of stock options
(unaudited)................ 59 -- 17 -- -- -- 17
Repurchase of Common Stock
(unaudited)................ (2) -- -- -- -- -- --
Amortization of unearned
compensation (unaudited)... -- -- -- -- 514 -- 514
Net loss (unaudited)......... -- -- -- -- -- (4,723) (4,723)
------ ---- ------- ------- ------- -------- --------
Balance at June 30, 1999
(unaudited)................ 11,493 $ 11 $17,894 $(2,211) $(2,265) $(34,401) $(20,972)
====== ==== ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 73
CALICO COMMERCE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
---------------------------- ------------------
1997 1998 1999 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(6,900) $(5,499) $(15,261) $(1,645) $ (4,723)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for doubtful accounts......................... 200 200 200 74 157
Provision for sales returns............................. 500 200 330 50 153
Depreciation, amortization and other.................... 350 664 2,641 249 869
Stock compensation and other............................ 899 780 2,189 424 514
Loss on disposal of assets.............................. -- -- 260 -- 36
Acquired in-process research and development............ -- -- 1,840 -- --
Changes in assets and liabilities, net of acquisition:
Accounts receivable................................... (1,214) (2,248) (4,904) (879) (225)
Other current assets.................................. (9) (103) (1,072) 46 (466)
Accounts payable...................................... 496 786 531 602 455
Accrued liabilities................................... 422 822 2,662 (363) 281
Deferred revenue...................................... 915 1,062 3,130 1,144 (402)
Other liabilities..................................... -- -- 91 -- (44)
------- ------- -------- ------- --------
Net cash used in operating activities............... (4,341) (3,336) (7,363) (298) (3,395)
------- ------- -------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (930) (1,403) (1,829) (271) (1,331)
------- ------- -------- ------- --------
Net cash used in investing activities............... (930) (1,403) (1,829) (271) (1,331)
------- ------- -------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of Common Stock.................... 23 133 10,153 80 17
Common stock repurchases.................................. -- -- (502) -- --
Proceeds from repayments of stockholder loans............. -- 12 69 -- --
Net proceeds from issuance of preferred stock............. 4,769 4,952 12,217 -- 6
Proceeds from issuance of notes payable................... 702 443 763 345 --
Repayments of notes payable............................... (27) (144) (409) (82) (149)
Principal payments under capital lease obligations........ (55) (64) (172) (24) (61)
------- ------- -------- ------- --------
Net cash provided by financing activities........... 5,412 5,332 22,119 319 (187)
------- ------- -------- ------- --------
Net increase in cash and cash equivalents................... 141 593 12,927 (250) (4,913)
Cash and cash equivalents at beginning of period............ 1,780 1,921 2,514 2,514 15,441
------- ------- -------- ------- --------
Cash and cash equivalents at end of period.................. $ 1,921 $ 2,514 $ 15,441 $ 2,264 $ 10,528
======= ======= ======== ======= ========
Supplemental cash flow disclosures:
Cash paid for interest.................................... $ 40 $ 154 $ 192 $ 51 $ 47
======= ======= ======== ======= ========
Non cash transactions:
Issuance of Common Stock for notes receivable............. $ 166 $ 574 $ 1,660 $ 1,143 $ --
======= ======= ======== ======= ========
Cancellation of notes receivable related to forfeited
unvested restricted Common Stock........................ $ -- $ 16 $ 92 $ -- $ --
======= ======= ======== ======= ========
Equipment acquired through capital lease obligations...... $ 287 $ -- $ 136 $ -- $ --
======= ======= ======== ======= ========
Issuance of Series B Mandatorily Redeemable Convertible
Preferred Stock warrants................................ $ 25 $ 53 $ -- $ -- $ --
======= ======= ======== ======= ========
</TABLE>
Acquired net assets associated with FirstFloor acquisition includes:
<TABLE>
<S> <C> <C> <C>
Fair value of tangible assets............................. $ 360
Fair value of existing products and core technology....... 1,547
Acquired in-process research and development.............. 1,840
Goodwill.................................................. 4,266
Fair value of liabilities assumed......................... (1,951)
-------
$ 6,062
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 74
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Calico Commerce, Inc. ("Calico" or the "Company") was incorporated on April 14,
1994 as an S-corporation. In May 1995, the Company was reorganized as a
C-corporation under California law.
Calico Commerce, Inc., headquartered in San Jose, California, is a leading
provider of eCommerce software and services that enable its customers to sell
complex products and services over the Internet and other platforms. Calico's
products enable companies to create a guided selling experience that allows
their customers to interactively affect the on-line purchasing process.
REINCORPORATION
In July 1999, the Company's Board of Directors authorized the reincorporation of
the Company in the State of Delaware. The reincorporation will occur immediately
prior to the consummation of the Company's initial public offering (see Note
12). As a result of the reincorporation, the Company is authorized to issue
150,000,000 shares of $0.001 par value Common Stock and 15,000,000 shares of
$0.001 par value Preferred Stock. The Board of Directors has the authority to
issue the undesignated Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof. Share and per share
information for each of the three years in the period ended March 31, 1999 and
the three months ended June 30, 1999 has been retroactively adjusted to reflect
the reincorporation.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Calico Technology UK Limited, which commenced
operations in April 1998, and FirstFloor Software, Inc. All significant
intercompany balances and transactions have been eliminated in consolidation.
INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet as of June 30, 1999, the
consolidated statements of operations and cash flows for the three months ended
June 30, 1999 and 1998 and the consolidated statements of stockholders' deficit
for the three months ended June 30, 1999 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for the fair statement of the results
of these periods. The data disclosed in the notes to the consolidated financial
statements for these periods are unaudited.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company's management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at
F-7
<PAGE> 75
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the date of the financial statements, and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash and cash equivalents consist
of cash on deposit with banks and money market funds that are stated at cost.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents and accounts receivable.
The Company by policy and practice maintains its cash and cash equivalents with
financial institutions the Company believes are of high credit quality. The
Company generally requires no collateral from its customers. To reduce its risk,
the Company periodically reviews the credit worthiness of its customers. The
Company establishes reserves for potential credit losses, when deemed necessary,
and such losses have been within management's estimations. Write-offs for
doubtful accounts were $0, $0 and $161,000 for the years ended March 31, 1997,
1998 and 1999, respectively.
The following table sets forth customers comprising 10% or more of the Company's
net revenue for each of the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------ --------------
CUSTOMER 1997 1998 1999 1998 1999
-------- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
A..................................... 22% --% --% --% --%
B..................................... 19 -- -- -- --
C..................................... 12 -- -- -- --
D..................................... -- 11 -- -- --
E..................................... -- -- 22 16 --
F..................................... -- -- 13 -- --
G..................................... -- -- -- 32 --
H..................................... -- -- -- -- 29
I..................................... -- -- -- -- 16
</TABLE>
At March 31, 1998, three customers represented 27%, 14% and 12%, respectively,
of gross accounts receivable. At March 31, 1999, three customers represented
32%, 12% and 11%, respectively, of gross accounts receivable. At June 30, 1999
(unaudited) three customers represented 37%, 13% and 12%, respectively, of gross
accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and capital lease obligations are carried
at cost, which approximates their fair value because of the short-term maturity
of these instruments.
F-8
<PAGE> 76
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
two to five years. The cost of equipment acquired under a capital lease is
amortized over the life of the lease, or the estimated useful life of the
assets. Maintenance and repairs are charged to operations as incurred and major
improvements are capitalized. The cost of assets retired or otherwise disposed
of and the accumulated depreciation thereon are removed from the accounts with
any gain or loss realized upon sale or disposal credited or charged to
operations, respectively.
INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price of the acquired business
over the fair value of the identifiable net costs acquired and is amortized
using the straight-line method over an estimated useful life of four years.
Acquired existing products and core technology are being amortized over the
period of benefit ranging from seven to 36 months.
The Company evaluates the recoverability of its intangible assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
FOREIGN CURRENCY
The functional currency of the Company's subsidiaries is the local currency. The
balance sheet accounts are translated into United States dollars at the exchange
rates prevailing at the balance sheet dates. Revenues, costs and expenses are
translated into United States dollars at average rates for the periods. Gains
and losses resulting from translation are accumulated as a component of
stockholder's deficit. Net gains and losses resulting from foreign exchange
transactions are included in the consolidated statements of operations and were
not significant during any of the periods presented.
REVENUE RECOGNITION
The Company's revenues are derived from licenses for its software and related
services, which include implementation and integration, technical support,
training and consulting. For contracts with multiple elements, and for which
vendor-specific objective evidence of fair value for the undelivered elements
exists, the Company recognizes revenue for the delivered elements based upon the
residual contract value as prescribed by Statement of Position No. 98-9,
"Modification of SOP No. 97-2 with Respect to Certain Transactions".
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 implementation or integration exist, the fee is fixed or
determinable and collectibility is probable. Provisions for sales returns are
provided at the time of revenue recognition based upon estimated returns. The
Company has not incurred charges for product returns to date.
Services revenue primarily comprises revenue from consulting fees, maintenance
contracts and training. Services revenue from consulting and training is
recognized as the service is performed.
F-9
<PAGE> 77
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Maintenance contracts include the right to unspecified upgrades and ongoing
support. Maintenance revenue is deferred and recognized on a straight-line basis
as services revenue over the life of the related contract, which is typically
one year.
License and services revenue on contracts involving significant implementation,
customization or services which are essential to the functionality of the
software is recognized over the period of each engagement, primarily using the
percentage-of-completion method. Labor hours incurred is generally used as the
measure of progress towards completion. A provision for estimated losses on
engagements is made in the period in which the loss becomes probable and can be
reasonably estimated.
Customer billing occurs in accordance with contract terms. Customer advances and
amounts billed to customers in excess of revenue recognized are recorded as
deferred revenue. Amounts recognized as revenue in advance of billing (typically
under percentage-of-completion accounting) are recorded as unbilled receivables.
RESEARCH AND DEVELOPMENT COSTS
Expenditures for research and development are charged to expense as incurred.
Under Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" certain
software development costs are capitalized after technological feasibility has
been established. Development costs incurred in the period between achievement
of technological feasibility, which the Company defines as the establishment of
a working model, until the general availability of such software to customers,
has been short and software development costs qualifying for capitalization have
been insignificant. Accordingly, the Company has not capitalized any software
development costs to date.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price.
Unearned compensation is amortized and expensed in accordance with Financial
Accounting Standards Board ("FASB") Interpretation No. 28. The Company accounts
for stock issued to non-employees in accordance with the provisions of SFAS No.
123 and Emerging Issues Task Force No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."
The Company uses the Black-Scholes option pricing model to value options granted
to consultants. The related expense is recorded on the option grant date as the
options are fully vested at such time.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred and totaled $238,000, $92,000, and
$339,000 during the years ended March 31, 1997, 1998 and 1999, respectively.
F-10
<PAGE> 78
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax liabilities and assets are based on
provisions of the enacted tax law; the effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
are not expected to be realized.
COMPREHENSIVE INCOME
Effective April 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 establishes standards for reporting comprehensive income
and its components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. To date, the Company has not had any significant transactions that are
required to be reported in comprehensive income.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128")
and SEC Staff Accounting Bulletin No. 98 ("SAB No. 98"). Under the provisions of
SFAS No. 128 and SAB No. 98, basic and diluted net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of shares of Common Stock outstanding during the period.
The calculation of diluted net loss per share excludes potential shares of
Common Stock if the effect is antidilutive. Potential shares of Common Stock
consist of unvested restricted Common Stock, incremental shares of Common Stock
issuable upon the exercise of stock options and warrants and shares issuable
upon conversion of the Series A, Series B, Series C, Series D and Series E
Mandatorily Redeemable Convertible Preferred Stock.
F-11
<PAGE> 79
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the computation of basic and diluted net loss per
share for the periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
---------------------------- -----------------
1997 1998 1999 1998 1999
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss.................................. $(6,900) $(5,499) $(15,261) $(1,645) $(4,723)
======= ======= ======== ======= =======
Denominator:
Weighted average shares................... 5,755 8,136 10,327 10,068 10,416
Weighted average unvested shares of Common
Stock subject to repurchase............ (2,507) (3,057) (3,617) (4,028) (2,455)
------- ------- -------- ------- -------
Denominator for basic and diluted
calculation............................ 3,248 5,079 6,710 6,040 7,961
======= ======= ======== ======= =======
Net loss per share:
Basic and diluted......................... $ (2.12) $ (1.08) $ (2.27) $ (0.27) $ (0.59)
======= ======= ======== ======= =======
</TABLE>
The following table sets forth potential shares of Common Stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the periods indicated (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
-------------------------- ----------------
1997 1998 1999 1998 1999
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average effect of Common Stock
equivalents:
Series A Preferred Stock................. 6,000 6,000 6,000 6,000 6,000
Series B Preferred Stock................. 2,940 3,600 3,600 3,600 3,600
Series C Preferred Stock................. -- 1,441 2,083 2,083 2,083
Series D Preferred Stock................. -- -- 766 -- 1,256
Series E Preferred Stock................. -- -- 1,530 -- 2,688
Preferred Stock warrants................. 49 124 133 133 133
Preferred Stock options.................. -- -- 24 -- 32
Unvested shares of Common Stock subject
to repurchase......................... 2,507 3,057 3,617 4,028 2,455
Common Stock options..................... 2,037 1,646 2,245 1,762 4,021
------ ------ ------ ------ ------
13,533 15,868 19,998 17,606 22,268
====== ====== ====== ====== ======
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended March 31, 1999 and the three
months ended June 30, 1999 is computed using the weighted average number of
shares of Common Stock outstanding, including the pro forma effects of the
automatic conversion of the Company's Series A, Series B, Series C, Series D
(excluding approximately 4,422 and 3,027, weighted average repurchasable shares
at March 31, 1999 and June 30, 1999, respectively) and Series E
F-12
<PAGE> 80
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Mandatorily Redeemable Convertible Preferred Stock into shares of the Company's
Common Stock effective upon the closing of the Company's initial public offering
as if such conversion occurred on April 1, 1998, or at the date of original
issuance, if later. The resulting pro forma adjustment includes an increase of
13,979,000 in the weighted average shares used to compute basic net loss per
share for the year ended March 31, 1999 and 15,627,000 increase for the three
months ended June 30, 1999. The calculation of diluted net loss per share
excludes potential shares of Common Stock as their effect would be antidilutive.
Pro forma potential shares of Common Stock consist of unvested Common Stock
subject to repurchase rights and incremental shares of Common Stock issuable
upon the exercise of stock options and warrants.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of the initial public offering of the Company's
Common Stock, the outstanding shares of Series A, Series B, Series C, Series D
and Series E Mandatorily Redeemable Convertible Preferred Stock will
automatically convert into 5,999,998, 3,600,000, 2,083,331, 1,256,019 and
2,687,580 shares, respectively, of Common Stock. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro forma
consolidated balance sheet at June 30, 1999.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to current period presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position No. 98-1, "Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use" ("SOP No.
98-1"). SOP No. 98-1 will become effective during the year ending March 31,
2000. SOP No. 98-1 provides guidance on accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The Company does not expect the
adoption of SOP No. 98-1 to have a material effect on the Company's results of
operations, financial position or cash flows.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"). This
statement establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 will become effective during
the year ending March 31, 2001. The adoption of SFAS No. 133 is not expected to
have a material effect on the Company's results of operations, financial
position or cash flows.
NOTE 2 -- ACQUISITION OF FIRSTFLOOR SOFTWARE, INC.:
As discussed in Note 1, the Company completed the acquisition of all outstanding
capital stock of FirstFloor on August 21, 1998. The transaction was completed
pursuant to the Agreement and Plan of Reorganization, dated as of June 23, 1998
among the Company, Calico Acquisition Corporation, FirstFloor and certain
stockholders of Calico and certain shareholders of FirstFloor. The acquisition
was accounted for using the purchase method of accounting and, accordingly,
F-13
<PAGE> 81
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the net assets and results of operations of FirstFloor have been included in the
Company's consolidated financial statements since the acquisition date.
The purchase consideration included 1,248,423 shares of Series D Mandatorily
Redeemable Convertible Preferred Stock valued at approximately $5,690,000. In
addition, all of the outstanding stock options granted under the FirstFloor 1993
Stock Option Plan were converted into stock options to purchase 47,203 shares of
the Company's Series D Mandatorily Redeemable Convertible Preferred Stock at
$4.558 per share. The Black-Scholes option pricing model was used to determine
the fair value of the converted options. The fair value of the stock options, of
approximately $122,000, was included as a component of the purchase price. The
Company also incurred approximately $250,000 in acquisition expenses.
The total purchase price of $6.1 million was allocated to assets acquired,
including tangible and intangible assets, and liabilities assumed, based on
their respective estimated fair values at the acquisition date. The estimate of
fair value of the net assets acquired is based on an independent appraisal and
management estimates.
The total purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Fair value of tangible assets............................... $ 360
Fair value of existing products and core technology......... 1,547
Acquired in-process research and development................ 1,840
Goodwill.................................................... 4,266
Fair value of liabilities assumed........................... (1,951)
-------
$ 6,062
=======
</TABLE>
The acquisition was structured as a tax free exchange of stock, therefore, the
differences between the recognized fair values of acquired net assets, and their
historical tax bases are not deductible for tax purposes. Accordingly, a
deferred tax liability has been recognized for the differences between the
assigned value of intangible assets (excluding goodwill) for book purposes and
the tax basis of such assets in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the acquisition, the Company acquired one existing product
and two in-process projects. The existing product provides customers with the
ability to automatically update their sales force with the latest information.
The first acquired in-process project, a marketing information delivery system,
is a complete rewrite of the acquired product, and replaced the product upon its
release. While the solution remains the same, the functionality has been
completely reengineered. This development effort increased the product's utility
as well as its scalability on larger intranets, which increases the possible
number of users, and provides a variety of data sources instead of just one
central database. The second in-process project, a personalization solution,
provides customers with the ability to obtain in-depth information and critical
data needed to build stronger customer relationships with the objective of
increasing revenue and reducing sales cost.
In connection with the acquisition, the Company recorded a $1.8 million charge
in the year ended March 31, 1999 for acquired in-process research and
development. This represents the value of purchased in-process research and
development on projects that have not yet reached technological feasibility and
have no alternative future use.
F-14
<PAGE> 82
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The amount of purchase price allocated to in-process research and development
was determined using appropriate valuation techniques, including
percentage-of-completion which utilizes research and development cost metrics
and key milestones to estimate the stage of development of each in-process
research and development project at the date of acquisition, estimating cash
flows resulting from the expected revenues generated from such projects, and
discounting the net cash flows back to their present value. The discount rate
includes a factor that takes into account the uncertainty surrounding the
successful development of the purchased in-process technology. The remaining
identified intangibles, including the value of acquired existing products and
core technology, will be amortized over the periods of benefit ranging from
seven to 36 months.
The value assigned to acquired in-process research and development was
determined by identifying two specific research and development projects in
areas including (1) a marketing information delivery system and (2) a
personalization solution, for which technological feasibility had not been
established. The first project reached technological feasibility and was
commercially released in December 1998. The second project reached technological
feasibility and was commercially released in May 1999. In assigning value to the
in-process projects, consideration was given, as appropriate, to the stage of
completion, the complexity of the work completed to date, the difficulty of
completing the remaining development, costs already incurred and the projected
cost to complete the projects, adjusting for the relative value and contribution
of the core technology. The value assigned to acquired in-process research and
development was based on the assumptions set forth in the following paragraph.
Net cash flows from such projects were determined based on the Company's
estimates of revenues, cost of sales, research and development costs, selling,
general and administrative costs, and income taxes associated with such
projects. Revenue growth rates for each technology was developed considering,
among other things, the current and expected industry trends, acceptance of the
technologies and historical growth rates for similar industry products.
Estimated total revenue from the acquired in-process research and development
projects generally peak in fiscal year 2000 and decline through fiscal year 2001
as other new products are expected to be introduced. These revenue projections
were based on management's estimates of market size and growth, expected trends
in technology and the expected timing of new product introductions. The Company
assumed no synergies as a result of the acquisition and the revenue projections
are within the historical growth rates of FirstFloor product introductions.
Projected gross margins approximate FirstFloor's recent historical performance.
The estimated selling, general and administrative costs are consistent with
FirstFloor's historical cost structure. The estimated net cash flows of each
project were discounted back to their present value using discount rates of 30%
and 40%, respectively, which represent premiums over the Company's cost of
capital of 20% to reflect the risk associated with the stage of completion of
the in-process technologies. The estimated percentage-of-completion of the
in-process research and development projects were 82% and 47%, respectively.
The actual development timeline and costs of the marketing information delivery
system and the personalization solution were in line with the estimates used to
compute the estimated percentage-of-completion used in the valuation of the
in-process research and development projects. These products were just recently
released and it is too premature to compare the actual revenues with those
projected. To date, management's cash flow and other assumptions have not
materially changed.
F-15
<PAGE> 83
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CORE TECHNOLOGY
The amount of purchase price allocated to acquired core technology was
determined based upon royalty streams that were assigned as revenue to such
technology, recognizing the value of that core technology to the expected
product resulting from the in-process research and development. Royalty rates
were developed based on published documentation of royalty rates and the
specific facts and circumstances, and in Calico's view, are considered
reasonable approximations of fair value rates for the respective types of
technology under exclusive, perpetual, worldwide licenses.
UNAUDITED PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
The following table presents the unaudited pro forma consolidated results of
operations of the Company for the years ended March 31, 1998 and 1999 as if the
acquisition had been consummated at the beginning of each fiscal year. The pro
forma consolidated results of operations include certain pro forma adjustments,
including the amortization of intangible assets and the elimination of the
charge related to in-process research and development.
Pro forma basic net loss per share for each year presented is computed using the
weighted average number of common shares outstanding, including the pro forma
effects of the automatic conversion of the Company's Series A, Series B, Series
C and Series E Mandatorily Redeemable Convertible Preferred Stock into shares of
the Company's Common Stock effective upon the closing of the Company's initial
public offering as if such conversion occurred at the beginning of each fiscal
year, or at date of original issuance, if later. The shares of Series D
Mandatorily Redeemable Convertible Preferred Stock, issued as consideration for
the acquisition, are assumed to be converted into the Company's Common Stock
under the automatic conversion feature and outstanding at the beginning of each
fiscal year. Pro forma diluted net loss per share excludes potential shares of
Common Stock, consisting of options and warrants, as their effect would be
antidilutive.
The unaudited pro forma consolidated results of operations are prepared for
comparative purposes only and do not necessarily reflect the results that would
have occurred had the acquisition occurred at the beginning of the periods
presented or the results which may occur in the future (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Net revenues......................................... $ 13,577 $ 21,737
Net loss............................................. (12,221) (16,305)
Net loss per share:
Basic and diluted.................................. (0.72) (0.79)
</TABLE>
F-16
<PAGE> 84
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1998 1999
------ -------
<S> <C> <C>
ACCOUNTS RECEIVABLE, NET:
Accounts receivable................................... $2,518 $ 8,561
Unbilled receivables.................................. 1,714 571
Allowance for doubtful accounts....................... (580) (659)
Allowance for sales returns........................... (700) (1,030)
------ -------
$2,952 $ 7,443
====== =======
PROPERTY AND EQUIPMENT, NET:
Computer equipment and software....................... $2,534 $ 3,878
Furniture, fixtures and leasehold improvements........ 291 1,223
------ -------
2,825 5,101
Less: Accumulated depreciation and amortization....... (978) (2,569)
------ -------
$1,847 $ 2,532
====== =======
</TABLE>
Property and equipment includes $395,000 and $700,000 of computer and office
equipment under capital leases at March 31, 1998 and 1999, respectively.
Accumulated depreciation of assets under capital leases totaled $209,000 and
$360,000 at March 31, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1998 1999
------ ---------
<S> <C> <C>
INTANGIBLE AND OTHER ASSETS, NET:
Existing and core technology........................ $ -- $ 1,547
Goodwill............................................ -- 4,329
------ -------
-- 5,876
Less: Accumulated amortization...................... -- (1,341)
------ -------
$ -- $ 4,535
====== =======
ACCRUED LIABILITIES:
Accrued compensation and benefits................... $ 379 $ 1,149
Accrued commissions................................. 540 1,573
Other............................................... 894 2,726
------ -------
$1,813 $ 5,448
====== =======
</TABLE>
F-17
<PAGE> 85
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- BORROWINGS:
NOTES PAYABLE
Notes payable consist of amounts payable to an equipment financing company and
bank and are collateralized by the underlying assets as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------
1998 1999
----- ------
<S> <C> <C>
7% note; principal and interest payable monthly; matures
June 2000................................................. $ 368 $ 236
7% note; principal and interest payable monthly; matures
August 2000............................................... 179 120
7% note; principal and interest payable monthly; matures
October 2000.............................................. 90 63
Bank prime (7.75% at March 31, 1999) plus 0.5% note;
principal and interest payable monthly; matures March
2001...................................................... 337 230
Bank prime (7.75% at March 31, 1999) plus 0.5% note;
principal and interest payable monthly; matures May
2001...................................................... -- 121
Bank prime (7.75% at March 31, 1999) plus 0.5% note;
principal and interest payable monthly; matures September
2001...................................................... -- 218
Bank prime (7.75% at March 31, 1999) plus 0.5% note;
principal and interest payable monthly; matures February
2002...................................................... -- 340
----- ------
974 1,328
Less: current portion of notes payable...................... (330) (628)
----- ------
Notes payable, non-current.................................. $ 644 $ 700
===== ======
</TABLE>
Under the bank prime plus 0.5% notes above, the Company is required to meet
certain quarterly financial tests, including minimum operating results and
certain liquidity, leverage and debt service ratios. At March 31, 1999 and June
30, 1999, the Company was not in compliance with the minimum operating results
covenant. The Company obtained a waiver for the periods in which it was in
default.
Future minimum principal payments under the notes at March 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------
<S> <C>
2000...................................................... $ 628
2001...................................................... 538
2002...................................................... 162
2003...................................................... --
------
Total payments.................................... $1,328
======
</TABLE>
NOTE 5 -- INCOME TAXES:
At March 31, 1999, the Company had approximately $12,093,000 of federal and
$9,731,000 of state net operating loss carryforwards available to offset future
taxable income which expire in varying amounts beginning in 2011 and 2003,
respectively. At March 31, 1999, the Company had approximately $389,000 of
federal and $301,000 of state research and development credit carryforwards
available to offset future taxable income which expire in varying amounts
beginning in
F-18
<PAGE> 86
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2011 and indefinitely, respectively. Under the Tax Reform Act of 1986, the
amounts of and benefits from net operating loss carryforwards may be impaired or
limited in certain circumstances. Events which cause limitations in the amount
of net operating losses that the Company may utilize in any one year include,
but are not limited to, a cumulative ownership change of more than 50%, as
defined, over a three year period. Due to cumulative ownership changes, at March
31, 1999, the net operating loss carryforwards will be limited to approximately
$6,000,000 annually to offset future taxable income.
Deferred taxes are composed of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1998 1999
------- ---------
<S> <C> <C>
Deferred tax assets:
Depreciation.............................................. $ -- $ 250
Other accruals and liabilities............................ 725 3,146
Net operating loss and credit carryforwards............... 4,460 5,399
------- -------
5,185 8,795
Less: Valuation allowance................................. (5,134) (8,795)
------- -------
$ 51 $ --
======= =======
Deferred tax liabilities:
Non-deductible intangible assets.......................... $ -- $ 531
Depreciation.............................................. 51 --
------- -------
$ 51 $ 531
======= =======
</TABLE>
The acquisition of FirstFloor was structured as a tax-free exchange of stock,
therefore, the differences between the recognized fair values of acquired net
assets and their historical tax bases are not deductible for tax purposes. A
deferred tax liability has been recognized for the differences between the
assigned fair values of intangible assets (excluding goodwill) for book purposes
and the tax bases of such assets.
For financial reporting purposes the Company has incurred a loss in each period
since its inception. Based on the available objective evidence, including the
Company's history of losses, management believes it is more likely than not that
the net deferred tax assets will not be fully realizable. Accordingly, the
Company has provided a full valuation allowance against its net deferred tax
assets at March 31, 1998 and 1999. The Company's operating losses are generated
domestically and amounts attributable to its foreign operations have been
insignificant for all periods presented. A reconciliation between the amount of
income tax benefit determined by applying the applicable U.S. statutory income
tax rate to pre-tax loss is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... (35)% (35)% (35)%
State tax, net of federal impact............................ (6) (6) (6)
Provision for valuation allowance on deferred tax assets.... 41 36 26
Permanent differences....................................... -- 5 15
---- ---- ----
--% --% --%
==== ==== ====
</TABLE>
F-19
<PAGE> 87
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Mandatorily Redeemable Convertible Preferred Stock ($0.001 par value) at March
31, 1999 was comprised of the following (in thousands):
<TABLE>
<CAPTION>
SHARES
------------------------ LIQUIDATION REDEMPTION
AUTHORIZED OUTSTANDING AMOUNT AMOUNT
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Series A........................ 6,045 6,000 $16,000 $ 3,942
Series B........................ 3,692 3,600 23,040 5,729
Series C........................ 2,084 2,084 13,334 4,952
Series D........................ 1,298 1,254 8,035 5,695
Series E........................ 2,694 2,688 17,203 12,217
Undesignated.................... 36 -- -- --
------ ------ ------- -------
15,849 15,626 $77,612 $32,535
====== ====== ======= =======
</TABLE>
Of the 1,254,128 shares of Series D Mandatorily Redeemable Convertible Preferred
Stock outstanding at March 31, 1999, 3,762 were subject to repurchase.
The holders of Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock, have certain rights as follows:
VOTING
Each share of Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock has voting rights equal to an equivalent
number of shares of Common Stock into which it is convertible and votes together
as one class with the Common Stock.
DIVIDENDS
Holders of Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock are entitled to receive noncumulative
annual dividends of $0.03, $0.08, $0.12, $0.20 and $0.23 per share,
respectively, when and if declared by the Board of Directors. The holders of
Series A, Series B, Series C, Series D and Series E Mandatorily Redeemable
Convertible Preferred Stock will also be entitled to participate in dividends on
Common Stock, when and if declared by the Board of Directors, based on the
number of shares of Common Stock into which the Mandatorily Redeemable
Convertible Preferred Stock is convertible. As of March 31, 1999, no dividends
on Mandatorily Redeemable Convertible Preferred Stock or Common Stock have been
declared or paid.
LIQUIDATION
In the event of any liquidation, dissolution, winding up of affairs, merger or
other business combination where the stockholders of the Company retain less
than a majority of the voting power in the surviving entity, the holders of
Series A, Series B, Series C, Series D and Series E Mandatorily Redeemable
Convertible Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Company to the holders of the Common Stock, the amounts of $0.67, $1.60, $2.40,
$4.558 and $4.558 per share, respectively, adjusted for any stock split, stock
dividends, or the like, plus all declared but unpaid dividends. Thereafter, the
holders of Mandatorily Redeemable Convertible Preferred Stock and Common Stock
share proceeds pro rata, on an as-converted basis, until holders of Series A
F-20
<PAGE> 88
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Mandatorily Redeemable Convertible Preferred Stock have recovered an amount of
$2.67 per share and holders of Series B, Series C, Series D and Series E
Mandatorily Redeemable Convertible Preferred Stock have recovered an amount of
$6.40 per share. All further proceeds shall be distributed to the holders of
Common Stock.
REDEMPTION
Holders of two-thirds of the Series A, Series B, Series C and Series E
Mandatorily Redeemable Convertible Preferred Stock may require the Company to
redeem the respective series of Mandatorily Redeemable Convertible Preferred
Stock at any time. The redemption price for the Series A, Series B, Series C and
Series E Mandatorily Redeemable Convertible Preferred Stock shall be $0.67,
$1.60, $2.40 and $4.558 per share, respectively, adjusted for any stock split,
stock dividends, or the like, plus all declared but unpaid dividends.
Holders of two-thirds of the Series D Mandatorily Redeemable Convertible
Preferred Stock may require the Company to redeem the respective series of
Mandatorily Redeemable Convertible Preferred Stock if the requisite percentage
of Series A, Series B, Series C, and Series E Mandatorily Redeemable Convertible
Preferred Stock have previously requested redemption. The redemption price for
the Series D Mandatorily Redeemable Convertible Preferred Stock shall be $4.558
per share adjusted for any stock split, stock dividends, or the like, plus all
declared but unpaid dividends.
CONVERSION
Each share of Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock is convertible, at the option of the
stockholder, into the number of shares of Common Stock according to a conversion
ratio, subject to antidilution. The initial share price of the Mandatorily
Redeemable Convertible Preferred Stock used in the conversion ratio shall be
$0.67, $1.60, $2.40, $4.558 and $4.558 per share for Series A, Series B, Series
C, Series D and Series E Mandatorily Redeemable Convertible Preferred Stock,
respectively.
Automatic conversion will occur upon the consummation of an underwritten public
offering priced in excess of $4.80 per share and with total proceeds in excess
of $15,000,000. The Series A, Series B, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock shall automatically convert upon written
consent of a majority of the holders of Series A, Series B, Series D and Series
E Mandatorily Redeemable Convertible Preferred Stock, together. The Series C
Mandatorily Redeemable Convertible Preferred Stock shall automatically convert
upon written consent of a majority of the Series C stockholders.
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK OPTIONS AND WARRANTS
In connection with certain financing arrangements, the Company issued warrants
to purchase shares of the Company's Mandatorily Redeemable Convertible Preferred
Stock to a capital lessor and lender. These warrants were immediately
exercisable after issuance. The Company estimated the fair value of the warrants
using the Black-Scholes option pricing model. The Company records the expense
related to the warrants over the life of the associated financing
F-21
<PAGE> 89
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
instrument as additional interest expense. The following table summarizes the
outstanding warrants:
<TABLE>
<CAPTION>
DATE OF EXERCISE ESTIMATED FISCAL YEAR
GRANT SHARES PRICE FAIR VALUE OF EXPIRATION
------------- ------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Series A Preferred Stock
warrants.................... December 1995 42,000 $0.67 $10,000 2003
Series B Preferred Stock
warrants.................... January 1997 34,999 1.60 25,000 2005
Series B Preferred Stock
warrants.................... June 1997 56,250 1.60 53,000 2008
</TABLE>
In connection with the acquisition of FirstFloor in August 1998, the Company
exchanged the options granted under the FirstFloor 1993 Stock Option Plan into
options to purchase 47,203 shares of Company's Series D Mandatorily Redeemable
Convertible Preferred Stock. These options had a weighted average exercise price
of $2.63 per share. At March 31, 1999, 33,354 of such options were outstanding
with a weighted average exercise price of $2.70 per share. The options expire
upon the earlier of the respective employee termination or 10 years from grant
date. See Note 2.
NOTE 7 -- COMMON STOCK:
The Company's Certificate of Incorporation, as amended, authorizes the Company
to issue 150,000,000 shares of $0.001 par value Common Stock.
On March 5, 1999, the Company sold 1,052,632 shares of Common Stock to a third
party for $9.50 per share.
Certain Common Stock option holders have the right to exercise unvested options,
subject to a repurchase right held by the Company, in the event of voluntary or
involuntary termination of employment of the stockholder. As of March 31, 1999,
approximately 2,670,712 shares of outstanding Common Stock were subject to
repurchase by the Company at the original exercise price. Of the 2,670,712
shares of unvested restricted Common Stock repurchaseable, 2,583,212 are
available for reissuance under the 1997 Stock Option Plan. As of June 30, 1999
(unaudited), approximately 2,300,274 shares of Common Stock were subject to
repurchase by the Company at the original exercise price, all of which are
available for reissuance under the 1997 Stock Option Plan.
At March 31, 1999, the Company had reserved shares of Common Stock for future
issuance as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
Conversion of Series A Preferred Stock and warrants......... 6,045
Conversion of Series B Preferred Stock and warrants......... 3,692
Conversion of Series C Preferred Stock...................... 2,084
Conversion of Series D Preferred Stock and options.......... 1,298
Conversion of Series E Preferred Stock...................... 2,694
Exercise of options under stock option plans................ 8,199
Undesignated................................................ 125,988
</TABLE>
F-22
<PAGE> 90
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- EMPLOYEE BENEFIT PLANS:
401(k) SAVINGS PLAN
The Company sponsors a 401(k) defined contribution plan covering eligible
employees who elect to participate. The Company may elect to contribute matching
and discretionary contributions to the plan; however, no contributions were made
by the Company since the inception of the plan.
STOCK OPTION PLANS
In July 1995 and April 1997, the Board of Directors adopted the 1995 Stock
Option Plan and 1997 Stock Option Plan, respectively, (collectively, the
"Plans") which provide for the issuance of incentive and nonstatutory stock
options to employees, officers, directors, and consultants of the Company. The
Company has reserved 14,715,000 shares of Common Stock for issuance under the
Plans. The share reserve will automatically be increased on the first day of
each fiscal year beginning on or after April 1, 2001 by an amount equal to 5% of
the number of shares of the Company's Common Stock which were issued and
outstanding on the last day of the preceding fiscal year.
Options under the Plans are generally for periods not to exceed ten years, and
must be issued at prices not less than 100% and 85%, for incentive and
nonstatutory stock options, respectively, of the estimated fair value of the
underlying shares of Common Stock on the date of grant as determined by the
Board of Directors. Options granted to stockholders who own greater than 10% of
the outstanding stock are for periods not to exceed five years, and must be
issued at prices not less than 110% of the estimated fair value of the
underlying shares of Common Stock on the date of grant. The plan provides for
grants of immediately exercisable options, however, the Company has the right to
repurchase any unvested Common Stock upon termination of employment at the
original exercise price. Options become exercisable at such times and under such
conditions as determined by the Board of Directors. Options generally vest over
four years. The Board of Directors has determined that no further options will
be granted under the 1995 Option Plan.
EMPLOYEE STOCK PURCHASE PLAN
In July 1999, the Board of Directors adopted the 1999 Employee Stock Purchase
Plan (the "Purchase Plan"), subject to stockholder approval. There are 750,000
shares of Common Stock reserved for issuance under the Purchase Plan, none of
which has yet been issued. Employees generally will be eligible to participate
in the Purchase Plan if they are customarily employed by the Company for more
than 20 hours per week and more than five months in a fiscal year. Under the
Purchase Plan, eligible employees may select a rate of payroll deduction up to
15% of their compensation, but may not purchase more than 750 shares on any
purchase date or stock having a value measured at the beginning of the offering
period greater than $25,000 in any calendar year. The first Offering Period
commences on the date of the prospectus, will run for approximately 24 months
and will be divided into four consecutive purchase periods of approximately six
months. Offering Periods and Purchase Periods thereafter will begin on May 1 and
November 1 of each year. The price at which the Common Stock is purchased under
the Purchase Plan is 85% of the lower of the fair market value of the Company's
Common Stock on the first day of the applicable Offering Period or on the last
day of that Purchase Period.
F-23
<PAGE> 91
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes stock option activity under the Plans (shares in
thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE NUMBER OF EXERCISE
FOR GRANT OPTIONS PRICE
--------- --------- --------
<S> <C> <C> <C>
Balance at March 31, 1996..................... 669 3,873 $ 0.07
Additional shares authorized.................. 315 -- --
Options granted............................... (804) 804 0.12
Options exercised............................. -- (2,823) 0.07
Options canceled.............................. 414 (414) 0.09
-------- --------
Balance at March 31, 1997..................... 594 1,440 0.09
Additional shares authorized.................. 3,393 -- --
Options granted............................... (3,847) 3,847 0.41
Repurchase of restricted Common Stock......... 303 -- 0.07
Options exercised............................. -- (2,936) 0.24
Options canceled.............................. 411 (411) 0.14
-------- --------
Balance at March 31, 1998..................... 854 1,940 0.49
Additional shares authorized.................. 6,465 -- --
Options granted............................... (3,688) 3,688 4.59
Repurchase of restricted Common Stock......... 466 -- 0.23
Options exercised............................. -- (1,526) 1.19
Options canceled.............................. 605 (605) 0.69
-------- --------
Balance at March 31, 1999..................... 4,702 3,497 4.47
Options granted (unaudited)................... (1,963) 1,963 9.50
Repurchase of restricted Common Stock
(unaudited)................................. 2 -- 0.12
Options exercised (unaudited)................. -- (59) 0.31
Options canceled (unaudited).................. 107 (107) 3.13
-------- --------
Balance at June 30, 1999 (unaudited).......... 2,848 5,294 6.41
======== ========
</TABLE>
The following table summarizes the information about stock options outstanding
and exercisable as of March 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED AND
------------------------------------- EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.07 - 0.83............................ 432 7.9 $ 0.34 215 $0.23
1.00 - 2.63............................ 805 8.9 2.30 14 1.19
2.67 - 3.17............................ 660 9.4 3.02 11 3.11
4.50 - 9.50............................ 1,600 9.8 7.28 62 5.23
----- ---
3,497 9.3 4.47 302 1.40
===== ===
</TABLE>
F-24
<PAGE> 92
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the information about stock options outstanding
and exercisable as of June 30, 1999 (unaudited) (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED AND
------------------------------------- EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.07 - 0.83.................. 351 7.7 $0.35 189 $0.26
$1.00 - 2.63.................. 752 8.6 2.31 105 2.02
$2.67 - 3.17.................. 660 9.2 3.02 20 2.91
$4.50 - 9.50.................. 3,531 9.8 8.52 71 5.32
----- ---
5,294 9.4 6.41 385 1.80
===== ===
</TABLE>
FAIR VALUE DISCLOSURE
The Company calculated the minimum fair value of each option grant on the date
of grant using the Black-Scholes option pricing model as prescribed by SFAS No.
123 with the following underlying assumptions:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
----------------------- --------------
1997 1998 1999 1998 1999
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Stock option plans:
Dividend yield................................ -- -- -- -- --
Expected volatility........................... -- -- -- -- --
Average risk free interest rate............... 5.87% 6.06% 4.72% 4.72% 5.83%
Expected life (in years)...................... 4 4 4 4 4
Weighted average fair value of options
granted.................................... $0.03 $0.11 $1.22 $0.50 $2.89
</TABLE>
PRO FORMA NET LOSS
Had the Company recorded compensation based on the estimated grant date fair
value, as defined by SFAS No. 123, for awards granted under its Plans, the
Company's net loss would have been increased to the pro forma amounts below for
the fiscal years ended March 31, 1997, 1998 and 1999, and the three months ended
June 30, 1998 and 1999, respectively, (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------------ ----------------------
1997 1998 1999 1998 1999
------- ------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss as reported............. $(6,900) $(5,499) $(15,261) $(1,645) $(4,723)
Pro forma net loss............... (6,914) (5,546) (16,207) (1,714) (5,511)
Net loss per share as reported... (2.12) (1.08) (2.27) (0.27) (0.59)
Pro forma net loss per share..... (2.12) (1.08) (2.41) (0.29) (0.69)
</TABLE>
F-25
<PAGE> 93
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Because additional option grants are expected to be made each year, the above
pro forma disclosures are not representative of pro forma effects of option
grants on reported net income for future years.
UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option grants during the year ended March 31,
1998 and 1999, the Company recorded unearned compensation cost totaling
$2,746,000 and $2,854,000, respectively, which is being recognized over the
vesting periods of the related options, usually four years.
During the period from April 1, 1999 through July 27, 1999, the Company granted
stock options to purchase an aggregate of 2,448,514 shares of Common Stock.
NOTE 9 -- RELATED PARTY TRANSACTIONS:
In exchange for the issuance of Common Stock upon the exercise of options in the
years ended March 31, 1998 and 1999, the Company received notes receivable from
certain employees of the Company which bear simple interest at various rates
ranging from 5.54% to 6.65% per annum. The notes, which are collateralized by
the underlying shares of Common Stock, are full recourse and mature on various
dates through fiscal 2002.
In connection with the offering of the Series B Mandatorily Redeemable
Convertible Preferred Stock, a founder exchanged 600,000 shares of Common Stock
for 600,000 shares of Series B Mandatorily Redeemable Convertible Preferred
Stock. The Company recognized the difference between the original issue price of
the Series B Mandatorily Redeemable Convertible Preferred Stock and the
estimated fair value of the shares of Common Stock on the date of exchange of
$864,000 as compensation expense for the year ended March 31, 1997.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
CAPITAL LEASES
In January 1996, the Company entered into a lease financing agreement that
provides for the lease of computers and office equipment up to $400,000,
collateralized by the underlying assets. Equipment financed under this agreement
is subject to repayment at various times through October 2000. At March 31,
1999, purchases of computers and office equipment under this agreement totaled
$395,000.
In September 1998, the Company entered into a lease financing agreement that
provides for the lease of office equipment of $136,000, collateralized by the
underlying assets. Equipment financed under this agreement is subject to
repayment through January 2003. At March 31, 1999, purchases of office equipment
under this agreement totaled $136,000.
In connection with the FirstFloor acquisition, the Company assumed an equipment
financing agreement entered into in March 1997 which provides for the lease of
office equipment of up to $360,000, in one or more leases. Each lease is
repayable over 36 months and is secured by a first priority security interest in
certain assets of the Company. At March 31, 1999, the fair value of office
equipment purchased under this agreement totaled $169,000.
F-26
<PAGE> 94
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OPERATING LEASES
The Company leases office space and equipment under certain noncancellable
operating leases expiring through the year 2004. Total rent expense was
$286,000, $580,000, and $1,141,000 for the years ended March 31, 1997, 1998 and
1999, respectively.
As a part of an approved plan, the Company relocated its corporate headquarters
to a new leased facility in August 1998. As a result, the Company recorded a
charge, classified in general and administrative expenses, of approximately
$660,000 for the minimum lease payments committed under the previous leased
facility and losses on the disposal of certain fixed assets in the quarter ended
September 30, 1998. At March 31, 1999, there was approximately $230,000 of
minimum lease payments remaining.
LETTER OF CREDIT
At March 31, 1999, the Company maintained a $296,000 letter of credit to secure
the lease deposit on its corporate headquarters. The letter of credit expires on
October 31, 1999, and is included in other current assets.
Future minimum payments under noncancelable operating and capital leases at
March 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
MARCH 31, LEASES LEASES
----------- ------- ---------
<S> <C> <C>
2000........................................................ $ 305 $1,129
2001........................................................ 135 374
2002........................................................ 41 52
2003........................................................ 30 7
2004........................................................ -- 5
----- ------
Total minimum lease obligations................... 511 $1,567
======
Less: Amount representing interest.......................... (78)
-----
Present value of minimum lease obligations.................. 433
Less: Current portion....................................... (256)
-----
Capital lease obligations, non-current...................... $ 177
=====
</TABLE>
CONTINGENCIES
From time to time, in the normal course of business, various claims are made
against the Company. In the opinion of management, based on consultation with
legal counsel, there are no pending claims for which the outcome is expected to
result in a material adverse effect on the financial position or results of
operations of the Company.
NOTE 11 -- INFORMATION CONCERNING BUSINESS SEGMENTS:
The Company operates in one single industry segment. The Company does not have
separate operating segments for which discrete financial statements are
prepared. The Company's management makes operating decisions and assesses
performance primarily based upon product revenues and related gross margins.
F-27
<PAGE> 95
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The majority of the Company's sales to other foreign countries are originated in
the United States and therefore represent export sales. The following is a
breakdown of revenues by shipment destination for the years ended March 31,
1997, 1998 and 1999, respectively:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
United States.......................................... $5,903 $11,827 $20,108
Other foreign countries................................ -- 32 1,305
------ ------- -------
$5,903 $11,859 $21,413
====== ======= =======
</TABLE>
NOTE 12 -- SUBSEQUENT EVENTS:
INITIAL PUBLIC OFFERING
In July 1999, the Company's Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit the
Company to sell shares of its Common Stock to the public.
STOCK SPLIT
On August 24, 1999, the Board of Directors of the Company approved a 3-for-2
stock split of the Company's outstanding Common Stock. Share and per share
information for all periods presented has been retroactively adjusted to reflect
the stock split.
F-28
<PAGE> 96
CALICO COMMERCE, INC.
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
The Company completed the acquisition of all outstanding capital stock of
FirstFloor Software, Inc. ("FirstFloor") on August 21, 1998. The transaction was
completed pursuant to the Agreement and Plan of Reorganization, dated as of June
23, 1998 among the Company, Calico Acquisition Corporation, FirstFloor and
certain stockholders of the Company and certain shareholders of FirstFloor. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the net assets and results of operations of FirstFloor have been
included in the Company's consolidated financial statements since the
acquisition date.
The purchase consideration included 1,248,423 shares of Series D Mandatorily
Redeemable Convertible Preferred Stock, valued at $4.558 per share based on the
value of the Series E Mandatorily Redeemable Convertible Preferred Stock which
were sold to third party investors shortly after the acquisition, at
approximately $5,690,000. In addition, all of the outstanding options granted
under the FirstFloor 1993 Stock Option Plan were converted into options to
purchase 47,203 shares of the Company's Series D Mandatorily Redeemable
Convertible Preferred Stock. The Black-Scholes option pricing model was used to
determine the fair value of the converted options. The fair value, of
approximately $122,000, was included as a component of the purchase price. The
Company also incurred approximately $250,000 in acquisition expenses.
The total purchase price of $6.1 million was allocated to assets acquired,
including tangible and intangible assets, and liabilities assumed, based on
their respective estimated fair values at the acquisition date. The estimate of
fair value of the net assets acquired is based on an independent appraisal and
management estimates.
The total purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Fair value of tangible assets............................... $ 360
Fair value of existing products and core technology......... 1,547
Acquired in-process research and development................ 1,840
Goodwill.................................................... 4,266
Fair value of liabilities assumed........................... (1,951)
-------
$ 6,062
=======
</TABLE>
The acquisition has been structured as a tax-free exchange of stock, therefore,
the differences between the recognized fair values of required assets, including
tangible and intangible assets, and their historical tax bases are not
deductible for tax purposes.
The following unaudited pro forma consolidated statement of operations gives
effect to this acquisition as if it had occurred as of April 1, 1998, by
consolidating the results of operations of FirstFloor with the operations of
Calico.
The unaudited pro forma consolidated statement of operations is not necessarily
indicative of the operating results that would have been achieved had the
transaction been in effect as of the beginning of the period presented and
should not be construed as being a representation of future operating results.
The historical consolidated financial statements for the Company and FirstFloor
are included elsewhere in this prospectus and the unaudited pro forma
consolidated financial information presented herein should be read in
conjunction with those consolidated financial statements and related notes.
F-29
<PAGE> 97
CALICO COMMERCE, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999
------------------------------------------------------
CALICO FIRSTFLOOR ADJUSTMENTS PRO FORMA
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
License............................... $ 10,482 $ 283 $ (21)(A) $ 10,744
Services.............................. 10,931 150 (88)(A) 10,993
-------- ------- ------- --------
Net revenues.................. 21,413 433 (109) 21,737
Cost of net revenues
Licenses.............................. 1,179 3 196(A)(B) 1,378
Services.............................. 7,272 295 (88)(A) 7,479
-------- ------- ------- --------
Cost of net revenues.......... 8,451 298 108 8,857
-------- ------- ------- --------
Gross profit............................ 12,962 135 (217) 12,880
Operating expenses:
Sales and marketing................... 14,138 574 -- 14,712
Research and development.............. 5,677 774 -- 6,451
General and administrative............ 3,988 1,058 -- 5,046
Stock compensation.................... 2,007 -- -- 2,007
Acquired in-process research and
development........................ 1,840 -- (1,840)(C) --
Amortization of goodwill.............. 550 -- 401(B) 951
-------- ------- ------- --------
Total operating expenses...... 28,200 2,406 (1,439) 29,167
-------- ------- ------- --------
Loss from operations.................... (15,238) (2,271) 1,222 (16,287)
Interest and other income, net.......... (23) 5 -- (18)
-------- ------- ------- --------
Net loss................................ $(15,261) $(2,266) $ 1,222 $(16,305)
======== ======= ======= ========
Pro forma net loss per share(D):
Basic and diluted............................................................ $ (0.79)
========
Weighted average shares...................................................... 20,689
========
</TABLE>
See accompanying notes to Pro Forma Combined Consolidated Financial Information
F-30
<PAGE> 98
CALICO COMMERCE, INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION:
The unaudited pro forma combined consolidated statement of operations has been
prepared to reflect the acquisition of FirstFloor Software, Inc. by Calico as if
the acquisition had occurred as of April 1, 1998. The pro forma combined
consolidated statement of operations for the year ended March 31, 1999 reflects
the combination of the separate historical statement of operations of Calico for
the year ended March 31, 1999, which include the results of FirstFloor
subsequent to its acquisition, and of FirstFloor for the period from April 1,
1998 through the date of acquisition. Revenues of approximately $329,000 and net
loss of approximately $1.4 million of FirstFloor for the period of January 1,
1998 through March 31, 1998 are not included in the pro forma combined
consolidated statement of operations.
NOTE 2 -- PRO FORMA ADJUSTMENTS:
The following adjustments were applied to the historical statements of
operations to arrive at the pro forma combined consolidated statement of
operations:
(A) Reflects the elimination of license revenues recognized by
FirstFloor related to royalty payments paid by Calico to FirstFloor for
sub-licensing of FirstFloor's products, prior to the Company's acquisition
of FirstFloor. Additionally, the related cost of license revenues
recognized by Calico has been eliminated.
(B) Reflects the amortization expense related to existing products and
core technology and goodwill acquired in the acquisition for the period
April 1, 1998 through the date of acquisition.
(C) The in-process research and development charge related to the
acquisition has been reflected in the historical statements of operations
on the date upon which the acquisition was consummated. The pro forma
combined consolidated statement of operations excludes the nonrecurring
charge for acquired in-process research and development totaling $1.8
million.
(D) Pro forma basic net loss per share for the year ended March 31,
1999 is computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic conversion of
the Company's Series A, Series B, Series C and Series E Mandatorily
Redeemable Convertible Preferred Stock into shares of the Company's Common
Stock effective upon the closing of the Company's initial public offering
as if such conversion occurred on April 1, 1998, or at date of original
issuance, if later. The shares of Series D Mandatorily Redeemable
Convertible Preferred Stock, issued as consideration for the acquisition,
are assumed to be converted into the Company's Common Stock under the
automatic conversion feature and outstanding as of April 1, 1998.
Pro forma diluted net loss per share excludes potential shares of
Common Stock, consisting of options and warrants, as their effect would be
antidilutive.
F-31
<PAGE> 99
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
FirstFloor Software, Inc.
We have audited the accompanying balance sheets of FirstFloor Software, Inc.
(the "Company") as of December 31, 1996 and 1997 and the related statements of
operations, shareholders' equity (net capital deficiency) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FirstFloor Software, Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred recurring losses from operations. This raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans as to these matters are also described in Note 1. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability or classification of assets or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Palo Alto, California
April 10, 1998
F-32
<PAGE> 100
FIRSTFLOOR SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
----------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 4,883,027 $ 2,119,784
Short-term investments.................................... 1,987,171 --
Accounts receivable....................................... 99,628 78,233
Prepaid expenses and other current assets................. 44,366 48,163
----------- ------------
Total current assets................................... 7,014,192 2,246,180
Property and equipment, net................................. 257,812 311,201
Other assets................................................ 15,956 18,554
----------- ------------
$ 7,287,960 $ 2,575,935
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable.......................................... $ 87,357 $ 66,135
Accrued compensation and related liabilities.............. 108,012 110,588
Accrued royalties......................................... 55,470 --
Other accrued liabilities................................. 96,559 145,416
Current portion of deferred revenue....................... 320,699 219,901
Current portion of capital leases......................... -- 79,431
----------- ------------
Total current liabilities.............................. 668,097 621,471
Deferred revenue............................................ 229,163 --
Noncurrent portion of capital leases........................ -- 172,545
Commitments
SHAREHOLDERS' EQUITY:
Convertible preferred stock, no par value, 15,000,000 shares
authorized, issuable in series:
Series A, 750,000 shares designated, issued and
outstanding; aggregate liquidation preference of
$750,000............................................... 740,493 740,493
Series B, 1,794,117 shares designated, issued and
outstanding; aggregate liquidation preference of
$3,050,000............................................. 3,033,754 3,033,754
Series C, 3,000,000 shares designated, issued and
outstanding; aggregate liquidation preference of
$1,500,000............................................. 1,490,985 1,490,985
Series D, 4,000,000 shares designated, 3,588,898 and
3,567,143 shares issued and outstanding in 1997 and
1996, respectively; aggregate liquidation preference of
$10,228,359............................................ 9,647,105 9,709,107
Common stock, no par value, 30,000,000 shares authorized,
3,254,904 and 3,055,481 shares issued and outstanding
in 1997 and 1996, respectively......................... 196,080 256,909
Accumulated deficit....................................... (8,717,717) (13,449,329)
----------- ------------
Total shareholders' equity........................ 6,390,700 1,781,919
----------- ------------
$ 7,287,960 $ 2,575,935
=========== ============
</TABLE>
See accompanying notes.
F-33
<PAGE> 101
FIRSTFLOOR SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- --------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
License and product............ $ 2,251,311 $ 1,581,577 $ 906,644 $ 517,791
Contract and service........... 205,000 158,655 79,790 184,139
----------- ----------- ----------- -----------
Total revenue............... 2,456,311 1,740,232 986,434 701,930
Costs and expenses:
Royalties...................... 257,764 -- -- --
Research and development....... 2,311,178 2,895,805 1,324,550 1,575,250
Marketing and sales............ 2,471,827 2,634,378 1,344,678 1,166,648
General and administrative..... 966,368 1,191,809 561,497 636,095
----------- ----------- ----------- -----------
Total costs and expenses.... 6,007,137 6,721,992 3,230,725 3,377,993
----------- ----------- ----------- -----------
Loss from operations............. (3,550,826) (4,981,760) (2,244,291) (2,676,063)
Interest income, net............. 114,929 250,148 158,948 17,777
----------- ----------- ----------- -----------
Net loss......................... $(3,435,897) $(4,731,612) $(2,085,343) $(2,658,286)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-34
<PAGE> 102
FIRSTFLOOR SOFTWARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
------------------ ---------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- -------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995...................... 750,000 $740,493 1,794,117 $3,033,754 3,000,000 $1,490,985 -- $ --
Issuance of Series D
convertible preferred
stock for cash and
conversion of notes
payable and accrued
interest, net of issuance
costs of $519,252......... -- -- -- -- -- -- 3,567,143 9,647,105
Issuance of common stock for
the exercise of stock
options................... -- -- -- -- -- -- -- --
Repurchase of unvested
shares.................... -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
------- -------- --------- ---------- --------- ---------- --------- ----------
Balance at December 31,
1996...................... 750,000 740,493 1,794,117 3,033,754 3,000,000 1,490,985 3,567,143 9,647,105
Issuance of Series D
convertible preferred
stock to consultants for
services rendered......... -- -- -- -- -- -- 21,755 62,002
Issuance of common stock for
the exercise of stock
options................... -- -- -- -- -- -- -- --
Repurchase of unvested
shares.................... -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
------- -------- --------- ---------- --------- ---------- --------- ----------
Balance at December 31,
1997...................... 750,000 740,493 1,794,117 3,033,754 3,000,000 1,490,985 3,588,898 9,709,107
Issuance of common stock for
the exercise of stock
options (unaudited)....... -- -- -- -- -- -- -- --
Repurchase of unvested
shares (unaudited)........ -- -- -- -- -- -- -- --
Net loss (unaudited)........ -- -- -- -- -- -- -- --
------- -------- --------- ---------- --------- ---------- --------- ----------
Balance at June 30, 1998
(unaudited)............... 750,000 $740,493 1,794,117 $3,033,754 3,000,000 $1,490,985 3,588,898 $9,709,107
======= ======== ========= ========== ========= ========== ========= ==========
<CAPTION>
TOTAL
SHAREHOLDERS'
COMMON STOCK EQUITY
-------------------- ACCUMULATED (NET CAPITAL
SHARES AMOUNT DEFICIT DEFICIENCY)
--------- -------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31,
1995...................... 1,298,642 $ 14,242 $ (5,281,820) $ (2,346)
Issuance of Series D
convertible preferred
stock for cash and
conversion of notes
payable and accrued
interest, net of issuance
costs of $519,252......... -- -- -- 9,647,105
Issuance of common stock for
the exercise of stock
options................... 1,926,503 206,930 -- 206,930
Repurchase of unvested
shares.................... (169,664) (25,092) -- (25,092)
Net loss.................... -- -- (3,435,897) (3,435,897)
--------- -------- ------------ -----------
Balance at December 31,
1996...................... 3,055,481 196,080 (8,717,717) 6,390,700
Issuance of Series D
convertible preferred
stock to consultants for
services rendered......... -- -- -- 62,002
Issuance of common stock for
the exercise of stock
options................... 216,561 63,203 -- 63,203
Repurchase of unvested
shares.................... (17,138) (2,374) (2,374)
Net loss.................... -- -- (4,731,612) (4,731,612)
--------- -------- ------------ -----------
Balance at December 31,
1997...................... 3,254,904 256,909 (13,449,329) 1,781,919
Issuance of common stock for
the exercise of stock
options (unaudited)....... 46,616 13,234 -- 13,234
Repurchase of unvested
shares (unaudited)........ (22,324) (3,142) -- (3,142)
Net loss (unaudited)........ -- -- (2,658,286) (2,658,286)
--------- -------- ------------ -----------
Balance at June 30, 1998
(unaudited)............... 3,279,196 $267,001 $(16,107,615) $ (866,275)
========= ======== ============ ===========
</TABLE>
See accompanying notes.
F-35
<PAGE> 103
FIRSTFLOOR SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- --------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................. $(3,435,897) $(4,731,612) $(2,085,343) $(2,658,286)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 137,245 182,008 105,644 88,919
Issuance of Series D preferred
stock to consultants for
services rendered............... -- 62,002 -- --
(Gain) loss on disposal of capital
equipment....................... 21,214 (5,865) 8,205 --
Accrued interest on convertible
notes payable converted to
preferred stock................. 20,938 -- -- --
Changes in assets and liabilities:
Accounts receivable................ 285,926 21,395 94,628 (223,680)
Prepaid expenses and other current
assets.......................... (15,713) (3,797) (20,804) 24,318
Other assets....................... (6,081) (2,598) (59,857) (12,482)
Accounts payable................... 9,067 (21,222) (57,951) (4,067)
Accrued compensation and related
liabilities..................... 78,828 2,576 98,113 4,590
Accrued royalties.................. 5,470 (55,470) (55,470) --
Other accrued liabilities.......... 28,393 48,857 112,351 (62,490)
Deferred revenue................... (74,537) (329,961) 173,518 375,079
----------- ----------- ----------- -----------
Net cash used in operating
activities......................... (2,945,147) (4,833,687) (1,686,966) (2,468,099)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Sales (purchases) of short-term
investments........................ (1,987,171) 1,987,171 (19,716) --
Capital expenditures................. (239,616) (27,961) (165,523) (119,123)
Proceeds from sale of capital
equipment.......................... -- 93,108 -- --
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities............... (2,226,787) 2,052,318 (185,239) (119,123)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Payments under capital lease
obligations........................ -- (42,703) 183,167 (39,752)
Proceeds from issuance of convertible
notes payable...................... 2,000,000 -- -- 1,150,000
Net proceeds from issuance of
preferred stock.................... 7,626,167 -- -- --
Proceeds from issuance of common
stock, net of repurchases.......... 181,838 60,829 4,261 10,092
----------- ----------- ----------- -----------
</TABLE>
F-36
<PAGE> 104
FIRSTFLOOR SOFTWARE, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- --------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows provided by financing
activities......................... 9,808,005 18,126 187,428 1,120,340
----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents................... 4,636,071 (2,763,243) (1,684,777) (1,466,882)
Cash and cash equivalents at
beginning of period................ 246,956 4,883,027 4,883,027 2,119,783
----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period............................. $ 4,883,027 $ 2,119,784 $ 3,198,250 $ 652,901
=========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Equipment acquired under capital
leases............................. $ -- $ 201,571 $ 17,262 $ 93,107
=========== =========== =========== ===========
Conversion of notes payable to
preferred stock.................... $ 2,000,000 $ -- $ -- $ --
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest............... $ -- $ 18,236 $ 5,605 $ 15,079
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-37
<PAGE> 105
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
FirstFloor Software, Inc. (the "Company"), formerly FirstFloor, Inc., was
incorporated in the state of California on October 19, 1992. The Company
develops and markets interactive marketing systems for business-to-business
communications.
At December 31, 1997, the Company has recorded cumulative operating losses of
$13,449,329 including losses of $4,731,612 and $3,435,897 for the years ended
December 31, 1997 and 1996, respectively. The Company will need to obtain
additional funds from existing or new investors to continue building production,
sales and marketing capabilities, continue its research and development
activities and fund operating expenses, as necessary. Management believes that
it will be able to obtain additional funds through equity or debt financing. If
adequate funds are not available, the Company may be required to reduce its
level of spending, eliminate one of more of its research and development
programs or obtain funds through arrangements with corporate partners or others
which may require the Company to relinquish certain rights of its technologies
or product candidates.
INTERIM FINANCIAL DATA
The accompanying interim financial statements for the six months ended June 30,
1997 and 1998 are unaudited. In the opinion of management, the unaudited interim
financial statements have been prepared on the same basis as the annual
financial statements and reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the results of the Company's
operations for the six months ended June 30, 1997 and 1998.
The results of operations for the six months ended June 30, 1997 and 1998 are
not necessarily indicative of results to be expected for the full fiscal year.
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 from those estimates.
RECLASSIFICATIONS
Certain amounts reported in the financial statements as of December 31, 1996
have been reclassified to conform with the presentation adopted by the Company
to report its 1997 financial results.
CUSTOMER CONCENTRATION
A limited number of customers historically have accounted for a substantial
portion of the Company's revenues. Sales of the Company's products and contracts
for its technology 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 increased competition.
F-38
<PAGE> 106
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CUSTOMER CONCENTRATION (CONTINUED)
Revenues from customers representing 10% or more of total revenue during fiscal
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Customer:
A........................................................ 48% 46%
B........................................................ 24 17
C........................................................ 6 11
D........................................................ 0 11
E........................................................ 15 3
</TABLE>
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents and short-term
investments consist of money market funds, commercial paper, corporate notes,
and auction rate preferred stock. The fair market value, based on quoted market
prices of the cash equivalents and short-term investments, is substantially
equal to their carrying value at December 31, 1996 and 1997.
Under FAS 115, management classifies investments as available-for-sale at the
time of purchase and periodically reevaluates such designation. Debt securities
are classified as available-for-sale and are reported at fair value.
Unrecognized gains or losses on available-for-sale securities are included, net
of tax, in shareholders' equity until their disposition. Realized gains and
losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in interest income. The cost of
securities sold is based on specific identification.
All cash equivalents and short-term investments are classified as
available-for-sale securities and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Cash and cash equivalents:
Bank and money market funds..................... $ 350,430 $2,119,784
Commercial paper................................ 2,494,447 --
Corporate notes/bonds........................... 2,038,150 --
---------- ----------
Total................................... $4,883,027 $2,119,784
========== ==========
Short-term investments:
Commercial paper................................ $ 987,004 $ --
Auction rate preferred stock.................... 1,000,167 --
---------- ----------
Total................................... $1,987,171 $ --
========== ==========
</TABLE>
Unrealized holding gains and losses on available-for-sale securities at December
31, 1996 and 1997 and gross realized gains and losses on sales of
available-for-sale securities during the year ended December 31, 1996 and 1997
were immaterial.
F-39
<PAGE> 107
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
Computer equipment and software.................... $ 405,235 $ 627,380
Furniture and fixtures............................. 37,793 37,793
Leasehold improvements............................. 51,555 51,555
--------- ---------
494,583 716,728
Less accumulated depreciation and amortization..... (236,771) (405,527)
--------- ---------
$ 257,812 $ 311,201
========= =========
</TABLE>
Depreciation is provided using the straight line method over the shorter of the
estimated useful lives or lease term of the respective assets, generally three
years. Property and equipment financed under a capital lease were $294,679 at
December 31, 1997. There were no capital leases at December 31, 1996.
Accumulated amortization related to leased assets was $59,906 at December 31,
1997. Amortization related to capital leases is included in depreciation
expense.
CONCENTRATION OF CREDIT RISK
The Company's concentration of credit risk consists principally of cash, cash
equivalents, short-term investments, and receivables. The Company's investment
policy restricts investments to high-credit quality investments and limits the
amounts invested with any one issuer. The Company sells primarily to original
equipment manufacturers in the United States, performs ongoing credit
evaluations of its customers' financial condition, and generally requires no
collateral.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). The Company has elected to account for employee stock
options in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25) and to adopt the
"disclosure only" alternative described in FAS 123.
REVENUE RECOGNITION
License fees for the Company's products are generally recognized ratably over
the initial or subsequent renewal periods as unspecified future deliverables,
including product enhancements and new products, are included in such license
agreements. For transactions that do not involve such unspecified future
deliverables, product revenues are recognized at the time of shipment of the
products and fulfillment of acceptance terms, if any, and when no significant
contractual obligations remain outstanding and collection of the resulting
receivable is deemed probable.
Contracts involving custom software development are accounted for using the
percentage-of-completion method. Revenues from services are recognized when the
services are performed. Maintenance contract revenue is recognized ratably over
the term of the maintenance contract.
F-40
<PAGE> 108
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
Amounts received in advance of satisfying revenue recognition criteria are
classified as deferred revenue in the accompanying balance sheets.
RESEARCH AND DEVELOPMENT
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such cost to research and development expenses in the accompanying
statements of operations.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
approximately $155,000 and $195,000 in advertising costs during 1996 and 1997,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the American Institute of Certified Public Accountants issued Statement
of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended by
Statement of Position 98-4 ("SOP 98-4," collectively the "SOPs"). The SOPs
supersede SOP 91-1 and are effective for transactions entered into for fiscal
years beginning after December 15, 1997. Based upon its reading and
interpretation of the SOPs, the Company believes its current revenue recognition
policies and practices are materially consistent with the SOPs. However,
implementation guidelines for this standard have not yet been issued. Once
available, such implementation guidance could lead to changes in the Company's
current revenue accounting practices.
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes rules for
reporting and displaying comprehensive income and is effective for the Company
during 1998. The Company does not believe that the adoption of SFAS 130 will
have a material impact on the Company's results of operations, cash flows or
financial position.
2. COMMITMENTS
CAPITAL LEASE
In March 1997, the Company entered into an Equipment Financing Agreement which
allows the Company to lease up to $360,000 of equipment, in one or more leases.
Each lease is repayable over 36 months and is secured by a first priority
security interest in certain assets of the Company. At December 31, 1997, the
Company has borrowed $294,679 against this financing agreement. In connection
with the equipment financing agreement the Company issued a warrant to the
financing company (see Note 3).
F-41
<PAGE> 109
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. COMMITMENTS (CONTINUED)
OPERATING LEASES
The Company leases its corporate offices under operating lease agreements that
expire in 2000. In February 1998, the Company renegotiated and amended certain
of these agreements. The result of these amended agreements is reflected in the
following table.
CAPITAL AND OPERATING LEASES
Future minimum lease payments under capital leases and operating leases are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
YEARS ENDING DECEMBER 31,
1998.................................................. $106,656 $253,840
1999.................................................. 106,656 365,327
2000.................................................. 85,281 278,816
2001.................................................. 833 --
-------- --------
Total minimum lease and principal payments,
respectively.............................. 299,426 $897,983
========
Amount representing interest.......................... 47,450
--------
Present value of future lease payments................ 251,976
Current portion of capital lease obligations.......... 79,431
--------
Noncurrent portion of capital lease obligations....... $172,545
========
</TABLE>
Rent expense was approximately $122,000 and $157,000 for 1996 and 1997,
respectively.
3. CONVERTIBLE PROMISSORY NOTES AND WARRANTS
During 1996, the Company issued $2,000,000 in convertible promissory notes. The
notes bore interest at a rate of 6% per annum, compounded annually, and all
principal and accrued interest were due and payable on September 30, 1996 unless
earlier converted. Upon closing of the Series D convertible preferred stock
offering in August 1996, $2,020,938 of principal and related accrued but unpaid
interest were converted into approximately 709,100 shares of Series D
convertible preferred stock. In connection with the issuance of these
convertible notes payable, the Company issued warrants to purchase 42,094 shares
of Series D convertible preferred stock at an exercise price of $2.85 per share.
The warrants are exercisable through April 30, 1999.
In connection with an equipment financing agreement, the Company issued a
warrant to a financing company which permits the purchase of up to 6,300 shares
of Series D preferred stock at a price per share of $2.85. The warrant was
issued in March 1997 and expires in March 2002.
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
CONVERTIBLE PREFERRED STOCK
Series A, B, C, and D preferred stock have a liquidation preference of $1.00,
$1.70, $0.50, and $2.85 per share, respectively, plus all declared but unpaid
dividends. Series A, B, C, and D preferred shareholders are entitled to
noncumulative dividends at the rate of $0.08, $0.14, $0.04, and $0.23 per share,
per annum, respectively, payable quarterly when and if declared by the board of
directors and in preference to common stock dividends. No dividends have been
declared or paid by the Company.
F-42
<PAGE> 110
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
CONVERTIBLE PREFERRED STOCK (CONTINUED)
The holders of each share of Series A, B, C, and D preferred stock are entitled
to one vote for each share of common stock into which such share may be
converted. The holders of Series A, B, C, and D preferred stock have the right,
at the option of the holder, at any time to convert their shares into common
stock at a price of approximately $0.793, $1.203, $0.50, and $2.85 per share,
subject to adjustments for future dilution. Series A, B, C, and D preferred
stock automatically convert into common stock, at the then applicable conversion
rate, upon a public offering of the Company's common stock at a per share price
of not less than $6.00, with aggregate proceeds in excess of $5,000,000 or upon
the consent of the holders of a majority of the then outstanding shares of
preferred stock. The conversion rate of the Series A, B, C, and D preferred
stock is subject to adjustment in the event of, among other things, certain
dilutive issuances of stock, business combinations, stock splits, and stock
dividends.
COMMON STOCK
In December 1992, 1,333,333 shares of common stock were issued to the Company's
founders at $0.0075 per share. Thereafter, 80,000 shares were returned to the
Company without consideration. The outstanding shares are subject to certain
transfer restrictions. Certain of these shares are subject to repurchase at the
issuance price upon the occurrence of certain events, including termination of
employment. The Company's right of repurchase expires ratably over five and
one-half years. At December 31, 1997, 94,949 shares remain subject to
repurchase.
SHARES RESERVED
Common stock reserved for future issuance is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Stock option plan:
Outstanding................................................. 1,087,764
Available for grant......................................... 154,118
----------
1,241,882
Common stock warrants....................................... 48,394
Conversion of preferred stock............................... 10,068,774
Authorized but unissued preferred stock..................... 5,866,985
----------
Total common stock reserved for future issuances............ 17,226,035
==========
</TABLE>
1993 STOCK OPTION/STOCK ISSUANCE PLAN
The Company has elected to follow APB Opinion No. 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 Opinion No. 25, because 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.
In July 1993, the board of directors adopted the 1993 Stock Option/Stock
Issuance Plan (the "Plan").
F-43
<PAGE> 111
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
1993 STOCK OPTION/STOCK ISSUANCE PLAN (CONTINUED)
The Plan provides for the direct issuance of common stock and grants of both
incentive and nonqualified stock options to eligible participants. The Plan
provides that direct issuances of stock and grants of incentive stock options
will be made at no less than the fair value of the Company's common stock (no
less than 85% of the fair value for nonqualified stock options), as determined
by the board of directors at the date of the issuance or grant. If, at the time
the Company issues stock or grants an option, the holder owns more than 10% of
the total combined voting power of all the classes of stock of the Company, the
stock or option price shall be at least 110% of the fair value. Options are
exercisable upon grant. No option shall have a term in excess of ten years from
the grant date (five years in the case of an option granted to a 10%
shareholder). Stock issued under the Plan may be, as determined by the board of
directors, subject to repurchase by the Company. This right to repurchase
generally lapses over four years from the original date of issuance or grant.
Activity under the stock option plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
SHARES WEIGHTED
AVAILABLE FOR NUMBER OF AVERAGE
GRANT SHARES EXERCISE PRICE
------------- ---------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995.................. 101,480 1,376,968 $0.08
Additional shares authorized................ 1,906,498 -- --
Options granted............................. (1,675,684) 1,675,684 0.20
Options exercised........................... -- (1,926,503) 0.11
Options canceled............................ 276,366 (276,366) 0.12
---------- ----------
Balance at December 31, 1996.................. 608,660 849,783 0.24
Options granted............................. (631,409) 631,409 0.30
Options exercised........................... -- (216,561) 0.29
Options canceled............................ 176,867 (176,867) 0.24
---------- ----------
Balance at December 31, 1997.................. 154,118 1,087,764 0.27
========== ==========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
------------------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
RANGE OF OF REMAINING AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE
--------------- --------- ---------------- ---------------
<S> <C> <C> <C>
$0.05 - $0.05.............................. 61,041 7.56 $0.05
$0.15 - $0.15.............................. 32,500 8.52 0.15
$0.17 - $0.17.............................. 114,375 6.58 0.19
$0.30 - $0.30.............................. 879,848 9.17 0.30
---------
Total................................. 1,087,764 8.79 0.27
=========
</TABLE>
F-44
<PAGE> 112
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
1993 STOCK OPTION/STOCK ISSUANCE PLAN (CONTINUED)
The weighted average fair value of options granted in 1996 and 1997 was $0.04
and $0.05, respectively.
During 1997, the Company repurchased 17,138 shares previously exercised under
the Plan. At December 31, 1997, 702,302 shares remain subject to repurchase.
Pro forma information regarding net loss 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. For all grants subsequent to December 31, 1994, the fair
value of these options was determined using the minimum value method with the
following weighted-average assumptions for 1995, 1996 and 1997, respectively:
risk-free interest rates of 6.04%, 6.29% and 6.17%, no dividend yield, no
volatility factors of the expected market price of the Company's common stock,
and expected life of the options of 4, 3.5 and 3.4 years for 1995, 1996 and
1997, respectively.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. The effect of
determination of the compensation expense was immaterial to the Company's
statement of operations for the years ended December 31, 1997, 1996 and 1995.
Because FAS 123 is applicable only to options granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until 1999.
5. INCOME TAXES
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $13,100,000. The Company also had federal
research and development tax credit carryforwards of approximately $300,000. The
net operating loss and credit carryforwards will expire at various dates
beginning in 2008 through 2012, if not utilized.
Utilization of the net operating losses may be subject to a substantial
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 losses and credits before utilization.
As of December 31, 1996 and 1997, the Company had deferred tax assets of
approximately $3,500,000 and $5,500,000, respectively. The net deferred tax
asset has been fully offset by a valuation allowance. The valuation allowance
increased by $1,449,000 during the year ended December 31, 1996. Deferred tax
assets relate primarily to net operating loss carryforwards, research credits,
and capitalized research and development costs.
6. YEAR 2000 ISSUE (UNAUDITED)
The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The "Year 2000 problem"
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two-digit year value to "00". The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. Management
does not
F-45
<PAGE> 113
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. YEAR 2000 ISSUE (UNAUDITED) (CONTINUED)
anticipate that the Company will incur significant operating expenses or be
required to invest heavily in computer systems improvements to be Year 2000
compliant. However, significant uncertainty exists concerning the potential
costs and effects associated with any Year 2000 compliance. Any Year 2000
compliance problems of either the Company or its vendors could adversely affect
the Company's business, results of operations, financial condition and
prospects.
7. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
On August 21, 1998, the acquisition of the Company was completed pursuant to the
agreement and plan of reorganization with Calico Technology, Inc. ("Calico").
Under the terms of the agreement, shareholders of the Company exchanged all
outstanding common stock, preferred stock and common stock options for 1,248,423
shares of Calico Series D Mandatorily Redeemable Convertible Preferred Stock and
options to purchase 47,203 shares of Calico Series D Mandatorily Redeemable
Convertible Preferred Stock.
F-46
<PAGE> 114
UNDERWRITING
Calico and the underwriters for the offering named below have entered into
an underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Hambrecht & Quist LLC are the
representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..................................
Hambrecht & Quist LLC.......................................
--------
Total.............................................
========
</TABLE>
If the underwriters sell more shares than the total number set forth in
the table above, the underwriters have an option to purchase up to an additional
660,000 shares from Calico to cover such sales. They may exercise that option
for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Calico. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by Calico
---------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............ $ -- $ --
Total................ $ -- $ --
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $ per share from the initial
public offering price. If all the shares are not sold at the initial offering
price, the representatives may change the offering price and the other selling
terms.
Calico has agreed with the underwriters not to dispose of or hedge any of
its common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives. This agreement does not apply to
any existing employee benefit plans. See "Shares Eligible for Future Sale" for a
discussion of restrictions on transfer of Calico's shares.
Prior to this offering, there has been no public market for the shares.
The initial public offering price has been negotiated between Calico and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Calico's historical performance, estimates of Calico's
business potential and earnings prospects, an assessment of Calico's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
The common stock is expected to be quoted on the Nasdaq National Market
under the symbol "CLIC".
U-1
<PAGE> 115
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
At our request, the underwriters have reserved up to 220,000 shares of
common stock for sale, at the initial public offering price, to directors,
officers, employees and friends through a directed share program. The number of
shares of common stock available for sale to the general public in the public
offering will be reduced to the extent these persons purchase these reserved
shares.
Calico estimates that its share of the total expenses of this offering,
excluding underwriting discounts and commissions, will be approximately $1.6
million.
Calico has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act.
In September 1998, an entity affiliated with Merrill Lynch, Pierce, Fenner
& Smith Incorporated purchased 219,394 shares of Calico's preferred stock at a
purchase price of $4.558 per share, for an aggregate amount of approximately
$1,000,000. These shares will convert into 219,394 shares of common stock upon
the completion of this offering.
In September 1998, entities and persons affiliated with Hambrecht & Quist
LLC purchased an aggregate of 219,394 shares of Calico's preferred stock at a
purchase price of $4.558 per share, for an aggregate amount of approximately
$630,000. These shares will convert into 219,394 shares of common stock upon the
completion of this offering.
U-2
<PAGE> 116
[Art Work Page 1]
Redefining the way companies sell complex products and services over the
Web.
[schematic depicting modes of communication, screen shot of
Calicocommerce.com]
[Calico logo]
[Art Work Page 2]
Calico provides eCommerce software applications that transform the way
companies sell and maintain relationships through all channels to achieve
strategic competitive advantage.
[Calico logo]
[schematic depicting Customer Commerce Solutions for eBusiness]
Calico eSales Suite--The Premier Web-based Guided Selling Solution
[Art Work Page 3]
[continued schematic depicting Customer Commerce Solutions for eBusiness]
[Inside Back Cover Art Work]
Calico--Customer Commerce Solutions for eBusiness
Transform Electronic Commerce to Customer Commerce--
Calico provides large enterprises with advanced ecommerce applications
that help them to redefine their competitive landscape by accelerating
time-to-market for new products, drive revenue growth from the Web and existing
channels, and lower operating expense while increasing customer loyalty.
Calico eSales Suite: The Premier Web-Based Guided Selling Solution
Customer Driven--
Create Web sites that guide customers through the entire buying process
with a personalized experience and deliver customized solutions to generate
repeat purchases
EBusiness Ready--
Deploy customer-facing applications that turbo charge all channels, while
leveraging existing content, applications, and infrastructure.
[schematic depicting different modes of computer connection, with Calico
logo and address]
For the diagram on page 40:
[Diagram of Calico eSales Interaction with a graphical depiction of the
connection and integration between users, customer web sites and web servers,
the Calico eSales Suite, Calico Enterprise Connectors and other Java
application programming interfaces and the back-end order entry and other
computer systems]
<PAGE> 117
- ----------------------------------------------------------
- ----------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 5
Special Note Regarding Forward-Looking
Statements............................. 16
Use of Proceeds.......................... 17
Dividend Policy.......................... 17
Capitalization........................... 18
Dilution................................. 19
Selected Consolidated Financial Data..... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 21
Business................................. 36
Management............................... 49
Transactions with Related Parties and
Insiders............................... 58
Principal Stockholders................... 60
Description of Capital Stock............. 62
Shares Eligible for Future Sale.......... 65
Legal Matters............................ 66
Experts.................................. 66
Where You Can Find More Information...... 67
Index to Financial Statements............ F-1
Underwriting............................. U-1
</TABLE>
-------------------------
Through and including , 1999, (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
Shares
CALICO COMMERCE, INC.
Common Stock
-------------------------
[CALICO LOGO]
-------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
HAMBRECHT & QUIST
Representatives of the Underwriters
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 118
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses to be paid by Calico, other than the
underwriting discounts and commissions payable by Calico in connection with the
sale of the common stock being registered. All amounts shown are estimates
except for the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 19,694
NASD filing fee............................................. 6,250
Nasdaq National Market listing fee.......................... 90,000
Blue sky qualification fees and expenses.................... 10,000
Printing and engraving expenses............................. 325,000
Legal fees and expenses..................................... 600,000
Accounting fees and expenses................................ 400,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous expenses...................................... 139,056
----------
Total.................................................. $1,600,000
==========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification of
officers, directors and other corporate agents under certain circumstances and
subject to certain limitations. Our certificate of incorporation and bylaws
provide that we shall indemnify our officers, directors, employees and agents to
the full extent permitted by the Delaware General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary under Delaware
law. In addition, we intend to enter into separate indemnification agreements
with our officers, directors and certain employees which would require us, among
other things, to indemnify them against liabilities which may arise by reason of
their status or service as directors, officers or employees. We also intend to
maintain director and officer liability insurance, if available on reasonable
terms.
These indemnification provisions and the indemnification agreements that we
intend to enter into with our officers and directors may be sufficiently broad
to permit indemnification of our officers and directors for liabilities,
including reimbursement of expenses incurred, arising under the Securities Act.
We intend to obtain in conjunction with the effectiveness of the registration
statement a policy of directors' and officers' liability insurance that insures
our directors and officers against the cost of defense, settlement or payment of
a judgment under certain circumstances.
The form of underwriting agreement filed as Exhibit 1.1 to this registration
statement provides for indemnification by the underwriters of Calico and our
officers and directors for certain liabilities arising under the Securities Act,
or otherwise.
II-1
<PAGE> 119
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1996, we have sold and issued the following unregistered
securities:
(a) On July 1, 1996, we issued and sold an aggregate of 180,000 shares of common
stock to 10 individuals at a price of $0.16 per share for an total offering
price of $28,800.
(b) On July 3, 1997, we issued to one of the founders, 37,500 shares of common
stock, valued at $0.16 per share, in exchange for services rendered to us.
(c) From July 21, 1995 to June 30, 1999, we granted options to purchase
14,323,464 shares of common stock pursuant to our 1997 Stock Option Plan and our
1995 Stock Option Plan at exercise prices ranging from $0.07 per share to $9.50
per share.
(d) On January 29, 1997, in connection with a loan agreement, we issued a
warrant to an equipment lender to purchase 34,999 shares of Series B preferred
stock at an exercise price of $1.60 per share and on June 2, 1997, in connection
with a revolving credit agreement, we issued a warrant to a bank to purchase
56,250 shares of Series B preferred stock at an exercise price of $1.60 per
share.
(e) On June 7, 1996, William Paseman, one of our founders, exchanged 4,350,000
shares of common stock, par value $0.001 for 600,000 shares of Series B
preferred stock, and 3,750,000 shares of common stock, par value $0.001 per
share, and sold the 400,000 shares of Series B preferred stock to 2 private
investors.
(f) On June 7, 1996, we sold an aggregate of 3,000,000 shares of Series B
preferred stock to 8 private investors at a price of $1.60 per share for a total
offering price of $5,760,000.
(g) On July 23, 1997, we sold an aggregate of 2,083,331 shares of Series C
preferred stock to 8 private investors at a price of $2.40 per share for a total
offering price of $5,000,000.
(h) On August 21, 1998, in connection with an Agreement and Plan of
Reorganization dated as of June 23, 1998 between Calico and FirstFloor, certain
shareholders of Calico and certain shareholders of FirstFloor, we issued
1,248,423 shares of Series D preferred stock and options to acquire 47,203
shares of Series D preferred stock, in exchange for all of the issued and
outstanding capital stock and options to purchase common stock of FirstFloor.
(i) From September 4, 1998 through September 23, 1998, we sold an aggregate of
2,687,580 shares of Series E preferred stock to 25 private investors at a price
of $4.558 per share for a total offering price of $12,250,023.
(j) On March 5, 1999, we sold an aggregate of 1,052,632 shares of common stock
to one investor at a price of $9.50 per share for a total purchase price of
$10,000,008.75.
There were no underwriters employed in connection with any of the transactions
set forth in Item 15.
The issuances of securities described in Items 15(a) and 15(d) through 15(g) and
15(i) through 15(j) were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act as transactions
by an issuer not involving a public offering. The issuance of securities
described in Item 15(h) was deemed to be exempt from registration under the
Securities Act in reliance on Section 3(a)(10) as a transaction involving a
security which is issued in exchange for a security where the terms and
conditions of such securities are approved after a hearing on the fairness of
such terms and conditions. The issuances of securities described in Items 15(b)
and 15(c) were deemed to be exempt from registration under the Securities Act in
reliance on Section 4(2) or Rule 701 promulgated thereunder as transactions
pursuant to compensatory benefit plans and contracts relating to compensation.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any
II-2
<PAGE> 120
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about us or had access, through employment
or other relationships, to this information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1** Form of Underwriting Agreement
2.1** Agreement and Plan of Reorganization dated as of June 23,
1998 by and among Calico Technology, Inc., Calico
Acquisition Corporation, FirstFloor Software, Inc.,
Certain Shareholders of FirstFloor Software, Inc., and
Certain Shareholders of Calico Technology, Inc.
2.2* Form of Agreement and Plan of Merger between Calico
Technology, Inc., a California corporation, and Calico
Commerce, Inc., a Delaware corporation
3.1 Certificate of Incorporation
3.2 Bylaws
3.3* Form of Certificate of Retirement and Certificate of
Amendment
4.1 Form of Registrant's Specimen Common Stock Certificate
5.1* Opinion of Gray Cary Ware & Freidenrich
10.1** Sublease Agreement dated July 31, 1998 by and between Adobe
Systems Inc. and Calico Technology, Inc.
10.2* 1997 Stock Option Plan and forms of agreements thereunder
10.3** 1995 Stock Option Plan and forms of agreements thereunder
10.4 1999 Employee Stock Purchase Plan
10.5 Form of Indemnity Agreement for directors and officers
10.6** Investors' Rights Agreement, dated as of May 26, 1995, as
amended, among Calico Technology, Inc. William G. Paseman,
and the persons identified on the schedules attached
thereto
10.7 Loan Agreement dated as of January 21, 1997, between Calico
Technology, Inc. and Venture Lending and Leasing, Inc.
10.8 Four Variable Rate Installment Notes between Calico
Technology, Inc. and Comerica Bank -- California
21.1** List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3* Consent of Counsel (included in Exhibit 5.1)
24.1** Power of Attorney (see page II-5 of the Registration
Statement)
27.1** Financial Data Schedule (in EDGAR format only)
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information required to
be set forth therein is not applicable or is shown in the financial statements
or notes thereto.
ITEM 17. UNDERTAKINGS
We hereby undertake to provide to the underwriters at the closing specified
in the Underwriting Agreement certificates in the denominations and registered
in the names as required by the underwriters to permit prompt delivery to each
purchaser.
II-3
<PAGE> 121
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the provisions referenced in Item 14 of this registration statement or
otherwise, we have 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 us
of expenses incurred or paid by our directors, officers or controlling persons
in the successful defense of any action, suit or proceeding, is asserted by the
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our 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.
We hereby undertake 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 us 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 the time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE> 122
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, County of Santa
Clara, State of California, on the 25th day of August 1999.
CALICO COMMERCE, INC.
By: /s/ ALAN P. NAUMANN
------------------------------
Alan P. Naumann
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ALAN P. NAUMANN President, Chief August 25, 1999
- ----------------------------------------------------- Executive Officer and
Alan P. Naumann Director (Principal
Executive Officer)
/s/ ARTHUR F. KNAPP, JR. Vice President and Chief August 25, 1999
- ----------------------------------------------------- Financial Officer
Arthur F. Knapp, Jr. (Principal Financial and
Accounting Officer)
/s/ WILLIAM G. PASEMAN* Chairman of the Board August 25, 1999
- -----------------------------------------------------
William Paseman
/s/ BERNARD J. LACROUTE* Director August 25, 1999
- -----------------------------------------------------
Bernard J. Lacroute
/s/ WILLIAM D. UNGER* Director August 25, 1999
- -----------------------------------------------------
William D. Unger
*By: /s/ ARTHUR F. KNAPP, JR.
------------------------------------------------
Arthur F. Knapp, Jr.
Attorney-in-fact
</TABLE>
II-5
<PAGE> 123
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1** Form of Underwriting Agreement
2.1** Agreement and Plan of Reorganization dated as of June 23,
1998 by and among Calico Technology, Inc., Calico
Acquisition Corporation, FirstFloor Software, Inc.,
Certain Shareholders of FirstFloor Software, Inc., and
Certain Shareholders of Calico Technology, Inc.
2.2* Form of Agreement and Plan of Merger between Calico
Technology, Inc., a California corporation, and Calico
Commerce, Inc., a Delaware corporation
3.1 Certificate of Incorporation
3.2 Bylaws
3.3* Forms of Certificate of Retirement and Certificate of
Amendment
4.1 Form of Registrant's Specimen Common Stock Certificate
5.1* Opinion of Gray Cary Ware & Freidenrich
10.1** Sublease Agreement dated July 31, 1998 by and between Adobe
Systems Inc. and Calico Technology, Inc.
10.2* 1997 Stock Option Plan and forms of agreements thereunder
10.3** 1995 Stock Option Plan and forms of agreements thereunder
10.4 1999 Employee Stock Purchase Plan
10.5 Form of Indemnity Agreement for directors and officers
10.6** Investors' Rights Agreement, dated as of May 26, 1995, as
amended, among Calico Technology, Inc. William G. Paseman,
and the persons identified on the schedules attached
thereto
10.7 Loan Agreement dated as of January 21, 1997, between Calico
Technology, Inc. and Venture Lending and Leasing, Inc.
10.8 Four Variable Rate Installment Notes between Calico
Technology, Inc. and Comerica Bank -- California
21.1** List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3* Consent of Counsel (included in Exhibit 5.1)
24.1** Power of Attorney (see page II-5 of the Registration
Statement)
27.1** Financial Data Schedule (in EDGAR format only)
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CALICO COMMERCE, INC.
FIRST: The name of this corporation is Calico Commerce, Inc.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Incorporating Services, Ltd., 15 East North Street, in the
City of Dover, County of Kent. The name of the registered agent at that address
is Incorporating Services, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is One Thousand (1,000) shares of Common Stock, par
value $0.001 per share (the "Common Stock").
FIFTH: The name and mailing address of the incorporator is:
Lynn Rooke
c/o Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
SIXTH: The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by Statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation. Election of directors need not be by
written ballot
<PAGE> 2
unless the Bylaws so provide.
SEVENTH: The Board of Directors is authorized to make, adopt, amend,
alter or repeal the Bylaws of the Corporation. The stockholders shall also have
power to make, adopt, amend, alter or repeal the Bylaws of the Corporation.
EIGHTH: This Corporation reserves the right to amend or repeal any of
the provisions contained in this Certificate of Incorporation in any manner now
or hereafter permitted by law, and the rights of the stockholders of this
Corporation are granted subject to this reservation.
NINTH: To the fullest extent permitted by the Delaware General
Corporation Law, a director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Any repeal or modification of the foregoing provisions of
this Article NINTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereto set my hand this ___ day of February, 1999.
_________________________
Lynn Rooke
<PAGE> 3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CALICO COMMERCE, INC.
I, Joseph Moran, the Vice President and Chief Financial Officer of
Calico Commerce, Inc., a Delaware corporation (the "Corporation"), hereby
certify:
1. That the Corporation's Board of Directors has duly adopted the
following resolutions:
RESOLVED, that Article First of the Certificate of Incorporation is hereby
amended to read in full as follows:
FIRST: The name of this corporation is Delaware Calico Commerce, Inc.
(hereinafter sometimes referred to as the "Corporation").
2. That the proposed amendment has been duly adopted by the Corporation's
Board of Directors and sole stockholder in accordance with the provisions of
Sections 242 and 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation to be signed by a duly authorized
officer on this 19th day of June, 1999.
CALICO COMMERCE, INC.
By:
Joseph Moran, Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 3.2
================================================================================
BYLAWS
OF
DELAWARE CALICO COMMERCE, INC.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I STOCKHOLDERS..................................................................................1
Section 1.1 Annual Meeting.........................................................................1
Section 1.2 Special Meetings.......................................................................1
Section 1.3 Notice of Meetings.....................................................................1
Section 1.4 Quorum.................................................................................1
Section 1.5 Conduct of the Stockholders' Meeting...................................................2
Section 1.6 Conduct of Business....................................................................2
Section 1.7 Notice of Stockholder Business.........................................................2
Section 1.8 Proxies and Voting.....................................................................3
Section 1.9 Stock List.............................................................................3
ARTICLE II BOARD OF DIRECTORS............................................................................4
Section 2.1 Number and Term of Office..............................................................4
Section 2.2 Vacancies and Newly Created Directorships..............................................4
Section 2.3 Removal................................................................................4
Section 2.4 Regular Meetings.......................................................................4
Section 2.5 Special Meetings.......................................................................5
Section 2.6 Quorum.................................................................................5
Section 2.7 Participation in Meetings by Conference Telephone......................................5
Section 2.8 Conduct of Business....................................................................5
Section 2.9 Powers.................................................................................5
Section 2.10 Compensation of Directors..............................................................6
Section 2.11 Nomination of Director Candidates......................................................6
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE III COMMITTEES....................................................................................7
Section 3.1 Committees of the Board of Directors...................................................7
Section 3.2 Conduct of Business....................................................................7
ARTICLE IV OFFICERS......................................................................................8
Section 4.1 Generally..............................................................................8
Section 4.2 Chairman of the Board..................................................................8
Section 4.3 President..............................................................................8
Section 4.4 Vice President.........................................................................8
Section 4.5 Chief Financial Officer................................................................8
Section 4.6 Secretary..............................................................................9
Section 4.7 Delegation of Authority................................................................9
Section 4.8 Removal................................................................................9
Section 4.9 Action With Respect to Securities of Other Corporations................................9
ARTICLE V STOCK.........................................................................................9
Section 5.1 Certificates of Stock..................................................................9
Section 5.2 Transfers of Stock.....................................................................9
Section 5.3 Record Date............................................................................9
Section 5.4 Lost, Stolen or Destroyed Certificates................................................10
Section 5.5 Regulations...........................................................................10
ARTICLE VI NOTICES......................................................................................10
Section 6.1 Notices...............................................................................10
Section 6.2 Waivers...............................................................................10
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VII MISCELLANEOUS................................................................................10
Section 7.1 Facsimile Signatures..................................................................10
Section 7.2 Corporate Seal........................................................................10
Section 7.3 Reliance Upon Books, Reports and Records..............................................11
Section 7.4 Fiscal Year...........................................................................11
Section 7.5 Time Periods..........................................................................11
ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS....................................................11
Section 8.1 Right to Indemnification..............................................................11
Section 8.2 Right of Claimant to Bring Suit.......................................................12
Section 8.3 Non-Exclusivity of Rights.............................................................12
Section 8.4 Indemnification Contracts.............................................................12
Section 8.5 Insurance.............................................................................12
Section 8.6 Effect of Amendment...................................................................13
ARTICLE IX AMENDMENTS...................................................................................13
Section 9.1 Amendment of Bylaws...................................................................13
</TABLE>
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DELAWARE CALICO COMMERCE, INC.
A DELAWARE CORPORATION
BYLAWS
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
Section 1.2 Special Meetings. Special meetings of the stockholders, for
any purpose or purposes prescribed in the notice of the meeting, may be called
only (i) by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exists any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption) or (ii) by the
holders of not less than 10% of all shares entitled to cast votes at the
meeting, voting together as a single class and shall be held at such place, on
such date, and at such time as they shall fix. Business transacted at special
meetings shall be confined to the purpose or purposes stated in the notice.
Section 1.3 Notice of Meetings. Written notice of the place, date, and
time of all meetings of the stockholders shall be given, not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 1.4 Quorum. At any meeting of the stockholders, the holders of
a majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all purposes,
unless or except to the extent that the presence of a larger number may be
required by law.
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If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 1.5 Conduct of the Stockholders' Meeting. At every meeting of
the stockholders, the Chairman, if there is such an officer, or if not, the
President of the Corporation, or in his absence the Vice President designated by
the President, or in the absence of such designation any Vice President, or in
the absence of the President or any Vice President, a chairman chosen by the
majority of the voting shares represented in person or by proxy, shall act as
Chairman. The Secretary of the Corporation or a person designated by the
Chairman shall act as Secretary of the meeting. Unless otherwise approved by the
Chairman, attendance at the stockholders' meeting is restricted to stockholders
of record, persons authorized in accordance with Section 8 of these Bylaws to
act by proxy, and officers of the Corporation.
Section 1.6 Conduct of Business. The Chairman shall call the meeting to
order, establish the agenda, and conduct the business of the meeting in
accordance therewith or, at the Chairman's discretion, it may be conducted
otherwise in accordance with the wishes of the stockholders in attendance. The
date and time of the opening and closing of the polls for each matter upon which
the stockholders will vote at the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule
on the precedence of and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.6 and
Section 1.7, below. The Chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 1.6 and
Section 1.7, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
Section 1.7 Notice of Stockholder Business. At an annual or special
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before a
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
properly brought before the meeting by or at the direction of the Board of
Directors, (c) properly brought before an annual meeting by a stockholder, or
(d) properly brought before a special meeting by a
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stockholder, but if, and only if, the notice of a special meeting provides for
business to be brought before the meeting by stockholders. For business to be
properly brought before a meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder proposal to be presented at an annual meeting shall be
received at the Corporation's principal executive offices not less than 120
calendar days in advance of the date that the Corporation's (or the
Corporation's predecessor's) proxy statement was released to stockholders in
connection with the previous year's annual meeting of stockholders, except that
if no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, or in the event
of a special meeting, notice by the stockholder to be timely must be received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual or special meeting (a) a
brief description of the business desired to be brought before the annual or
special meeting and the reasons for conducting such business at the special
meeting, (b) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business.
Section 1.8 Proxies and Voting. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing or by a transmission permitted by law filed in
accordance with the procedure established for the meeting. No stockholder may
authorize more than one proxy for his shares.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his or her name on the record date for the
meeting, except as otherwise provided herein or required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast.
Section 1.9 Stock List. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in his or her name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) days prior to the meeting,
either at a place within
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the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting is
to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office. The number of directors shall be
five (5), and the number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). Upon the closing of the
first sale of the Corporation's common stock pursuant to a firmly underwritten
registered public offering (the "IPO"), the directors shall be divided into
three classes, with the term of office of the first class to expire at the first
annual meeting of stockholders held after the IPO, the term of office of the
second class to expire at the second annual meeting of stockholders held after
the IPO, the term of office of the third class to expire at the third annual
meeting of stockholders held after the IPO and thereafter for each such term to
expire at each third succeeding annual meeting of stockholders after such
election. A vacancy resulting from the removal of a director by the stockholders
as provided in Article II, Section 2.3 below may be filled at special meeting of
the stockholders held for that purpose. All directors shall hold office until
the expiration of the term for which elected and until their respective
successors are elected, except in the case of the death, resignation or removal
of any director.
Section 2.2 Vacancies and Newly Created Directorships. Subject to the
rights of the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification or other cause (other than removal
from office by a vote of the stockholders) may be filled only by a majority vote
of the directors then in office, though less than a quorum, and directors so
chosen shall hold office for a term expiring at the next annual meeting of
stockholders. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 2.3 Removal. Subject to the rights of holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, with or without cause, but
only by the affirmative vote of the holders of at least a majority of the voting
power of all of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. Vacancies in the Board of Directors resulting from such removal
may be filled by a majority of the directors then in office, though less than a
quorum, or by the stockholders as provided in Article II,
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Section 2.1 above. Directors so chosen shall hold office until the new annual
meeting of stockholders.
Section 2.4 Regular Meetings. Regular meetings of the Board of
Directors shall be held at such place or places, on such date or dates, and at
such time or times as shall have been established by the Board of Directors and
publicized among all directors. A notice of each regular meeting shall not be
required.
Section 2.5 Special Meetings. Special meetings of the Board of
Directors may be called by one-third of the directors then in office (rounded up
to the nearest whole number) or by the chief executive officer and shall be held
at such place, on such date, and at such time as they or he or she shall fix.
Notice of the place, date, and time of each such special meeting shall be given
each director by whom it is not waived by mailing written notice not fewer than
five (5) days before the meeting or by telegraphing or personally delivering the
same not fewer than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 2.6 Quorum. At any meeting of the Board of Directors, a
majority of the total number of authorized directors shall constitute a quorum
for all purposes. If a quorum shall fail to attend any meeting, a majority of
those present may adjourn the meeting to another place, date, or time, without
further notice or waiver thereof.
Section 2.7 Participation in Meetings by Conference Telephone. Members
of the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
Section 2.8 Conduct of Business. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the vote
of a majority of the directors present, except as otherwise provided herein or
requited by law. Action may be taken by the Board of Directors without a meeting
if all members thereof consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board of Directors.
Section 2.9 Powers. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(a) To declare dividends from time to time in accordance with law;
(b) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(c) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to
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do all things necessary in connection therewith;
(d) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(e) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(f) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(g) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and
(h) To adopt from time to time regulations, not inconsistent with
these bylaws, for the management of the Corporation's business and affairs.
Section 2.10 Compensation of Directors. Directors, as such, may
receive, pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
Section 2.11 Nomination of Director Candidates. Subject to the rights
of holders of any class or series of Preferred Stock then outstanding,
nominations for the election of Directors may be made by the Board of Directors
or a proxy committee appointed by the Board of Directors or by any stockholder
entitled to vote in the election of Directors generally. However, any
stockholder entitled to vote in the election of Directors generally may nominate
one or more persons for election as Directors at a meeting only if timely notice
of such stockholder's intent to make such nomination or nominations has been
given in writing to the Secretary of the Corporation. To be timely, a
stockholder nomination for a director to be elected at an annual meeting shall
be received at the Corporation's principal executive offices not less than 120
calendar days in advance of the date that the Corporation's (or the
Corporation's Predecessor's) Proxy statement was released to stockholders in
connection with the previous year's annual meeting of stockholders, except that
if no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, or in the event
of a nomination for director to be elected at a special meeting, notice by the
stockholders to be timely must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
special meeting was mailed or such public disclosure was made. Each such notice
shall set forth: (a) the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote for the election of Directors on the date of such
notice and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or
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persons) pursuant to which the nomination or nominations are to be made by the
stockholder; (d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a director of the Corporation if
so elected.
In the event that a person is validly designated as a nominee in
accordance with this Section 2.11 and shall thereafter become unable or
unwilling to stand for election to the Board of Directors, the Board of
Directors or the stockholder who proposed such nominee, as the case may be, may
designate a substitute nominee upon delivery, not fewer than five days prior to
the date of the meeting for the election of such nominee, of a written notice to
the Secretary setting forth such information regarding such substitute nominee
as would have been required to be delivered to the Secretary pursuant to this
Section 2.11 had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines
that a nomination of any candidate for election as a Director at such meeting
was not made in accordance with the applicable provisions of this Section 2.11,
such nomination shall be void; provided, however, that nothing in this Section
2.11 shall be deemed to limit any voting rights upon the occurrence of dividend
arrearages provided to holders of Preferred Stock pursuant to the Preferred
Stock designation for any series of Preferred Stock.
ARTICLE III
COMMITTEES
Section 3.1 Committees of the Board of Directors. The Board of
Directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and shall,
for those committees and any others provided for herein, elect a director or
directors to serve as the member or members, designating, if it desires, other
directors as alternate members who may replace any absent or disqualified member
at any meeting of the committee. Any committee so designated may exercise the
power and authority of the Board of Directors to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the Delaware General Corporation Law if the
resolution which designates the committee or a supplemental resolution of the
Board of Directors shall so provide. In the absence or disqualification of any
member of any committee and any alternate member in his place, the member or
members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 3.2 Conduct of Business. Each committee may determine the
procedural rules for meeting
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and conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third of the authorized members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
ARTICLE IV
OFFICERS
Section 4.1 Generally. The officers of the Corporation shall consist of
a President, one or more Vice Presidents, a Secretary and a Treasurer. The
Corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board and such other officers as may from time to time be
appointed by the Board of Directors. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. The Chairman of the Board, if there shall be such an officer, and the
President shall each be members of the Board of Directors. Any number of offices
may he held by the same person.
Section 4.2 Chairman of the Board. The Chairman of the Board, if there
shall be such an officer, shall, if present, preside at all meetings of the
Board of Directors, and exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors or prescribed by
these bylaws.
Section 4.3 President. The President shall be the chief executive
officer of the Corporation. Subject to the provisions of these bylaws and to the
direction of the Board of Directors, he or she shall have the responsibility for
the general management and control of the business and affairs of the
Corporation and shall perform all duties and have all powers which are commonly
incident to the office of chief executive or which are delegated to him or her
by the Board of Directors. He or she shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision and direction of all of the other
officers, employees and agents of the Corporation.
Section 4.4 Vice President. Each Vice President shall have such powers
and duties as may be delegated to him or her by the Board of Directors. One Vice
President shall be designated by the Board to perform the duties and exercise
the powers of the President in the event of the President's absence or
disability.
Section 4.5 Treasurer / Chief Financial Officer. The Treasurer/Chief
Financial Officer shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
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The Treasurer/Chief Financial Officer shall deposit all moneys and
other valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the President, the Chief Executive Officer, or the
directors, upon request, an account of all his or her transactions as
Treasurer/Chief Financial Officer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may be
prescribed by the Board of Directors or the Bylaws.
Section 4.6 Secretary. The Secretary shall issue all authorized notices
for, and shall keep, or cause to be kept, minutes of all meetings of the
stockholders, the Board of Directors, and all committees of the Board of
Directors. The Secretary shall have the authority to designate and appoint
assistant secretaries to assist in the administration and performance of his or
her duties. He or she shall have charge of the corporate books and shall perform
such other duties as the Board of Directors may from time to time prescribe.
Section 4.7 Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.8 Removal. Any officer of the Corporation may be removed at
any time, with or without cause, by the Board of Directors.
Section 4.9 Action With Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V
STOCK
Section 5.1 Certificates of Stock. Each stockholder shall be entitled
to a certificate signed by, or in the name of the Corporation by, the President
or a Vice President, and by the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer, certifying the number of shares owned by
him or her. Any of or all the signatures on the certificate may be facsimile.
Section 5.2 Transfers of Stock. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 4
of Article V of these bylaws, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
Section 5.3 Record Date. The Board of Directors may fix a record date,
which shall not be more than
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sixty (60) nor fewer than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for the other
action hereinafter described, as of which there shall be determined the
stockholders who are entitled: to notice of or to vote at any meeting of
stockholders or any adjournment thereof; to receive payment of any dividend or
other distribution or allotment of any rights; or to exercise any rights with
respect to any change, conversion or exchange of stock or with respect to any
other lawful action.
Section 5.4 Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5.5 Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
NOTICES
Section 6.1 Notices. Except as otherwise specifically provided herein
or required by law, all notices required to be given to any stockholder,
director, officer, employee or agent shall be in writing and may in every
instance be effectively given by hand delivery to the recipient thereof, by
depositing such notice in the mails, postage paid, or by sending such notice by
prepaid telegram, mailgram, telecopy or commercial courier service. Any such
notice shall be addressed to such stockholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice shall be deemed to be given shall be the
time such notice is received by such stockholder, director, officer, employee or
agent, or by any person accepting such notice on behalf of such person, if hand
delivered, or the time such notice is dispatched, if delivered through the mails
or be telegram or mailgram.
Section 6.2 Waivers. A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Facsimile Signatures. In addition to the provisions for use
of facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 7.2 Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name
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of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 7.3 Reliance Upon Books, Reports and Records. Each director,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
Section 7.4 Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
Section 7.5 Time Periods. In applying any provision of these bylaws
which require that an act be done or not done a specified number of days prior
to an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1 Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, or of a Partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer or employee, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by Delaware Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said Law permitted the Corporation
to provide prior to such amendment) against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties,
amounts paid or to be paid in settlement and amounts expended in seeking
indemnification granted to such person under applicable law, this bylaw or any
agreement with the Corporation) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in Section 8.2 of this Article VIII, the Corporation
shall indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the
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<PAGE> 16
action, suit or proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation, (c) such indemnification is provided by the
Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Delaware General Corporation Law, or (d) the action, suit
or proceeding (or part thereof) is brought to establish or enforce a right to
indemnification under an indemnity agreement or any other statute or law or
otherwise as required under Section 145 of the Delaware General Corporation Law.
Such right shall be a contract right and shall include the right to be paid by
the Corporation expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, unless the Delaware General
Corporation Law then so prohibits, the payment of such expenses incurred by a
director or officer of the Corporation in his or her capacity as a director or
officer (and not in any other capacity in which service was or is tendered by
such person while a director or officer, including, without limitation. service
to an employee benefit plan) in advance of the final disposition of such
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it should be determined ultimately that such director or officer
is not entitled to be indemnified under this Section or otherwise.
Section 8.2 Right of Claimant to Bring Suit. If a claim under Section
8.1 of this Article VIII is not paid in full by the Corporation within ninety
(90) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if such suit is not frivolous or
brought in bad faith, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. The burden of proving such claim shall be on the
claimant. It shall be a defense to any such action (other then an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any, has been
tendered to this Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
Section 8.3 Non-Exclusivity of Rights. The rights conferred on any
person in Sections 8.1 and 8.2 shall not be exclusive of any other right which
such persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 8.4 Indemnification Contracts. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing
-13-
<PAGE> 17
for indemnification rights equivalent to or, if the Board of Directors so
determines, greater than, those provided for in this Article VIII.
Section 8.5 Insurance. The Corporation shall maintain insurance to the
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
Section 8.6 Effect of Amendment. Any amendment, repeal or modification
of any provision of this Article VIII by the stockholders and the directors of
the Corporation shall not adversely affect any right or protection of a director
or officer of the Corporation existing at the time of such amendment, repeal or
modification.
ARTICLE IX
AMENDMENTS
Section 9.1 Amendment of Bylaws. The Board of Directors is expressly
empowered to adopt, amend or repeal Bylaws of the Corporation. Any adoption,
amendment or repeal of Bylaws of the Corporation by the Board of Directors shall
require the approval of a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any resolution providing for adoption, amendment or repeal is
presented to the Board). The stockholders shall also have power to adopt, amend
or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of
Bylaws of the Corporation by the stockholders shall require, in addition to any
vote of the holders of any class or series of stock of the Corporation required
by law or by the Certificate of Incorporation, the affirmative vote of the
holders of at least sixty-six and two thirds percent (66-2/3%) of the voting
power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
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<PAGE> 18
CERTIFICATE OF SECRETARY
I hereby certify that I am the duly elected and acting Secretary of
Delaware Calico Commerce, Inc., a Delaware corporation (the "Corporation"), and
that the foregoing Bylaws, comprising thirteen (13) pages, constitute the Bylaws
of the Corporation as duly adopted by unanimous written consent of the Board of
Directors of the Corporation on February __, 1999.
IN WITNESS WHEREOF, I have hereunto subscribed my name on
_______________, 1999.
Arthur F Knapp, Jr., Secretary
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<PAGE> 1
EXHIBIT 4.1
NUMBER SHARES
- ---------- ----------
CLC
- ---------- ----------
[logo]
CALICO(TM)
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN SEE REVERSE FOR
BOSTON, MA OR NEW YORK, NY CERTAIN DEFINITIONS
CUSIP
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $0.001 PAR VALUE, OF
CALICO COMMERCE, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
---------------------
Calico Commerce, Inc.
INCORPORATED
SEAL
APRIL 14,
1994
* DELAWARE *
---------------------
[illegible signature] [illegible signature]
- --------------------- ---------------------
VICE PRESIDENT, CHIEF PRESIDENT AND CHIEF
FINANCIAL OFFICER AND EXECUTIVE OFFICER
SECRETARY
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY [illegible signature]
------------------------------------
AUTHORIZED SIGNATURE
<PAGE> 2
CALICO COMMERCE, INC.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the series and the
designations thereof, may be obtained by the holder hereof upon request and
without charge from the Corporation at its principal office.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties ------------ ------------
JT TEN -- as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts to Minors
tenants in common Act
------------------------------
(State)
UNIF TRF MIN ACT -- Custodian (until age )
----------
(Cust)
under Uniform Transfers
----------
(Minor)
to Minors Act
--------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
----------------------------------------------
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
-------------------------------
X
---------------------------------------
X
---------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
-------------------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.4
CALICO COMMERCE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. This 1999 Employee Stock Purchase Plan
(the "PLAN") is hereby established effective as of the effective date of the
initial registration by the Company of its Stock under Section 12 of the
Securities Exchange Act of 1934, as amended (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of Company and its shareholders by providing an incentive to attract,
retain and reward Eligible Employees of the Participating Company Group and by
motivating such persons to contribute to the growth and profitability of the
Participating Company Group. The Plan provides such Eligible Employees with an
opportunity to acquire a proprietary interest in the Company through the
purchase of Stock. The Company intends that the Plan qualify as an "employee
stock purchase plan" under Section 423 of the Code.
1.3 TERM OF PLAN. The Plan shall continue in effect until
the earlier of its termination by the Board or the date on which all of the
shares of Stock available for issuance under the Plan have been issued.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the Plan
but defined for purposes of Section 423 of the Code shall have the same
definition herein. Whenever used herein, the following terms shall have their
respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified by
the Board. Unless the powers of the Committee have been specifically limited,
the Committee shall have all of the powers of the Board granted herein,
including, without limitation, the power to amend or terminate the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law.
(d) "COMPANY" means Calico Commerce, Inc., a
California corporation, or any successor corporation thereto.
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<PAGE> 2
(e) "COMPENSATION" means, with respect to any
Offering Period, base wages or salary and overtime paid in cash during such
Offering Period before deduction for any contributions to any plan maintained by
a Participating Company and described in Section 401(k) or Section 125 of the
Code. Compensation shall not include commissions, bonuses, reimbursements of
expenses, allowances, long-term disability, workers' compensation or any amount
deemed received without the actual transfer of cash or any amounts directly or
indirectly paid pursuant to the Plan or any other stock purchase or stock option
plan, or any other compensation not included in the preceding sentence.
(f) "ELIGIBLE EMPLOYEE" means an Employee who meets
the requirements set forth in Section 5 for eligibility to participate in the
Plan.
(g) "EMPLOYEE" means a person treated as an employee
of a Participating Company for purposes of Section 423 of the Code. A
Participant shall be deemed to have ceased to be an Employee either upon an
actual termination of employment or upon the corporation employing the
Participant ceasing to be a Participating Company. For purposes of the Plan, an
individual shall not be deemed to have ceased to be an Employee while such
individual is on any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event an
individual's leave of absence exceeds ninety (90) days, the individual shall be
deemed to have ceased to be an Employee on the ninety-first (91st) day of such
leave unless the individual's right to reemployment with the Participating
Company Group is guaranteed either by statute or by contract. The Company shall
determine in good faith and in the exercise of its discretion whether an
individual has become or has ceased to be an Employee and the effective date of
such individual's employment or termination of employment, as the case may be.
For purposes of an individual's participation in or other rights, if any, under
the Plan as of the time of the Company's determination, all such determinations
by the Company shall be final, binding and conclusive, notwithstanding that the
Company or any governmental agency subsequently makes a contrary determination.
(h) "ENTRY DATE" means (i) the Offering Date of an
Offering Period, or (ii) with respect to persons who first become Eligible
Employees after the commencement of the Initial Offering Period (as defined in
Section 6.1 below) but prior to the commencement of the final Purchase Period of
the Initial Offering Period, the first day of the Purchase Period following the
date on which such person becomes an Eligible Employee. Notwithstanding the
foregoing, in the event that the Fair Market Value of a share of Stock on the
first, second or third Purchase Date of the Initial Offering Period is less than
the Fair Market Value of a share of Stock on the Entry Date for a Participant
who was participating in the Offering as of such Purchase Date, the Entry Date
for such Participant for the remainder of the Offering shall be the first day of
the Purchase Period following such Purchase Date.
(i) "FAIR MARKET VALUE" means, as of any date, if
there is then a public market for the Stock, the closing price of a share of
Stock (or the mean of the closing bid and asked prices if the Stock is so quoted
instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap Market or
such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in The Wall Street
Journal or such other source as the Company deems reliable. If the relevant date
does not fall on a day on
2
<PAGE> 3
which the Stock has traded on such securities exchange or market system, the
date on which the Fair Market Value shall be established shall be the last day
on which the Stock was so traded prior to the relevant date, or such other
appropriate day as shall be determined by the Board, in its discretion. If, as
of any date, there is then no public market for the Stock, the Fair Market Value
on any relevant date shall be as determined by the Board. Notwithstanding the
foregoing, the Fair Market Value per share of Stock on the Effective Date shall
be deemed to be the public offering price set forth in the final prospectus
filed with the Securities and Exchange Commission in connection with the initial
public offering of the Stock.
(j) "OFFERING" means an offering of Stock as
provided in Section 6.
(k) "OFFERING DATE" means, for any Offering, the
first day of the Offering Period with respect to such Offering.
(l) "OFFERING PERIOD" means a period established in
accordance with Section 6.1.
(m) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(n) "PARTICIPANT" means an Eligible Employee who has
become a participant in an Offering Period in accordance with Section 7 and
remains a participant in accordance with the Plan.
(o) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation designated by the Board as a
corporation the Employees of which may, if Eligible Employees, participate in
the Plan. The Board shall have the sole and absolute discretion to determine
from time to time which Parent Corporations or Subsidiary Corporations shall be
Participating Companies.
(p) "PARTICIPATING COMPANY GROUP" means, at any
point in time, the Company and all other corporations collectively which are
then Participating Companies.
(q) "PURCHASE DATE" means, for any Purchase Period,
the last day of such period.
(r) "PURCHASE PERIOD" means a period established in
accordance with Section 6.2.
(s) "PURCHASE PRICE" means the price at which a
share of Stock may be purchased under the Plan, as determined in accordance with
Section 9.
(t) "PURCHASE RIGHT" means an option granted to a
Participant pursuant to the Plan to purchase such shares of Stock as provided in
Section 8, which the Participant may or may not exercise during the Offering
Period in which such option is outstanding. Such option arises from the right of
a Participant to withdraw any accumulated
3
<PAGE> 4
payroll deductions of the Participant not previously applied to the purchase of
Stock under the Plan and to terminate participation in the Plan at any time
during an Offering Period.
(u) "STOCK" means the common stock of the Company,
as adjusted from time to time in accordance with Section 4.2.
(v) "SUBSCRIPTION AGREEMENT" means a written
agreement in such form as specified by the Company, stating an Employee's
election to participate in the Plan and authorizing payroll deductions under the
Plan from the Employee's Compensation.
(w) "SUBSCRIPTION DATE" means the last business day
prior to an Entry Date or such other date as the Company shall establish.
(x) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are
for convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board. All questions of interpretation of the Plan, of any
form of agreement or other document employed by the Company in the
administration of the Plan, or of any Purchase Right shall be determined by the
Board and shall be final and binding upon all persons having an interest in the
Plan or the Purchase Right. Subject to the provisions of the Plan, the Board
shall determine all of the relevant terms and conditions of Purchase Rights
granted pursuant to the Plan; provided, however, that all Participants granted
Purchase Rights pursuant to the Plan shall have the same rights and privileges
within the meaning of Section 423(b)(5) of the Code. All expenses incurred in
connection with the administration of the Plan shall be paid by the Company.
3.2 AUTHORITY OF OFFICERS. Any officer of the Company shall
have the authority to act on behalf of the Company with respect to any matter,
right, obligation, determination or election that is the responsibility of or
that is allocated to the Company herein, provided that the officer has apparent
authority with respect to such matter, right, obligation, determination or
election.
3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY. The
Company may, from time to time, consistent with the Plan and the requirements of
Section 423 of the Code, establish, change or terminate such rules, guidelines,
policies, procedures, limitations, or adjustments as deemed advisable by the
Company, in its sole discretion, for the proper administration of the Plan,
including, without limitation, (a) a minimum payroll deduction amount required
for participation in an Offering, (b) a limitation on the frequency or number of
4
<PAGE> 5
changes permitted in the rate of payroll deduction during an Offering, (c) an
exchange ratio applicable to amounts withheld in a currency other than United
States dollars, (d) a payroll deduction greater than or less than the amount
designated by a Participant in order to adjust for the Company's delay or
mistake in processing a Subscription Agreement or in otherwise effecting a
Participant's election under the Plan or as advisable to comply with the
requirements of Section 423 of the Code, and (e) determination of the date and
manner by which the Fair Market Value of a share of Stock is determined for
purposes of administration of the Plan.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be five hundred thousand (500,000) and shall
consist of authorized but unissued or reacquired shares of Stock, or any
combination thereof. If an outstanding Purchase Right for any reason expires or
is terminated or canceled, the shares of Stock allocable to the unexercised
portion of such Purchase Right shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the
event of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, or in the event of any merger (including a merger effected for the
purpose of changing the Company's domicile), sale of assets or other
reorganization in which the Company is a party, appropriate adjustments shall be
made in the number and class of shares subject to the Plan and each Purchase
Right and in the Purchase Price. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Purchase Rights are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the
Board may unilaterally amend the outstanding Purchase Rights to provide that
such Purchase Rights are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the Purchase Price of, the
outstanding Purchase Rights shall be adjusted in a fair and equitable manner, as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded down to the nearest whole number, and in no event may the
Purchase Price be decreased to an amount less than the par value, if any, of the
stock subject to the Purchase Right. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Each Employee of a
Participating Company is eligible to participate in the Plan and shall be deemed
an Eligible Employee, except the following:
(a) Any Employee who is customarily employed by the
Participating Company Group for less than twenty (20) hours per week; or
(b) Any Employee who is customarily employed by the
Participating
5
<PAGE> 6
Company Group for not more than five (5) months in any calendar year.
5.2 EXCLUSION OF CERTAIN SHAREHOLDERS. Notwithstanding any
provision of the Plan to the contrary, no Employee shall be granted a Purchase
Right under the Plan if, immediately after such grant, such Employee would own
or hold options to purchase stock of the Company or of any Parent Corporation or
Subsidiary Corporation possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of such corporation, as
determined in accordance with Section 423(b)(3) of the Code. For purposes of
this Section 5.2, the attribution rules of Section 424(d) of the Code shall
apply in determining the stock ownership of such Employee.
6. OFFERINGS.
6.1 OFFERING PERIODS.
(a) INITIAL OFFERING PERIOD. The Plan shall be
implemented by sequential Offerings (an "OFFERING PERIOD"). The first Offering
Period shall commence on the Effective Date and end on October 31, 2001 (the
"INITIAL OFFERING PERIOD").
(b) SUBSEQUENT OFFERING PERIODS. After the
completion of the Initial Offering Period, subsequent Offerings shall commence
on the first day of May and November of each year and end on the last day of
April and October, respectively, occurring thereafter, and will have a duration
of approximately twelve (12) months duration.
6.2 PURCHASE PERIODS. The Initial Offering Period shall
consist of (4) consecutive Purchase Periods of approximately six (6) months
duration and subsequent Offering Periods shall consist of two (2) consecutive
Purchase Periods of approximately six (6) months duration. Purchase Periods
shall generally commence on the first day of May and November and end on the
last day of October and April, respectively, occurring thereafter. The Purchase
Period commencing on the Effective Date shall end on April 30, 2000.
6.3 GENERAL. Notwithstanding the foregoing, the Board may
establish a different duration for one or more Offering Periods or Purchase
Periods or different commencing or ending dates for such periods; provided,
however, that no Offering Period may have a duration exceeding twenty-seven (27)
months. If the first or last day of an Offering Period or a Purchase Period is
not a day on which the national securities exchanges or Nasdaq Stock Market are
open for trading, the Company shall specify the trading day that will be deemed
the first or last day, as the case may be, of the period.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee may become a
Participant in an Offering Period by delivering a properly completed
Subscription Agreement to the Company not later than the close of business for
such office on the Subscription Date established by the Company for the
applicable Entry Date. An Eligible Employee who does not deliver a properly
completed Subscription Agreement to the Company's designated office on or before
the
6
<PAGE> 7
Subscription Date shall not participate in that Offering Period or any
subsequent Offering Period unless such Eligible Employee subsequently delivers a
properly completed Subscription Agreement to the appropriate office of the
Company on or before the Subscription Date for such subsequent Offering Period.
An Employee who becomes an Eligible Employee after the Offering Date of an
Offering Period (other than the Initial Offering Period) shall not be eligible
to participate in such Offering Period but may participate in any subsequent
Offering Period provided such Employee is still an Eligible Employee as of the
Offering Date of such subsequent Offering Period.
7.2 CONTINUED PARTICIPATION. A Participant shall
automatically participate in the next Offering Period commencing immediately
after the final Purchase Date of each Offering Period in which the Participant
participates provided that such Participant remains an Eligible Employee on the
Offering Date of the new Offering Period and has not either (a) withdrawn from
the Plan pursuant to Section 12.1 or (b) terminated employment as provided in
Section 13. A Participant who may automatically participate in a subsequent
Offering Period, as provided in this Section, is not required to deliver any
additional Subscription Agreement for the subsequent Offering Period in order to
continue participation in the Plan. However, a Participant may deliver a new
Subscription Agreement for a subsequent Offering Period in accordance with the
procedures set forth in Section 7.1 if the Participant desires to change any of
the elections contained in the Participant's then effective Subscription
Agreement.
8. RIGHT TO PURCHASE SHARES.
8.1 GRANT OF PURCHASE RIGHT. Except as set forth below, on
the Offering Date of each Offering Period, each Participant in such Offering
Period shall be granted automatically, on his or her Entry Date, a Purchase
Right consisting of an option to purchase, on each Purchase Date within such
Offering Period, that number of whole shares of Stock determined by dividing the
aggregate payroll deductions collected from the Participant by the applicable
Purchase Price on such Purchase Date; provided, that no Participant may purchase
more than five hundred (500) shares of Stock on any Purchase Date.
8.2 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding any
provision of the Plan to the contrary, no Participant shall be granted a
Purchase Right which permits his or her right to purchase shares of Stock under
the Plan to accrue at a rate which, when aggregated with such Participant's
rights to purchase shares under all other employee stock purchase plans of a
Participating Company intended to meet the requirements of Section 423 of the
Code, exceeds Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or
such other limit, if any, as may be imposed by the Code) for each calendar year
in which such Purchase Right is outstanding at any time. For purposes of the
preceding sentence, the Fair Market Value of shares purchased during a given
Offering Period shall be determined as of the Entry Date for such Offering
Period. The limitation described in this Section shall be applied in conformance
with applicable regulations under Section 423(b)(8) of the Code.
8.3 AGGREGATE PURCHASE LIMITATION. Notwithstanding any
provision of the Plan to the contrary, in no event shall the aggregate number of
shares of Stock under the Plan to be purchased by all Participants on a Purchase
Date exceed one hundred thousand (100,000).
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The Board in its discretion may make any pro rata adjustment necessary to
effectuate this Section.
9. PURCHASE PRICE.
The Purchase Price at which each share of Stock may be acquired
in an Offering Period upon the exercise of all or any portion of a Purchase
Right shall be established by the Board; provided, however, that the Purchase
Price shall not be less than eighty-five percent (85%) of the lesser of (a) the
Fair Market Value of a share of Stock on the Participant's Entry Date of the
Offering Period or (b) the Fair Market Value of a share of Stock on the Purchase
Date. Unless otherwise provided by the Board prior to the commencement of an
Offering Period, the Purchase Price for that Offering Period shall be
eighty-five percent (85%) of the lesser of (a) the Fair Market Value of a share
of Stock on the Participant's Entry Date of the Offering Period, or (b) the Fair
Market Value of a share of Stock on the Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION.
Shares of Stock acquired pursuant to the exercise of all or any
portion of a Purchase Right may be paid for only by means of payroll deductions
from the Participant's Compensation accumulated during the Offering Period for
which such Purchase Right was granted, subject to the following:
10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise
provided herein, the amount to be deducted under the Plan from a Participant's
Compensation on each payday during an Offering Period (after the Participant's
Entry Date) shall be determined by the Participant's Subscription Agreement. The
Subscription Agreement shall set forth the percentage of the Participant's
Compensation to be deducted on each payday during an Offering Period (after the
Participant's Entry Date) in whole percentages of not less than one percent (1%)
(except as a result of an election pursuant to Section 10.3 to stop payroll
deductions made effective following the first payday during an Offering after
the Participant's Entry Date) or more than fifteen percent (15%).
Notwithstanding the foregoing, the Board may change the limits on payroll
deductions effective as of any future Offering Date.
10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions
shall commence on the first payday following the Entry Date and shall continue
to the end of the Offering Period unless sooner altered or terminated as
provided herein.
10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS. During an
Offering Period, a Participant may elect to increase or decrease the rate of or
to stop deductions from his or her Compensation by delivering to the Company an
amended Subscription Agreement authorizing such change on or before the "Change
Notice Date." The "CHANGE NOTICE DATE" shall be a date prior to the beginning of
the first pay period for which such election is to be effective as established
by the Company from time to time and announced to the Participants. A
Participant who elects to decrease the rate of his or her payroll deductions to
zero percent (0%) shall nevertheless remain a Participant in the current
Offering Period unless such Participant withdraws from the Plan as provided in
Section 12.1.
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10.4 ADMINISTRATIVE SUSPENSION OF PAYROLL DEDUCTIONS. The
Company may, in its sole discretion, suspend a Participant's payroll deductions
under the Plan as the Company deems advisable to avoid accumulating payroll
deductions in excess of the amount that could reasonably be anticipated to
purchase the maximum number of shares of Stock permitted during a calendar year
under the limit set forth in Section 8.2. Payroll deductions shall be resumed at
the rate specified in the Participant's then effective Subscription Agreement at
the beginning of the next Purchase Period the Purchase Date of which falls in
the following calendar year.
10.5 PARTICIPANT ACCOUNTS. Individual bookkeeping accounts
shall be maintained for each Participant. All payroll deductions from a
Participant's Compensation shall be credited to such Participant's Plan account
and shall be deposited with the general funds of the Company. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose.
10.6 NO INTEREST PAID. Interest shall not be paid on sums
deducted from a Participant's Compensation pursuant to the Plan.
10.7 VOLUNTARY WITHDRAWAL FROM PLAN ACCOUNT. A Participant
may withdraw all or any portion of the payroll deductions credited to his or her
Plan account and not previously applied toward the purchase of Stock by
delivering to the Company a written notice on a form provided by the Company for
such purpose. A Participant who withdraws the entire remaining balance credited
to his or her Plan account shall be deemed to have withdrawn from the Plan in
accordance with Section 12.1. Amounts withdrawn shall be returned to the
Participant as soon as practicable after the withdrawal and may not be applied
to the purchase of shares in any Offering under the Plan. The Company may from
time to time establish or change limitations on the frequency of withdrawals
permitted under this Section, establish a minimum dollar amount that must be
retained in the Participant's Plan account, or terminate the withdrawal right
provided by this Section.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date, each
Participant who has not withdrawn from the Plan and whose participation in the
Offering has not terminated before such Purchase Date shall automatically
acquire pursuant to the exercise of the Participant's Purchase Right the number
of whole shares of Stock determined by dividing (a) the total amount of the
Participant's payroll deductions accumulated in the Participant's Plan account
during the Purchase Period and not previously applied toward the purchase of
Stock by (b) the Purchase Price. No shares of Stock shall be purchased on a
Purchase Date on behalf of a Participant whose participation in the Offering or
the Plan has terminated before such Purchase Date.
11.2 PRO RATA ALLOCATION OF SHARES. In the event that the
number of shares of Stock which might be purchased by all Participants in the
Plan on a Purchase Date exceeds the number of shares of Stock available in the
Plan as provided in Section 4.1, the Company shall make a pro rata allocation of
the remaining shares in as uniform a manner as shall be practicable
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and as the Company shall determine to be equitable. Any fractional share
resulting from such pro rata allocation to any Participant shall be disregarded.
11.3 DELIVERY OF CERTIFICATES. As soon as practicable after
each Purchase Date, the Company shall arrange the delivery to each Participant,
as appropriate, of a certificate representing the shares acquired by the
Participant on such Purchase Date; provided that the Company may deliver such
shares to a broker that holds such shares in street name for the benefit of the
Participant. Shares to be delivered to a Participant under the Plan shall be
registered in the name of the Participant, or, if requested by the Participant,
in the name of the Participant and his or her spouse, or, if applicable, in the
names of the heirs of the Participant.
11.4 RETURN OF CASH BALANCE. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to the
Participant as soon as practicable after such Purchase Date. However, if the
cash to be returned to a Participant pursuant to the preceding sentence is an
amount less than the amount that would have been necessary to purchase an
additional whole share of Stock on such Purchase Date, the Company may retain
such amount in the Participant's Plan account to be applied toward the purchase
of shares of Stock in the subsequent Purchase Period or Offering Period, as the
case may be.
11.5 TAX WITHHOLDING. At the time a Participant's Purchase
Right is exercised, in whole or in part, or at the time a Participant disposes
of some or all of the shares of Stock he or she acquires under the Plan, the
Participant shall make adequate provision for the foreign, federal, state and
local tax withholding obligations of the Participating Company Group, if any,
which arise upon exercise of the Purchase Right or upon such disposition of
shares, respectively. The Participating Company Group may, but shall not be
obligated to, withhold from the Participant's compensation the amount necessary
to meet such withholding obligations.
11.6 EXPIRATION OF PURCHASE RIGHT. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the Offering
Period to which the Purchase Right relates shall expire immediately upon the end
of the Offering Period.
11.7 REPORTS TO PARTICIPANTS. Each Participant who has
exercised all or part of his or her Purchase Right shall receive, as soon as
practicable after the Purchase Date, a report of such Participant's Plan account
setting forth the total payroll deductions accumulated prior to such exercise,
the number of shares of Stock purchased, the Purchase Price for such shares, the
date of purchase and the cash balance, if any, remaining immediately after such
purchase that is to be refunded or retained in the Participant's Plan account
pursuant to Section 11.4. The report required by this Section may be delivered
in such form and by such means, including by electronic transmission, as the
Company may determine.
12. WITHDRAWAL FROM OFFERING OR PLAN.
12.1 VOLUNTARY WITHDRAWAL FROM THE PLAN. A Participant may
withdraw from the Plan by signing and delivering to the Company a written notice
of withdrawal on a form provided by the Company for such purpose. Such
withdrawal may be elected at any time prior to the end of an Offering Period;
provided, however, that if a Participant withdraws from the Plan
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after the Purchase Date of a Purchase Period, the withdrawal shall not affect
shares of Stock acquired by the Participant on such Purchase Date. A Participant
who voluntarily withdraws from the Plan is prohibited from resuming
participation in the Plan in the same Offering from which he or she withdrew,
but may participate in any subsequent Offering by again satisfying the
requirements of Sections 5 and 7.1. The Company may impose a requirement that
the notice of withdrawal from the Plan be on file with the Company for a
reasonable period prior to the effectiveness of the Participant's withdrawal.
12.2 AUTOMATIC WITHDRAWAL FROM AN OFFERING. With respect to
Offering Periods other than the Initial Offering Period, if the Fair Market
Value of a share of Stock on a Purchase Date (other than the final Purchase Date
of such offering) is less than the Fair Market Value of a share of Stock on the
Offering Date for such Offering Period, then every Participant shall
automatically be (a) withdrawn from such Offering Period after the acquisition
of shares of Stock on the Purchase Date and (b) enrolled in the new Offering
Period effective on its Offering Date, unless the Participant elects not to be
automatically withdrawn in a manner specified by the Company.
12.3 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's
voluntary withdrawal from the Plan pursuant to Sections 12.1 or automatic
withdrawal from an Offering pursuant to Section 12.2, the Participant's
accumulated payroll deductions which have not been applied toward the purchase
of shares of Stock (except, in the case of an automatic withdrawal pursuant to
Section 12.2, for an amount necessary to purchase an additional whole share as
provided in Section 11.4) shall be refunded to the Participant as soon as
practicable after the withdrawal, without the payment of any interest, and the
Participant's interest in the Plan or the Offering, as applicable, shall
terminate. Such accumulated payroll deductions to be refunded in accordance with
this Section may not be applied to any other Offering under the Plan.
13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY.
Upon a Participant's ceasing, prior to a Purchase Date, to be an
Employee of the Participating Company Group for any reason, including
retirement, disability or death, or the failure of a Participant to remain an
Eligible Employee, the Participant's participation in the Plan shall terminate
immediately. In such event, the payroll deductions credited to the Participant's
Plan account since the last Purchase Date shall, as soon as practicable, be
returned to the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned pursuant
to this Section 13. A Participant whose participation has been so terminated may
again become eligible to participate in the Plan by again satisfying the
requirements of Sections 5 and 7.1.
14. CHANGE IN CONTROL.
14.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company: (i)
the direct or indirect sale or
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exchange in a single or series of related transactions by the shareholders of
the Company of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a party; (iii) the sale,
exchange, or transfer of all or substantially all of the assets of the Company;
or (iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
14.2 EFFECT OF CHANGE IN CONTROL ON PURCHASE RIGHTS. In the
event of a Change in Control, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"ACQUIRING CORPORATION"), may assume the Company's rights and obligations under
the Plan. If the Acquiring Corporation elects not to assume the Company's rights
and obligations under outstanding Purchase Rights, the Purchase Date of the then
current Purchase Period shall be accelerated to a date before the date of the
Change in Control specified by the Board, but the number of shares of Stock
subject to outstanding Purchase Rights shall not be adjusted. All Purchase
Rights which are neither assumed by the Acquiring Corporation in connection with
the Change in Control nor exercised as of the date of the Change in Control
shall terminate and cease to be outstanding effective as of the date of the
Change in Control.
15. NONTRANSFERABILITY OF PURCHASE RIGHTS.
A Purchase Right may not be transferred in any manner otherwise
than by will or the laws of descent and distribution and shall be exercisable
during the lifetime of the Participant only by the Participant.
16. COMPLIANCE WITH SECURITIES LAW.
The issuance of shares under the Plan shall be subject to
compliance with all applicable requirements of federal, state and foreign law
with respect to such securities. A Purchase Right may not be exercised if the
issuance of shares upon such exercise would constitute a violation of any
applicable federal, state or foreign securities laws or other law or regulations
or the requirements of any securities exchange or market system upon which the
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Stock may then be listed. In addition, no Purchase Right may be exercised unless
(a) a registration statement under the Securities Act of 1933, as amended, shall
at the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Purchase
Right may be issued in accordance with the terms of an applicable exemption from
the registration requirements of said Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares under the Plan shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of a
Purchase Right, the Company may require the Participant to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation, and to make any representation or warranty
with respect thereto as may be requested by the Company.
17. RIGHTS AS A SHAREHOLDER AND EMPLOYEE.
A Participant shall have no rights as a shareholder by virtue of
the Participant's participation in the Plan until the date of the issuance of a
certificate for the shares purchased pursuant to the exercise of the
Participant's Purchase Right (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 4.2. Nothing herein shall confer upon a Participant any
right to continue in the employ of the Participating Company Group or interfere
in any way with any right of the Participating Company Group to terminate the
Participant's employment at any time.
18. LEGENDS.
The Company may at any time place legends or other identifying
symbols referencing any applicable federal, state or foreign securities law
restrictions or any provision convenient in the administration of the Plan on
some or all of the certificates representing shares of Stock issued under the
Plan. The Participant shall, at the request of the Company, promptly present to
the Company any and all certificates representing shares acquired pursuant to a
Purchase Right in the possession of the Participant in order to carry out the
provisions of this Section. Unless otherwise specified by the Company, legends
placed on such certificates may include but shall not be limited to the
following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION
TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK
PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY THE
CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED HOLDER
HEREOF. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN
THE REGISTERED HOLDER'S NAME
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(AND NOT IN THE NAME OF ANY NOMINEE)."
19. NOTIFICATION OF SALE OF SHARES.
The Company may require the Participant to give the Company
prompt notice of any disposition of shares acquired by exercise of a Purchase
Right within two (2) years from the date of granting such Purchase Right or one
(1) year from the date of exercise of such Purchase Right. The Company may
require that until such time as a Participant disposes of shares acquired upon
exercise of a Purchase Right, the Participant shall hold all such shares in the
Participant's name (or, if elected by the Participant, in the name of the
Participant and his or her spouse but not in the name of any nominee) until the
lapse of the time periods with respect to such Purchase Right referred to in the
preceding sentence. The Company may direct that the certificates evidencing
shares acquired by exercise of a Purchase Right refer to such requirement to
give prompt notice of disposition.
20. NOTICES.
All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. INDEMNIFICATION.
In addition to such other rights of indemnification as they may
have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
22. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may at any time amend or terminate the Plan, except
that (a) such termination shall not affect Purchase Rights previously granted
under the Plan, provided that the Board may terminate the Plan (and any Offering
thereunder) on any Purchase Date if the Board determines that such termination
is in the best interests of the Company and its stockholders
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except as permitted under the Plan, and (b) no amendment may adversely affect a
Purchase Right previously granted under the Plan (except to the extent permitted
by the Plan or as may be necessary to qualify the Plan as an employee stock
purchase plan pursuant to Section 423 of the Code or to obtain qualification or
registration of the shares of Stock under applicable federal, state or foreign
securities laws). In addition, an amendment to the Plan must be approved by the
shareholders of the Company within twelve (12) months of the adoption of such
amendment if such amendment would authorize the sale of more shares than are
authorized for issuance under the Plan or would change the definition of the
corporations that may be designated by the Board as Participating Companies. In
the event that the Board approves an amendment to increase the number of shares
authorized for issuance under the Plan (the "ADDITIONAL SHARES"), the Board, in
its sole discretion, may specify that such Additional Shares may only be issued
pursuant to Purchase Rights granted after the date on which the stockholders of
the Company approve such amendment, and such designation by the Board shall not
be deemed to have adversely affected any Purchase Right granted prior to the
date on which the stockholders approve the amendment.
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CALICO COMMERCE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
NAME (Please print):
------------------------------------------------------------
(Last) (First) (Middle)
ADDRESS:
------------------------------------------------------------------------
MY SOCIAL SECURITY NUMBER:
-------------------------------
[ ] Original Application for the Offering Period beginning
------------------
[ ] Change in Payroll Deduction rate effective
with the pay period ending
---------------------------------------------.
I hereby elect to participate in the 1999 Employee Stock Purchase Plan
(the "Plan") of Calico Commerce, Inc. (the "COMPANY") and subscribe to purchase
shares of the Company's Stock in accordance with this Subscription Agreement and
the Plan.
I hereby authorize payroll deductions in the amount of ________ percent
(in whole percentages not less than 1% or more than 15%) of my "COMPENSATION" on
each payday throughout the "OFFERING PERIOD" in accordance with the Plan. I
understand that these payroll deductions will be accumulated for the purchase of
shares of Stock at the applicable purchase price determined in accordance with
the Plan. I understand that, except as otherwise provided by the Plan, I will
automatically purchase shares on each Purchase Date under the Plan unless I
withdraw from the Plan by giving written notice on a form provided by the
Company or unless my employment terminates.
I understand that I will automatically participate in each subsequent
Offering that commences immediately after the last day of an Offering in which I
am participating until I withdraw from the Plan by giving written notice on a
form provided by the Company or my employment terminates.
Shares I purchase under the Plan should be issued in the name(s) set
forth below. (Shares may be issued in the participant's name alone or together
with the participant's spouse as community property or in joint tenancy.)
NAME(S):
----------------------------------------------------------------
[ ] In my name alone [ ] Community Property [ ] Joint Tenancy
I agree to make adequate provision for the federal, state, local and
foreign tax withholding obligations, if any, which may arise upon my purchase of
shares under the Plan and/or my disposition of such shares. The Company may, but
will not be obligated to, withhold from my compensation the amount necessary to
meet such withholding obligations.
I agree that while I hold shares acquired under the Plan, unless
otherwise permitted by the Company, I will hold such shares in the name(s)
entered above (and not in the name of any nominee) for at least two years from
the first day of the Offering Period in which, and at least one year from the
Purchase Date on which, I acquired such shares (this restriction only applies to
the name(s) in which shares are held and does not affect the ability to dispose
of Plan shares).
I AGREE THAT I WILL NOTIFY THE CHIEF FINANCIAL OFFICER OF THE COMPANY IN
WRITING WITHIN 30 DAYS AFTER ANY SALE, GIFT, TRANSFER OR OTHER DISPOSITION OF
ANY KIND PRIOR TO THE END OF THE PERIODS REFERRED TO IN THE PRECEDING PARAGRAPH
(A "DISQUALIFYING DISPOSITION") OF ANY SHARES I PURCHASED UNDER THE PLAN. I
FURTHER AGREE THAT IF I DO NOT RESPOND WITHIN 30 DAYS OF THE DATE OF A
DISQUALIFYING DISPOSITION SURVEY DELIVERED TO ME BY CERTIFIED MAIL, THE COMPANY
MAY TREAT MY NONRESPONSE AS MY NOTICE TO THE COMPANY OF A DISQUALIFYING
DISPOSITION AND MAY COMPUTE AND REPORT TO THE INTERNAL REVENUE SERVICE THE
ORDINARY INCOME I MUST RECOGNIZE UPON SUCH DISQUALIFYING DISPOSITION.
I am familiar with the provisions of the Plan and agree to participate
in the Plan subject to all of its provisions. I understand that the Board of
Directors of the Company reserves the right to terminate the Plan or to amend
the Plan and my right to purchase stock under the Plan to the extent provided by
the Plan. I understand that the effectiveness of this Subscription Agreement is
dependent upon my eligibility to participate in the Plan.
Date: Signature:
------------------------- ------------------------------
<PAGE> 17
CALICO COMMERCE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
NAME (Please print):
------------------------------------------------------------
(Last) (First) (Middle)
I hereby elect to withdraw from the Offering under Calico Commerce, Inc.
1999 Employee Stock Purchase Plan (the "PLAN") which began on
____________________________ and in which I am currently participating (the
"CURRENT OFFERING").
ELECT EITHER A OR B BELOW:
[ ] A. I elect to terminate immediately my participation in the Current
Offering and in the Plan.
I request that the Company cease all further payroll deductions
from my Compensation under the Plan (provided that I have given
sufficient notice prior to the next payday). I request that all
payroll deductions credited to my account under the Plan (if
any) not previously used to purchase shares under the Plan shall
not be used to purchase shares on the next Purchase Date of the
Current Offering. Instead, I request that all such amounts be
paid to me as soon as practicable. I understand that this
election immediately terminates my interest in the Current
Offering and in the Plan.
[ ] B. I elect to terminate my participation in the Current Offering
and in the Plan following my purchase of shares on next Purchase
Date of the Current Offering.
I request that the Company cease all further payroll deductions
from my Compensation under the Plan (provided that I have given
sufficient notice prior to the next payday). I request that all
payroll deductions credited to my account under the Plan (if
any) not previously used to purchase shares under the Plan shall
be used to purchase shares on the next Purchase Date of the
Current Offering to the extent permitted by the Plan. I
understand that this election will terminate my interest in the
Current Offering and in the Plan immediately following such
purchase. I request that any cash balance remaining in my
account under the Plan after my purchase of shares be paid to me
as soon as practicable.
I understand that by making this election I am terminating my interest
in the Plan and that no further payroll deductions will be made (provided that I
have given sufficient notice prior to the next payday) unless I elect in
accordance with the Plan to become a participant in another Offering under the
Plan by filing a new Subscription Agreement with the Company.
Date: Signature:
------------------------- ------------------------------
<PAGE> 1
EXHIBIT 10.5
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of __________, 1999, is made by and
between Calico Commerce, Inc., a Delaware corporation (the "Company"), and
__________________ (the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers
and agents and the directors, officers and agents of its subsidiaries to assume
the risk of huge judgments and other expenses which may occur in cases in which
the director, officer or agent received no personal profit and in cases where
the director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to encourage such individuals to take
the business risks necessary for the success of the Company
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and its subsidiaries, it is necessary for the Company to contractually indemnify
its directors, officers and agents and the directors, officers and agents of its
subsidiaries, and to assume for itself maximum liability for expenses and
damages in connection with claims against such directors, officers and agents in
connection with their service to the Company and its subsidiaries, and has
further concluded that the failure to provide such contractual indemnification
could result in great harm to the Company and its subsidiaries and the Company's
stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions.
(a) Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses" include
all out of pocket expenses costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or
2
<PAGE> 3
enforcing a right to indemnification under this Agreement or Section 145 or
otherwise; provided, however, that "expenses" shall not include any judgments,
fines, ERISA excise taxes or penalties, or amounts paid in settlement of a
proceeding.
(c) Proceeding. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or
continue to serve as agent of the Company, at its will (or under separate
agreement, if such agreement exists), in the capacity Indemnitee currently
serves as an agent of the Company, so long as he is duly appointed or elected
and qualified in accordance with the applicable provisions of the Bylaws of the
Company or any subsidiary of the Company or until such time as he tenders his
resignation in writing; provided, however, that nothing contained in this
Agreement is intended to create any right to continued employment by Indemnitee.
3. Liability Insurance.
(a) Maintenance of D&O Insurance. The Company hereby covenants
and agrees that, so long as the Indemnitee shall continue to serve as an agent
of the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
(b) Rights and Benefits. In all policies of D&O Insurance, the
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.
(c) Limitation on Required Maintenance of D&O Insurance.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
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<PAGE> 4
4. Mandatory Indemnification. Subject to Section 9 below, the
Company shall indemnify the Indemnitee as follows:
(a) Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.
(b) Third Party Actions. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(c) Derivative Actions. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding by or in the
right of the Company by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such capacity,
the Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 4(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction unless and only to the extent
that the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.
(d) Actions where Indemnitee is Deceased. If the Indemnitee is a
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.
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<PAGE> 5
(e) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) for which payment is actually
made to Indemnitee under a valid and collectible insurance policy of D&O
Insurance, or under a valid and enforceable indemnity clause, by-law or
agreement.
5. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8(a) below,
the Company shall advance all expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) In the event the Company shall be obligated to pay the
expenses of any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any fees
of counsel subsequently
5
<PAGE> 6
incurred by the Indemnitee with respect to the same proceeding, provided that
(i) the Indemnitee shall have the right to employ his counsel in any such
proceeding at the Indemnitee's expense; and (ii) if (A) the employment of
counsel by the Indemnitee has been previously authorized by the Company, (B) the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of any such
defense; or (C) the Company shall not, in fact, have employed counsel to assume
the defense of such proceeding, the fees and expenses of Indemnitee's counsel
shall be at the expense of the Company.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.
(b) Lack of Good Faith. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee under
this Agreement for any amounts paid in settlement of a proceeding unless the
Company consents to such settlement, which consent shall not be unreasonably
withheld.
9. Non-exclusivity. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or Bylaws, the vote of the
Company's stockholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
10. Enforcement. Any right to indemnification or advances granted by
this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a
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<PAGE> 7
claim for indemnification is made under this Agreement (other than an action
brought to enforce a claim for expenses pursuant to Section 6 hereof, provided
that the required undertaking has been tendered to the Company) that Indemnitee
is not entitled to indemnification because of the limitations set forth in
Sections 4 and 8 hereof. Neither the failure of the Corporation (including its
Board of Directors or its stockholders) to have made a determination prior to
the commencement of such enforcement action that indemnification of Indemnitee
is proper in the circumstances, nor an actual determination by the Company
(including its Board of Directors or its stockholders) that such indemnification
is improper, shall be a defense to the action or create a presumption that
Indemnitee is not entitled to indemnification under this Agreement or otherwise.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. Survival of Rights.
(a) All agreements and obligations of the Company contained
herein shall continue during the period Indemnitee is an agent of the Company
and shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.
(b) The Company shall require any successor to the Company
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.
13. Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
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<PAGE> 8
15. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.
17. Governing Law. This Agreement shall be governed exclusively by
and construed according to the laws of the State of Delaware as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
18. Consent to Jurisdiction. The Company and the Indemnitee each
hereby consent to the jurisdiction of the courts of the State of Delaware with
respect to any action or proceeding which arises out of or relates to this
Agreement.
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<PAGE> 9
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
THE COMPANY:
CALICO COMMERCE, INC.
By
------------------------------------------
Its
-----------------------------------------
Address: 333 W. San Carlos Street, Suite 300
San Jose, California 95110
INDEMNITEE:
--------------------------------------------
[NAME]
Address:
------------------------------------
------------------------------------
9
<PAGE> 1
Exhibit 10.7
================================================================================
LOAN AGREEMENT
Dated as of January 21, 1997
between
CALICO TECHNOLOGY, INC.
as Borrower,
and
VENTURE LENDING & LEASING, INC.,
as Lender
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 - DEFINITIONS................................................. 1
ARTICLE 2 - THE COMMITMENT AND LOANS.................................... 4
2.1 The Commitment............................................. 4
2.2 Limitation on Loans........................................ 4
2.3 Notes Evidencing Loans; Repayment.......................... 5
2.4 Procedures for Borrowing................................... 5
2.5 Interest................................................... 5
2.6 Interest Rate Calculation.................................. 5
2.7 Default Interest........................................... 5
2.8 Lender's Records........................................... 6
2.9 Security................................................... 6
2.10 Issuance of Warrant to Lender.............................. 6
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES.............................. 6
3.1 Due Organization........................................... 6
3.2 Authorization, Validity and Enforceability................. 6
3.3 Compliance with Applicable Laws............................ 7
3.4 Copyrights, Patents, Trademarks and Licenses............... 7
3.5 No Conflict................................................ 7
3.6 No Litigation, Claims or Proceedings....................... 7
3.7 Correctness of Financial Statements........................ 7
3.8 No Subsidiaries............................................ 7
3.9 Environmental Matters...................................... 7
3.10 No Event of Default........................................ 7
3.11 Full Disclosure............................................ 8
ARTICLE 4 - CONDITIONS PRECEDENT........................................ 8
4.1 Conditions to First Loan................................... 8
4.2 Conditions to All Loans.................................... 9
ARTICLE 5 - AFFIRMATIVE COVENANTS....................................... 9
5.1 Notice to Lender........................................... 9
5.2 Financial Statements....................................... 10
5.3 Managerial Assistance from Lender.......................... 10
5.4 Existence.................................................. 11
5.5 Accounting Records......................................... 11
5.6 Compliance With Laws....................................... 11
5.7 Taxes and Other Liabilities................................ 11
5.8 Financial Covenants........................................ 11
5.9 Use of Proceeds............................................ 11
ARTICLE 6 - NEGATIVE COVENANTS.......................................... 11
6.1 Dividends.................................................. 12
6.2 Changes/Mergers............................................ 12
6.3 Sales of Assets............................................ 12
ARTICLE 7 - EVENTS OF DEFAULT........................................... 12
7.1 Events of Default.......................................... 12
ARTICLE 8 - GENERAL PROVISIONS.......................................... 13
8.1 Notices.................................................... 13
8.2 Binding Effect............................................. 13
8.3 No Waiver.................................................. 14
8.4 Rights Cumulative.......................................... 14
8.5 Unenforceable Provisions................................... 14
8.6 Accounting Terms........................................... 14
8.7 Indemnification; Exculpation............................... 14
8.8 Reimbursement.............................................. 14
8.9 Execution in Counterparts.................................. 15
8.10 Entire Agreement........................................... 15
8.11 Governing Law and Jurisdiction............................. 15
8.12 Waiver of Jury Trial....................................... 15
</TABLE>
<PAGE> 3
LIST OF EXHIBITS
Exhibit "A" Form of Note
Exhibit "B" Form of Borrowing Request
Exhibit "C" Security Agreement (Equipment)
Exhibit "D" Form of Warrant
<PAGE> 4
LOAN AGREEMENT
This LOAN AGREEMENT is entered into as of January 21, 1997, between CALICO
TECHNOLOGY, INC., a California corporation ("Borrower"), and VENTURE LENDING &
LEASING, INC., a Maryland corporation ("VLLI" or "Lender").
WHEREAS, Lender has agreed to make available to Borrower a loan facility
upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE 1 -- DEFINITIONS
The definitions appearing in this Agreement or any supplement or addendum
to this Agreement, shall be applicable to both the singular and plural forms of
the defined terms:
"ADDITIONAL INTEREST" means, with respect to each Loan, an amount of
interest payable thereon, in addition to Basic Interest, payable on the
Maturity Date of such Loan in an amount equal to fifteen percent (15%) of the
original principal amount of such Loan.
"AFFILIATE" means any Person which directly or indirectly controls, is
controlled by, or is under common control with, Borrower. "Control,"
"controlled by" and "under common control with" means direct or indirect
possession of the power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract or
otherwise); provided that control shall be conclusively presumed when any
Person or affiliated group directly or indirectly owns five percent or more of
the securities having ordinary voting power for the election of directors of a
corporation.
"AGREEMENT" means this Loan Agreement as it may be amended or supplemented
from time to time.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. Section 101, et seq.), as amended.
"BASIC INTEREST" means the fixed rate of interest payable on the
outstanding balance of each Loan at the applicable Designated Rate.
"BORROWING DATE" means the Business Day on which the proceeds of a Loan
are disbursed by Lender.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which commercial banks in New York City or San Francisco are authorized or
required by law to close.
"CLOSING DATE" means the date of this Agreement.
<PAGE> 5
"COLLATERAL" has the meaning ascribed thereto in the Security Agreement.
"COMMITMENT" means the obligation of Lender to make Loans to Borrower in
an aggregate, original principal amount not exceeding One Million Five Hundred
Thousand Dollars ($1,500,000).
"DEFAULT" means an event which with the giving of notice, passage of time,
or both would constitute an Event of Default.
"DEFAULT RATE" is defined in Section 2.7.
"DESIGNATED RATE" means a fixed rate of interest per annum applicable to a
Loan calculated at (i) a twelve percent (12%) interest rate until the date the
first installment of Principal and Basic Interest is due and payable and (ii) a
seven percent (7.00%) interest rate thereafter.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authorities, in each case
relating to environmental, health, or safety matters.
"EQUIPMENT" means all of Debtor's specific equipment and software
identified and described on Schedule 1 attached to the Security Agreement and
incorporated herein by reference (as such Schedule may be amended or
supplemented from time to time) all replacements, parts, and accessions
thereto, and all proceeds thereof arising from the sale, lease, rental or other
use or disposition thereof, including all rights to payment with respect to
insurance or condemnation, returned premiums, or any cause of action relating
to any of the foregoing.
"EVENT OF DEFAULT" means any event described in Article 7.
"GAAP" means generally accepted accounting principles and practices
consistent with those principles and practices promulgated or adopted by the
Financial Accounting Standards Board and the Board of the American Institute of
Certified Public Accountants, their respective predecessors and successors.
Each accounting term used but not otherwise expressly defined herein shall have
the meaning given it by GAAP.
"INDEBTEDNESS" of any Person means at any date, without duplication and
without regard to whether matured or unmatured, absolute or contingent: (i) all
obligations of such Person for borrowed money; (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments;
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business; (iv) all obligations of such Person as lessee under capital
leases; (v) all obligations of such Person to reimburse or prepay any bank or
other Person in respect of amounts paid under a letter of credit, banker's
acceptance, or similar instrument, whether drawn or undrawn; (vi) all
obligations of such Person to purchase securities which arise out of or in
connection with the sale of the same or substantially
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<PAGE> 6
similar securities; (vii) all obligations of such Person in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any capital stock of such Person or any warrants, rights or options to acquire
such capital stock, now or hereafter outstanding, except to the extent that
such obligations remain performable solely at the option of such Person; (viii)
all obligations to repurchase assets previously sold (including any obligation
to repurchase any accounts or chattel paper under any factoring, receivables
purchase, or similar arrangement); (ix) obligations of such Person under
interest rate swap, cap, collar or similar hedging arrangements; and (x) all
obligations of others of any type described in clause (i) through clause (ix)
above guaranteed by such Person.
"INTERIM PERIOD" means the period commencing on the Borrowing Date and
continuing on (i) the first day of the fourth (4th) month immediately following
the Borrowing Date, if the Borrowing Date is the first day of a calendar month,
or (ii) the first day of the fifth (5th) month immediately following the
Borrowing Date if the Borrowing Date is other than the first day of a Calendar
month.
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding before
any court or other governmental authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
of relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors, undertaken under U.S. Federal, state or foreign law, including
the Bankruptcy Code.
"LIEN" means any voluntary or involuntary security interest, mortgage,
pledge, claim, charge, encumbrance, title retention agreement, or third party
interest, covering all or any part of the property of Borrower or any other
Person.
"LOAN" means an extension of credit by Lender under Section 2 of this
Agreement.
"LOAN DOCUMENTS" means, individually and collectively, this Agreement,
each Note, the Security Agreement and any other security or pledge
agreement(s), and all other contracts, instruments, addenda and documents
executed in connection with this Agreement or the extensions of credit which
are the subject of this Agreement.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means (a) a
material adverse change in, or a material adverse effect upon, the operations,
business, properties, or condition (financial or otherwise) of Borrower; (b) a
material impairment of the ability of Borrower to perform under any Loan
Document and to avoid any Event of Default; or (c) a material adverse effect
upon the legality, validity, binding effect or enforceability against Borrower
of any Loan Document.
"MATURITY DATE" means, with regard to each Note, the date on which payment
of all outstanding principal and accrued interest, including Additional
Interest, is due, whether at stated maturity or by acceleration.
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<PAGE> 7
"NOTE" means a promissory note substantially in the form of Exhibit "A"
hereto, executed by Borrower evidencing each Loan.
"OBLIGATIONS" means all advances, debts, liabilities, obligations
covenants and duties arising under any Loan Document, owing by Borrower to
Lender, whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter arising.
"PERMITTED LIENS" means the following:
(a) liens and security interests existing as of the date hereof and
disclosed in the Schedule hereto;
(b) liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings, provided the same have no priority over any of Lender's security
interests;
(c) liens securing claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons or entities imposed without
action of such parties, provided that the payment thereof is not yet required;
(d) liens incurred or deposits made in the ordinary course of Borrower's
business in connection with workers's compensation, unemployment insurance,
social security and other like laws;
(e) liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default hereunder; and
(f) easements, reservations, rights-of-way, restrictions, minor defects
or irregularities in titles and other similar charges or encumbrances affecting
real property not interfering in any material respect with the ordinary conduct
of Borrower's business.
"PERSON" means any individual or entity.
"QUALIFIED PUBLIC OFFERING" means the closing of a firmly underwritten
public offering of Borrower's common stock with aggregate proceeds of not less
than $20,000,000 (prior to underwriting expenses and commissions).
"RELATED PERSON" means any Affiliate of Borrower, or any officer,
employee, director or shareholder of Borrower or any Affiliate.
"SECURITY AGREEMENT" means the Security Agreement substantially in the form
of Exhibit "C" hereto, executed by Borrower.
"TERMINATION DATE" means the earlier of: (a) the date Lender accelerates
the Loan pursuant to the rights of Lender under Article 7, or (b) June 30, 1998.
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"UCC" means the Uniform Commercial Code as enacted in the applicable
jurisdiction, in effect on the Closing Date and as amended from time to time.
ARTICLE 2 - THE COMMITMENT AND LOANS
2.1 THE COMMITMENT. Subject to the terms and conditions of this
Agreement, Lender agrees to make term loans to Borrower from time to time from
the Closing Date and to, but not including, the Termination Date in an
aggregate principal amount not exceeding the Commitment for purposes of
financing Borrower's acquisition of Equipment. The Commitment is not a
revolving credit commitment, and Borrower shall not have the right to repay and
reborrow hereunder.
2.2 LIMITATION ON LOANS. Each Loan shall be in an amount not to exceed
one hundred percent (100%) of the amount paid or payable by Borrower to a
non-affiliated manufacturer, vendor or dealer for an item of Equipment as shown
on an invoice therefor (excluding any commissions and any portion of the
payment which relates to the servicing of the equipment and sales taxes payable
by Borrower upon acquisition, and delivery charges). Lender shall not be
obligated to make any Loan under its Commitment if at the time of or after
giving effect to the proposed Loan Lender would no longer qualify as: (A) a
"venture capital operating company" under U.S. Department of Labor Regulations
Section 2510.3-101(d), Title 29 of the Code of Federal Regulations, as amended;
and (B) a "business development company" under the provisions of federal
Investment Company Act of 1940, as amended, and (C) a "regulated investment
company" under the provisions of the Internal Revenue Code of 1986, as amended.
Each Loan requested by Borrower to be made on a single Business Day shall be
for a principal amount of Fifty Thousand Dollars ($50,000) or a multiple
thereof, except to the extent the remaining Commitment is a lesser amount. Up
to fifty percent (50%) of the Loans may be used to finance software.
2.3 NOTES EVIDENCING LOANS; REPAYMENT. Each Loan shall be evidenced by a
separate Note payable to the order of Lender substantially in the form of
Exhibit "A" to this Agreement, in the total principal amount of the Loan. Each
Note shall be payable as follows: Principal and Basic Interest shall be paid in
thirty six (36) equal and successive monthly payments, in advance, beginning on
the forth full month following the Borrowing Date and continuing on the first
Business Day of each Month thereafter; provided, that if the Borrowing Date of
a Loan is not the first day of a month, then (i) the 36th-month amortization
period shall commence on the first day of the fifth (5th) month following the
Borrowing Date, and (ii) Borrower shall pay to Lender, in advance on the
Borrowing Date a payment of Interim Period Interest that will accrue on such
Loan from the Borrowing Date through the last day of such month. Borrower shall
also prepay on the Borrowing Date the last amortization installment payment.
The Additional Interest on each Loan shall be paid on the first Business Day of
the forty first (41st) full month after the Borrowing Date of such Loan. The
payment of amortization installments of principal of and interest on a Loan in
advance results in a higher effective rate of interest than the stated
Designated Rate applicable to such Loan.
2.4 PROCEDURES FOR BORROWING.
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(a) Borrower shall give Lender at least five (5) Business Days'
prior to a proposed Borrowing Date written notice of any request for borrowing
hereunder (a "Borrowing Request"). Each Borrowing Request shall be in
substantially the form of Exhibit "B" hereto, shall be executed by the chief
financial officer of Borrower, and shall state how much is requested, and shall
be accompanied by copies of invoices for the Equipment to be financed and such
additional information and documentation as Lender may deem reasonably
necessary to determine whether the proposed borrowing will comply with the
limitations in Section 2.2. To the Borrower's best knowledge after due inquiry
of its senior officers, the Borrowing Request shall also certify that all
Equipment to be financed thereby is owned by Borrower free and clear of all
Liens except in favor of Lender.
(b) No later than 1:00 p.m. Pacific Standard Time on the Borrowing
Date, if Borrower has satisfied the conditions precedent in Article 4, Lender
shall make the Loan available to Borrower in immediately available funds.
2.5 INTEREST. Basic Interest on the outstanding principal balance of the
each Loan shall accrue daily from the Borrowing Date until the Maturity Date at
the Designated Rate. On the Maturity Date of a Loan, Borrower shall pay the
Additional Interest thereon.
2.6 INTEREST RATE CALCULATION. Basic Interest, along with charges and
fees under this Agreement and any Loan Document, shall be calculated for actual
days elapsed on the basis of a 360-day year, which results in higher interest,
charge or fee payments that if a 365-day year were used. In no event shall
Borrower be obligated to pay Lender interest, charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to time in
effect.
2.7 DEFAULT INTEREST. Any unpaid payments of principal or interest with
respect to any Loan shall bear interest from their respective maturities,
whether scheduled or accelerated, at the Designated Rate for such Loan plus
four percent (4.00%) per annum, until paid in full, whether before or after
judgment (the "Default Rate"). Borrower shall pay such interest on demand.
2.8 LENDER'S RECORDS. Principal, Basic Interest, Additional Interest and
all other sums owed under any Loan Document shall be evidenced by entries in
records maintained by Lender for such purpose. Each payment on and any other
credits with respect to principal, Basic Interest, Additional Interest and all
other sums outstanding under any Loan Document shall be evidenced by entries
in such records. Absent manifest error, Lender's records shall be conclusive
evidence thereof.
2.9 SECURITY. As security for all Obligations to Lender, Borrower shall
grant concurrently to Lender, or ensure that Lender is concurrently granted,
perfected security interests of first priority in all of the Equipment and other
Collateral pursuant to the Security Agreement, subject only to Permitted Liens.
2.10 ISSUANCE OF WARRANT TO LENDER. As additional consideration for the
commitment of the Loans under this Agreement, upon the making of, Lender shall
be entitled to receive a warrant to purchase a number of shares of Series B
Preferred Stock of Borrower ("Warrant Shares") with an aggregate
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initial exercise price of $56,000 determined on the basis of a per share
exercise price of $2.40. The warrant issued under this Agreement shall be in
substantially the form attached hereto as Exhibit "D"; shall be transferable by
Lender, subject to compliance with applicable securities laws; shall expire not
earlier than November 21, 2004; and shall include piggy-back registration
rights, "net issuance" provisions, and anti-dilution protections reasonably
satisfactory to Lender and its counsel.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that as of the Closing Date and each
Borrowing Date:
3.1 DUE ORGANIZATION. Borrower is a corporation duly organized and
validly existing in good standing under the laws of California, and is duly
qualified to conduct business and is in good standing in each other
jurisdiction where the nature of its business requires it to be qualified,
except that the failure to so qualify would have a Material Adverse Effect on
Borrower.
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The execution, delivery
and performance of all Loan Documents executed by Borrower are within
Borrower's powers, have been duly authorized, and are not in conflict with
Borrower's articles of incorporation or by-laws, or the terms of any charter or
other organizational document of Borrower, as amended from time to time; and
all such Loan Documents constitute valid and binding obligations of Borrower,
enforceable in accordance with their terms (except as may be limited by
bankruptcy, insolvency and similar laws affecting the enforcement of creditors'
rights in general, and subject to general principles of equity).
3.3 COMPLIANCE WITH APPLICABLE LAWS. Borrower has complied with all
licensing, permit and fictitious name requirements necessary to lawfully
conduct the business in which it is engaged, and to any sales, leases or the
furnishing of services by Borrower, including without limitation those
requiring consumer or other disclosures, the noncompliance with which would
have a Material Adverse Effect.
3.4 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES.
(a) To Borrower's best knowledge, borrower owns or is licensed or
otherwise has the right to use all of the patents, trademarks, service marks,
trade names, copyrights, contractual franchises, authorizations and other
rights that are reasonably necessary for the operation of its business, without
conflict with the rights of any other Person.
(b) No slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
employed, by Borrower infringes upon any rights held by any other Person.
(c) No claim or litigation regarding any of the foregoing is pending
or to Borrower's knowledge, threatened, which, in earlier case, could
reasonably be expected to have a Material Adverse Effect.
3.5 NO CONFLICT. The execution, delivery, and performance of Borrower of
all Loan Documents are not in conflict with any law, rule, regulation,
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order or directive, or any indenture, agreement, or undertaking to which
Borrower is a party or by which Borrower may be bound or affected.
3.6 NO LITIGATION, CLAIMS OR PROCEEDINGS. There is no litigation, tax
claim, proceeding or dispute pending, or, to the knowledge of Borrower,
threatened against or affecting Borrower or its property.
3.7 CORRECTNESS OF FINANCIAL STATEMENTS. Borrower's financial statements
which have been delivered to Lender fairly and accurately reflect Borrower's
financial condition as of September 30, 1996; and, since that date there has
been no Material Adverse Change.
3.8 NO SUBSIDIARIES. Borrower is not a majority owner of or in a control
relationship with any other business entity.
3.9 ENVIRONMENTAL MATTERS. Borrower is in compliance with Environmental
Laws, except to the extent a failure to be in such compliance could not
reasonably be expected to have a Material Adverse Effect on Borrower's
operations, properties or financial condition.
3.10 NO EVENT OF DEFAULT. No Default or Event of Default has occurred and
is continuing.
3.11 FULL DISCLOSURE. None of the representations or warranties made by
Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of Borrower
in connection with the Loan Documents (including disclosure materials delivered
by or on behalf of Borrower to Lender prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of
the circumstances under which they are made, not misleading as of the time when
made or delivered.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 CONDITIONS TO FIRST LOAN. The obligation of Lender to make its first
Loan hereunder is, in addition to the conditions precedent specified
in Section 4.2, subject to the fulfillment of the following conditions and to
the receipt by Lender of the documents described below, duly executed and in
form and substance satisfactory to Lender and its counsel:
(a) RESOLUTIONS. A certified copy of the resolutions of the Board of
Directors of Borrower authorizing the execution, delivery and performance by
Borrower of the Loan Documents.
(b) INCUMBENCY AND SIGNATURES. A certificate of the secretary of
Borrower certifying the names of the officer or officers of Borrower authorized
to sign the Loan Documents, together with a sample of the true signature of
each such officer.
(c) OPINION OF COUNSEL. The opinion of Gray, Cary Ware &
Freidenrich, counsel for Borrower, together with any opinions, certificates and
other matters on which such opinion relies.
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(d) ARTICLES AND BY-LAWS. Certified copies of the Articles
of Incorporation and By-Laws of Borrower, as amended through the Closing Date.
(e) THE AGREEMENT. A counterpart of this Agreement with all
schedules completed and attached thereto, and disclosing such information as is
acceptable to Lender.
(f) SECURITY AGREEMENT. A Security Agreement executed by
Borrower, substantially in the form of Exhibit "C", together with filing copies
(or other evidenced of filing satisfactory to Lender and its counsel) of such
Uniform Commercial Code financing statements, collateral assignments and
termination statements, with respect to the Collateral (as defined in such
Security Agreement) as Lender shall request.
(g) LIEN SEARCHES. Uniform Commercial Code lien, judgment,
bankruptcy and tax lien searches of borrower from the California Secretary of
State, as of a date reasonably satisfactory to Lender and its counsel.
(h) GOOD STANDING CERTIFICATE. A Certificate of Good
Standing as of a date acceptable to Lender with respect to Borrower from the
California Secretary of State.
(i) WARRANT. A warrant issued by Borrower to Lender
exercisable for the Warrant Shares, as described in Section 2.11 hereof.
4.2 CONDITIONS TO ALL LOANS. The obligation of Lender to make its
initial Loan and each subsequent Loan is subject to the following further
conditions precedent that:
(a) NO DEFAULT. No Default of Event of Default has
occurred and is continuing or will result from the making of any such Loan,
and the representations and warranties of Borrower contained in Article 3 of
this Agreement are true and correct as of the Borrowing Date of such Loan.
(b) NO ADVERSE MATERIAL CHANGE. No Material Adverse Change
shall have occurred since the date of the most recent financial statements
submitted to Lender.
(c) NOTE. Borrower shall have delivered an executed Note
evidencing such Loan, in form and substance satisfactory to Lender.
(d) BORROWING REQUEST. Borrower shall have delivered to
Lender a Borrowing request for such Loan.
(e) VCOC LIMITATION. The making of the Loan will not result
in a violation of the condition applicable to lender described in Section 2.2.
ARTICLE 5 -- AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of
all obligations to Lender, Borrower will:
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5.1 NOTICE TO LENDER. Promptly give written notice to Lender of:
(a) Any litigation or administrative or regulatory proceeding
affecting Borrower where the amount claimed against Borrower is Fifty Thousand
Dollars ($50,000) or more, or where the granting of the relief requested would
have a Material Adverse Effect.
(b) Any substantial dispute which may exist between Borrower or any
governmental or regulatory authority.
(c) The occurrence of any Event of Default or any event which could
have a Material Adverse Effect on Lenders Collateral.
(d) Any change in the location of any of Borrower's places of
business at least thirty (30) days in advance of such change, or of the
establishment of any new, or the discontinuance of any existing, place of
business.
(e) Any other matter which has resulted or might result in a
Material Adverse Change.
5.2 FINANCIAL STATEMENTS. Deliver to Lender or cause to be delivered to
Lender, in form and detail satisfactory to Lender the following financial
information, which Borrower warrants shall be accurate and complete in all
material respects:
(a) MONTHLY FINANCIAL STATEMENTS. As soon as available but no later
than thirty (30) days after the end of each month, Borrower's balance sheet as
of the end of such period, and Borrower's income statement for such period and
for that portion of Borrower's financial reporting year ending with such
period, prepared and attested by a responsible financial officer of Borrower as
being complete and correct and fairly presenting Borrower's financial condition
and the results of Borrower's operations. After a Qualified Public Offering,
the foregoing interim financial statements shall be delivered no later than 45
days after each fiscal quarter and for the quarter-annual fiscal period then
ended.
(b) YEAR-END FINANCIAL STATEMENTS. As soon as available but no later
than ninety (90) days after and as of the end of each financial reporting year,
a complete copy of Borrower's audit report, which shall include balance sheet,
income statement, statement of changes in equity and statement of cash flows
for such year, prepared and certified by an independent certified public
accountant selected by Borrower and reasonably satisfactory to Lender (the
"Accountant"). The Accountant's certification shall not be qualified or limited
due to a restricted or limited examination by the Accountant of any material
portion of Borrower's records or otherwise.
(c) COMPLIANCE CERTIFICATES. Simultaneously with the delivery of
each set of financial statements referred to in paragraphs (a) and (b) above, a
certificate of the chief financial officer of Borrower stating whether any
Default or Event of Default exists on the date of such certificate, and if so,
setting forth the details thereof and the action which Borrower is taking or
proposes to take with respect thereto.
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(d) GOVERNMENT REQUIRED REPORTS; PRESS RELEASES. Promptly after
sending, issuing, making available, or filing, copies of all statements
released to any news media for publication, all reports, proxy statements, and
financial statements that Borrower sends or makes available to its
stockholders, and, not later than five (5) days after actual filing or the date
such filing was first due, all registration statements and reports that
Borrower files or is required to file with the Securities and Exchange
Commission.
(e) OTHER INFORMATION. Such other statements, lists of property and
accounts, budgets, forecasts, reports, or other information as Lender may
reasonably from time to time request.
5.3 MANAGERIAL ASSISTANCE FROM LENDER. Permit Lender, as a "venture
capital operating company" to participate in, and influence the conduct of
management of Borrower through the exercise of "management rights," as such
terms are defined in 29 C.F.R. Section 2510.3-101(d), and:
(a) Permit Lender to make available to Borrower, at no cost to
Borrower, "significant managerial assistance", as defined in Section 2(a)(47)
of the Investment Company Act of 1940, as amended, either in the form of: (i)
consulting arrangements with Lender or any of its officers, directors,
employees or affiliates, (ii) Borrower's allowing Lender to provide
recommendations of prospective candidates for election to Borrower's Board of
Directors, or (iii) Lender, at Borrower's request, seeking the services of
third-party consultants to aid Borrower with respect to its management and
operations;
(b) Permit Lender to make available consulting and advisory services
to officers of Borrower regarding Borrower's equipment acquisition and
financing plans, and such other matters affecting the business, financial
condition and prospects of Borrower as Lender shall reasonably deem relevant;
and
(c) If Lender reasonably believes that financial or other
developments affecting Borrower have impaired or are likely to impair
Borrower's ability to perform its obligations under this Agreement, permit
Lender reasonable access to Borrower's management and/or Board of Directors and
opportunity to present Lender's views with respect to such developments.
5.4 EXISTENCE. Maintain and preserve Borrower's existence, present form
of business, and all rights and privileges necessary or desirable in the normal
course of its business.
5.5 ACCOUNTING RECORDS. Maintain adequate books, accounts and records,
and prepare all financial statements in accordance with GAAP, and in compliance
with the regulations of any governmental or regulatory authority having
jurisdiction over Borrower or Borrower's business; and permit employees or
agents of Lender at such reasonable times as Lender may request, at Borrower's
expense, to inspect Borrower's properties, and to examine, and make copies and
memoranda of Borrower's books, accounts and records.
5.6 COMPLIANCE WITH LAWS. Materially comply with all laws (including
Environmental Laws), rules, regulations applicable to, and all orders and
directives of any governmental or regulatory authority having jurisdiction
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over, Borrower or Borrower's business, and with all material agreements to
which Borrower is a party, except to extent a failure to so comply could not be
reasonably expected to have a Material Adverse Effect on Borrower's operations,
properties or financial conditions.
5.7 TAXES AND OTHER LIABILITIES. Pay all Borrower's obligations when due;
pay all taxes and other governmental or regulatory assessments before
delinquency or before any penalty attaches thereto, except as may be contested
in good faith by the appropriate procedures and for which Borrower shall
maintain appropriate reserves; and timely file all required tax returns.
5.8 FINANCIAL COVENANTS. Comply with the terms of all financial covenants
contained in any addendum to this Agreement.
5.9 USE OF PROCEEDS. Use the proceeds of Loans only as set forth in
Article 2 of this Agreement; and not directly or indirectly to purchase or
carry any margin stock, as defined from time to time by the Board of Governors
of the Federal Reserve System in Federal Regulation U.
ARTICLE 6 - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of all
obligations to Lender; Borrower will not:
6.1 DIVIDENDS. Except after a Qualified Public Offering, pay any
dividends or purchase, redeem or otherwise acquire or make any other
distribution with respect to any of Borrower's capital stock, except dividends
or other distributions solely of capital stock of Borrower and departed
Employee Stock repurchases in the ordinary course of business.
6.2 CHANGES/MERGERS. Liquidate or dissolve, or enter into any
consolidation, merger, partnership, joint venture or other combination, except
for recorporation mergers and joint ventures, strategic alliances, licensing
and similar arrangements customary in Borrower's industry for businesses in the
development stage of Borrower and which do not require Borrower to assume or
otherwise become liable for the obligations of any third party not directly
related to or arising out of such arrangement or, without the prior written
consent of Lender, which shall not be unreasonably withheld or delayed require
Borrower to transfer ownership of assets to such joint venture or other entity;
prepay any subordinated debt, debt for borrowed money, or debt secured by any
permitted Lien, or enter into or modify any agreement as a result of which the
terms of payment of any such debt are waived and modified.
6.3 SALES OF ASSETS. Sell, transfer, lease or otherwise dispose of any of
Borrower's assets except for fair consideration and in the ordinary course of
its business; or enter into any sale or leaseback agreement covering any of
Borrower's fixed or capital assets financed hereunder.
ARTICLE 7 - EVENT OF DEFAULT
7.1 EVENTS OF DEFAULT. Upon the occurrence and during the continuation of
any Default, the obligation of Lender to make any additional Loan shall be
suspended. The occurrence of any of the following shall terminate any
obligation of Lender to make any additional Loan; and shall, at
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the option of Lender (1) make all sums of Basic Interest, principal, Additional
Interest and any other amounts owing under any Loan Documents immediately due
and payable without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor or any other notices or demands,
and (2) give Lender the right to exercise any other right or remedy provided by
contract to applicable law:
(a) Borrower shall fail to make any payment of principal or interest
under this Agreement, or to pay any fees or other charges when due under any
Loan Document, and such failure continues for three (3) Business Days or more
after the same first becomes due; or an Event of Default as defined in any other
Loan Document shall have occurred.
(b) Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower shall prove to have been
false or misleading in any material respect when made or deemed made herein.
(c) Borrower shall fail to pay its debts generally as they become
due or shall commence any Insolvency Proceeding with respect to itself; an
involuntary Insolvency Proceeding shall be filed against Borrower, or a
custodian, receiver, trustee, assignee for the benefit of creditors, or other
similar official, shall be appointed to take possession, custody or control of
the properties of Borrower, and such involuntary Insolvency Proceeding,
petition or appointment is acquiesced to by Borrower or is not dismissed within
sixty (60) days; or the dissolution or termination of the business of Borrower.
(d) Borrower shall be in default beyond any applicable period of
grace or cure under any other agreement involving the borrowing of money, the
purchase of property, the advance of credit or any other monetary liability of
any kind to Lender or to any Person which results in the acceleration of
payment of such obligation in an amount in excess of One Hundred Thousand
Dollars ($100,000).
(e) Any governmental or regulatory authority shall take any judicial
or administrative action, or any defined benefit pension plan maintained by
Borrower shall have any unfunded liabilities, any of which, in the reasonable
judgment of Lender, might have a Material Adverse Effect.
(f) Any sale, transfer or other disposition of all or a substantial
or material part of the assets of Borrower, including without limitation to any
trust or similar entity, shall occur.
(g) Any judgment(s) singly or in the aggregate in excess of One
Hundred Thousand Dollars ($100,000) or more not covered by insurance shall be
entered against Borrower which remain unsatisfied, unvacated or unstayed
pending appeal for twenty (20) or more days after entry thereof.
(h) Borrower shall fail to perform any of its duties or obligations
under any Loan Document not specifically referenced in this Article 7.
ARTICLE 8 - GENERAL PROVISIONS
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8.1 NOTICES. Any notice given by any party under any Loan Document shall
be in writing and personally delivered, sent by overnight courier, or United
States mail, postage prepaid, or sent by facsimile, to be promptly confirmed in
writing, or other authenticated message, charges prepaid, to the other party's
or parties' addresses shown on the signature pages hereto. Each party may
change the address or facsimile number to which notices, requests and other
communications are to be sent by giving written notice of such change to each
other party. Notice given by hand delivery shall be deemed received on the date
delivered; if sent by overnight courier, on the next Business Day after
delivery to the courier service; if by first class mail, on the third Business
Day after deposit in the U.S. Mail; and if by telecopy, on the date of
transmission.
8.2 BINDING EFFECT. The Loan Documents shall be binding upon and inure to
the benefit of Borrower and Lender and their respective successors and assigns;
provided, however, that Borrower may not assign or transfer Borrower's rights or
obligations under any Loan Document without Lender's prior written consent.
Lender reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Lender's rights and
obligations under the Loan Documents. In connection with any of the foregoing,
Lender may disclose all documents and information which Lender now or hereafter
may have relating to the Loans, Borrower, or its business.
8.3 CONFIDENTIALITY. Lender agrees to hold in confidence any
confidential information it receives from Borrower pursuant hereto, except for
disclosure: (a) to legal counsel and accountants for Lender or any assignee;
(b) to other professional advisors to Lender or any assignee; (c) to regulatory
officials having jurisdiction over Lender or any assignee; (d) as required by
law or legal process or in connection with any legal proceeding to which Lender
(or any assignee) and Borrower are adverse parties; and (e) in connection with
a disposition or proposed disposition in any or all of Lender's rights and
benefits hereunder. For purposes of this section, "confidential information"
shall mean any information respecting Borrower other than (i) information which
is or becomes generally available to the public other than as a result of a
disclosure by Lender or any assignee in violation of this section; (ii)
information which becomes available to Lender or any assignees from any other
source (other than Borrower) which is not known by Lender or such assignee to
be bound by a confidentiality agreement with or other contractual, legal or
fiduciary obligations of confidentiality to Borrower with respect to the
information made available; and (iii) information known by Lender or any
assignee on a non-confidential basis prior to its disclosure to Lender or the
assignee by Borrower.
8.4 NO WAIVER. Any waiver, consent or approval by Lender of any Event of
Default or breach of any provision, condition, or covenant of any Loan Document
must be in writing and shall be effective only to the extent set forth in
writing. No waiver of any breach or default shall be deemed a waiver of any
later breach or default of the same or any other provision of any Loan
Document. No failure or delay on the part of Lender in exercising any power,
right, or privilege under any Loan Document shall operate as a waiver thereof,
and no single or partial exercise of any such power, right, or privilege shall
preclude any further exercise thereof or the exercise of any other power, right
or privilege. Lender has the right at its sole option to continue to accept
interest and/or principal payments due under the Loan Documents after
16
<PAGE> 18
default, and such acceptance shall not constitute a waiver of said default or
an extension of the Maturity Date unless Lender agrees otherwise in writing.
8.5 RIGHTS CUMULATIVE. All rights and remedies existing under the Loan
Documents are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.
8.6 UNENFORCEABLE PROVISIONS. Any provision of any Loan Document executed
by Borrower which is prohibited or unenforceable in any jurisdiction, shall be
so only as to such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the remaining provisions of any such Loan Document
shall remain valid and enforceable.
8.7 ACCOUNTING TERMS. Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined
and prepared in accordance with GAAP.
8.8 INDEMNIFICATION; EXCULPATION. Borrower shall pay and protect, defend
and indemnify Lender and Lender's employees, officers, directors, shareholders,
affiliates, correspondents, agents and representatives (other than Lender,
collectively "Agents") against, and hold Lender and each such Agent harmless
from, all claims, actions, proceedings, liabilities, damages, losses, expenses
(including, without limitation, reasonable attorneys' fees and costs) and other
amounts incurred by Lender and each such Agent, arising from (i) the matters
contemplated by this Agreement or any other Loan Documents or (ii) any
contention that Borrower has failed to comply with any law, rule, regulation,
order or directive applicable to Borrower's business; provided, however, that
this indemnification shall not apply to any of the foregoing incurred solely as
the result of Lender's or any Agent's gross negligence or willful misconduct.
This indemnification shall survive the payment and satisfaction of all of
Borrower's obligations to Lender.
8.9 REIMBURSEMENT. Borrower shall reimburse Lender for all costs and
expenses, including without limitation reasonable attorneys' fees and
disbursements expended or incurred by Lender in any arbitration, mediation,
judicial reference, legal action or otherwise in connection with (a) the
preparation, negotiation, amendment, interpretation and enforcement of the Loan
Documents, including without limitation during any workout, attempted workout,
and/or in connection with the rendering of legal advice as to Lender's rights,
remedies and obligations under the Loan Documents, (b) collecting any sum which
becomes due Lender under any Loan Document, (c) any proceeding for declaratory
relief, any counterclaim to any proceeding, the foregoing notwithstanding,
Borrower shall not be responsible for more than $250 of Lender's fees and
expenses in documenting the credit facility or any appeal, or (d) the
protection, preservation or enforcement of any rights of Lender. For the
purposes of this section, attorneys' fees shall include, without limitation,
fees incurred in connection with the following: (1) contempt proceedings; (2)
discovery; (3) any motion, proceeding or other activity of any kind in
connection with an Insolvency Proceeding; (4) garnishment, levy, and debtor and
third party examinations; and (5) postjudgment motions and proceedings of any
kind, including without limitation any activity taken to collect or enforce
any judgment. All of the foregoing costs and expenses shall be payable upon
demand by Lender, and if not paid within forty-five (45) days of presentation
of invoices shall bear interest at the highest applicable Default Rate.
17
<PAGE> 19
8.10 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts which, when taken together, shall constitute but one
agreement.
8.11 ENTIRE AGREEMENT. The Loan Documents are intended by the
parties as the final expression of their agreement and therefore contain the
entire agreement between the parties and supersede all prior understandings or
agreements concerning the subject matter hereof. This Agreement may be amended
only in a writing signed by Borrower and Lender.
8.12 GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE
STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN, CENTRAL OR
SOUTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE
COURTS. EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF
THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. BORROWER AND LENDER EACH
WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH
MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.
8.13 WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH WAIVES ITS
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS,
TORT CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM
OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY, WITHOUT
LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT
TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATION TO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS.
18
<PAGE> 20
IN WITNESS WHEREOF, Borrower and Lender have executed this
Agreement as of the date set forth in the preamble.
Addresses for Notices: CALICO TECHNOLOGY, INC.
Calico Technology, Inc. By: /s/ ROBERT PAYNE
4 North Second Street ------------------------------------
San Jose, CA 95113 Name: Robert Payne
Attn: Robert Payne Its: President & CEO
Venture Lending & Leasing, Inc. VENTURE LENDING & LEASING, INC.
2010 North First Street, Suite 310
San Jose, CA 95131
Attn: Salvador O. Gutierrez By: /s/ SALVADOR O. GUTIERREZ
President & Chief Financial Officer ------------------------------------
Fax No. 408-435-8625 Name: Salvador O. Gutierrez
Its: President
19
<PAGE> 1
Exhibit 10.8
[COMERICA LOGO]
VARIABLE RATE-INSTALLMENT NOTE
<TABLE>
<CAPTION>
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION #
<S> <C> <C> <C>
$337,237.18 MARCH 31, 1998 MARCH 31, 2001 77-0373344
</TABLE>
For Value Received, the undersigned promise(s) to pay to the order of COMERICA
BANK-CALIFORNIA ("BANK"), at any office of the Bank in the State of California,
THREE HUNDRED THIRTY-SEVEN THOUSAND TWO HUNDRED THIRTY-SEVEN AND 18/100 Dollars
(U.S.) in installments of $9,367.70 each [ ] INCLUSIVE OF [X] PLUS interest on
the unpaid balance from the date of this Note at a per annum rate equal to the
Bank's base rate from time to time in effect PLUS 0.500% per annum until
maturity, whether by acceleration or otherwise, or until Default, as later
defined, and after that at a default rate equal to the rate of interest
otherwise prevailing under this Note plus 3% per annum (but in no event in
excess of the maximum rate permitted by law). Interest shall be calculated for
the actual number of days the principal is outstanding on the basis of a 360
day year if this Note evidences a business or commercial loan or a 365 day year
if a consumer loan. The Bank's "base rate" is that annual rate of interest so
designated by the Bank and which is changed by the Bank from time to time.
Interest rate changes will be effective for interest computation purposes as
and when the Bank's base rate changes. Installments of principal and accrued
interest due under this Note shall be payable on the 30TH day of each MONTH,
commencing APRIL 30, 1998, and the entire remaining unpaid balance of principal
and accrued interest shall be payable on the Maturity Date set forth above. If
the frequency of principal and interest installments is not otherwise
specified, installments of principal and interest due under this Note shall be
payable monthly on the first day of each month.
In the event the periodic installments set forth above are inclusive of
interest, these installments are calculated at an assumed fixed interest rate
and an assumed amortization term. The amortization term ends on ______________
(if left blank, the amortization terms ends on the Maturity Date). In the event
this Note evidences a business or commercial loan and the Bank's base rate
changes, the Bank, at its sole option, may from time to time recalculate the
periodic installment amount so that the remaining periodic installments will
fully amortize the remaining loan balance within the remaining amortization
term in equal installments at the interest rate then being charged under this
Note. THE UNDERSIGNED AGREE(S) TO PAY THE PERIODIC INSTALLMENTS AS THEY MAY BE
RECALCULATED BY THE BANK, AT THE BANK'S SOLE OPTION, FROM TIME TO TIME AND
ACKNOWLEDGE(S) THAT A RECALCULATION SHALL NOT AFFECT THE MATURITY DATE OR THE
OTHER TERMS AND PROVISIONS OF THIS NOTE. If this Note or any installment under
this Note shall become payable on a day other than a day on which the Bank is
open for business, this payment may be extended to the next succeeding business
day and interest shall be payable at the rate specified in this Note during
this extension. Any payments of principal in excess of the installment
payments required under this Note need not be accepted by the Bank (except as
required under applicable law), but if accepted shall apply to the installments
last falling due. A late installment charge equal to 5% of each late
installment may be charged on any installment payment not received by the Bank
within 10 calendar days after the installment due date, but acceptance of
payment of this charge shall not waive any default under this Note.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any
other collateral, rights and properties described in each and every deed of
trust, mortgage, security agreement, pledge, assignment and other agreement
which has been, or will at any time(s) later be, executed by any (or all) of
the undersigned to or for the benefit of the Bank (collectively "Collateral").
Notwithstanding the above, (i) to the extent that any portion of the
indebtedness is a consumer loan, that portion shall not be secured by any deed
of trust or mortgage on or other security interest in any of the undersigned's
principal dwelling or in any of the undersigned's real property which is not a
purchase money security interest as to that portion, unless expressly provided
to the contrary in another place, or (ii) if the undersigned (or any of them)
has (have) given or give(s) Bank a deed of trust or mortgage covering real
property, that deed of trust or mortgage shall not secure this Note or any
other indebtedness of the undersigned (or any of them), unless expressly
provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the indebtedness ("guarantor") (a) fail(s) to pay this Note or any of
the indebtedness when due, by maturity, acceleration or otherwise, or fail(s)
to pay any indebtedness owing on a demand basis upon demand; or (b) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any guarantor and the Bank; or (c) become(s)
insolvent or the subject of a voluntary or involuntary proceeding in
bankruptcy, or a reorganization, arrangement or creditor composition
proceeding, (if a business entity) cease(s) doing business as a going concern,
(if a natural person) die(s) or become(s) incompetent, (if a partnership)
dissolve(s) or any general partner of it dies, becomes incompetent or becomes
the subject of a bankruptcy proceeding or (if a corporation or a limited
liability company) is the subject of a dissolution, merger or consolidation; or
(d) if any warranty or representation made by any of the undersigned or any
guarantor in connection with this Note or any of the Indebtedness shall be
discovered to be untrue or incomplete; or (e) if there is any termination,
notice of termination, or breach of any guaranty, pledge, collateral assignment
or subordination agreement relating to all or any part of the indebtedness; or
(f) if there is any failure by any of the undersigned or any guarantor to pay
when due any of its indebtedness (other than to the Bank) or in the observance
or performance of any term, covenant or condition in any document evidencing,
securing or relating to such indebtedness; or (g) if the Bank deems itself
insecure, believing that the prospect of payment of this Note or any of the
indebtedness is impaired or shall fear deterioration, removal or waste of any
of the Collateral; or (h) if there is filed or issued a levy or writ of
attachment or garnishment or other like judicial process upon the undersigned
(or any of them) or any guarantor or any of the Collateral, including without
limit, any accounts of the undersigned (or any of them) or any guarantor with
the Bank, then the Bank, upon the occurrence of any of these events (each a
"Default"), may at its option and without prior notice to the undersigned (or
any of them), declare any or all of the indebtedness to be immediately due and
payable (notwithstanding any provisions contained in the evidence thereof to
the contrary), sell or liquidate all or any portion of the Collateral, set off
against the indebtedness any amounts owing by the Bank to the undersigned (or
any of them), charge interest at the default rate provided in the document
evidencing the relevant indebtedness and exercise any one or more of the rights
and remedies granted to the Bank by any agreement with the undersigned (or any
of them) or given to it under applicable law. In addition, if this Note is
secured by a deed of trust or mortgage covering real property, then the trustor
or mortgagor shall not mortgage or pledge the mortgaged premises as security
for any other indebtedness or obligations. This Note, together with all other
indebtedness secured by said deed of trust or mortgage, shall become due and
payable immediately, without notice, at the option of the Bank, (a) if said
trustor or mortgagor shall mortgage or pledge the mortgaged premises for any
other indebtedness or obligations or shall convey, assign or transfer the
mortgaged premises by deed, installment sale contact or other instrument, or
(b) if the title to the mortgaged premises shall become vested in any other
person or party in any manner whatsoever, or (c) if there is any disposition
(through one or more transactions) of legal or beneficial title to a
controlling interest of said trustor or mortgagor. All payments under this Note
shall be in immediately available United States funds, without setoff or
counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-805 of the California Uniform
Commercial Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the Bank has the right to sell,
assign, or grant participations, or any interest, in any or all of the
indebtedness, and that, in connection with this right, but without limiting
its ability to make other disclosures to the full extent allowable, the Bank
may disclose all documents and information which the Bank now or later has
relating to the undersigned or the indebtedness. The undersigned agree(s) that
the Bank may provide information relating to this Note or to the undersigned to
the Bank's parent, affiliates, subsidiaries and service providers.
CA 00181 (12-94)
<PAGE> 2
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal
expenses and reasonable attorney fees, whether inside or outside counsel is
used, whether or not suit is instituted and, if suit is instituted, whether at
the trial court level, appellate level, in a bankruptcy, probate or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or incurred in any other matter or proceeding relating to this
Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USURY CEILING.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY
JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR
IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
1) THIS NOTE IS CROSS DEFAULTED AND CROSS COLLATERALIZED TO ALL PRESENT AND
FUTURE INDEBTEDNESS OF CALICO TECHNOLOGY, INC.
2) THIS NOTE IS SUBJECT TO THE TERMS OF A LOAN & SECURITY AGREEMENT DATED
3/10/97 AND ANY AND ALL INITIAL HERE ______ SUBSEQUENT MODIFICATION(S)
THEREOF
<TABLE>
<S> <C> <C>
FOR CORPORATIONS, PARTNERSHIPS, TRUST, OR ESTATE
CALICO TECHNOLOGY, INC. By: [Signature Illegible] Its: [Signature Illegible]
- --------------------------------- ---------------------------- -----------------------
OBLIGOR NAME TYPED/PRINTED SIGNATURE OF TITLE
4 NORTH SECOND STREET, SUITE 1350 By: Its:
- --------------------------------- ---------------------------- -----------------------
STREET ADDRESS SIGNATURE OF TITLE
SAN JOSE By: Its:
- --------------------------------- ---------------------------- -----------------------
CITY SIGNATURE OF TITLE
CA 95113 By: Its:
- --------------------------------- ---------------------------- -----------------------
STATE ZIP CODE SIGNATURE OF TITLE
</TABLE>
<TABLE>
<S> <C> <C>
FOR INDIVIDUALS OR SOLE
PROPRIETORSHIPS NAME(S) OF
OBLIGOR(S) (TYPE OR PRINT): SIGNATURE(S) OF OBLIGOR(S):
-------------------------------- ----------------------------
- --------------------------------- -------------------------------- ----------------------------
STREET ADDRESS
- --------------------------------- -------------------------------- ----------------------------
CITY
- --------------------------------- -------------------------------- ----------------------------
STATE ZIP CODE
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
FOR BANK USE ONLY CCAR #
- ------------------------------------------------------------------------------------------------------
LOAN OFFICER INITIALS LOAN GROUP NAME OBLIGOR(S) NAME
MARY BETH SUHR HIGH TECHNOLOGY CALICO TECHNOLOGY, INC.
- ------------------------------------------------------------------------------------------------------
LOAN OFFICER I.D. NO. LOAN GROUP NO. OBLIGOR # NOTE # AMOUNT
48703 95820 $337,237.18
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
VARIABLE RATE-INSTALLMENT NOTE
- --------------------------------------------------------------------------------
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION #
$162,762.82 April 23, 1998 May 31, 2001 77-0373344
- --------------------------------------------------------------------------------
For Value Received, the undersigned promise(s) to pay to the order of Comerica
Bank- California ("Bank"), at any office of the Bank in the State of California
One Hundred Sixty Two Thousand Seven Hundred Sixty Two and 82/100 Dollars (U.S.)
in installments of $5,235.10 each inclusive of interest on the unpaid balance
from the date of this Note at a per annum rate equal to the Bank's base rate
from time to time in effect plus 0.500% per annum until maturity, whether by
acceleration or otherwise, or until Default, as later defined, and after that at
a default rate equal to the rate of interest otherwise prevailing under this
Note plus 3% per annum (but in not event in excess of the maximum rate permitted
by law). Interest shall be calculated for the actual number of days the
principal is outstanding on the basis of a 360 day year if this Note evidences a
business or commercial loan or a 365 day year if a consumer loan. The Bank's
"base rate" is that annual rate of interest so designated by the Bank and which
is changed by the Bank from time to time. Interest rate changes will be
effective for interest computation purposes as and when the Bank's base rate
changes. Installments of principal and accrued interest due under this Note
shall be payable on the 30th day of each month, commencing *June 30, 1998, and
the entire remaining unpaid balance of principal and accrued interest shall be
payable on the Maturity Date set forth above. If the frequency of principal and
interest installments is not otherwise specified, installments of principal and
interest due under this Note shall be payable monthly on the first day of each
month.
* ONE MONTH INTEREST ONLY PAYMENT SHALL BE DUE ON MAY 31, 1999
In the event the periodic installments set forth above are inclusive of
interest, these installments are calculated at an assumed fixed interest rate
and an assumed amortization term. The amortization term ends on May 31, 2001 (if
left blank, the amortization terms ends on the Maturity Date). In the event this
Note evidences a business or commercial loan and the Bank's base rate changes,
the Bank, at its sole option, may from time to time recalculate the periodic
installment amount so that the remaining period installments will fully amortize
the remaining loan balance within the remaining amortization term in equal
installments at the interest rate then being charged under this Note. THE
UNDERSIGNED AGREE(S) TO PAY THE PERIODIC INSTALLMENTS AS THEY MAY BE
RECALCULATED BY THE BANK, AT THE BANK'S SOLE OPTION, FROM TIME TO TIME AND
ACKNOWLEDGE(S) THAT A RECALCULATION SHALL NOT AFFECT THE MATURITY DATE OR THE
OTHER TERMS AND PROVISIONS OF THIS NOTE. If this Note or any installment under
this Note shall become payable on a day other than a day on which the Bank is
open for business, this payment may be extended to the next succeeding business
day and interest shall be payable at the rate specified in this Note during this
extension. Any payments of principal in excess of the installment payments
required under this Note need not be accepted by the Bank (except as required
under applicable law), but if accepted shall apply to the installments last
falling ???. A late installment charge equal to 5% of each late installment may
be charged on any installment payment not received by the Bank within ???
calendar days after the installment due date, but acceptance of payment of this
charge shall not waive any default under this Note.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or
absolute, now existing or later arising, and however evidenced (collectively
"Indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with ??? Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any
other collateral, rights and properties described in each and every deed of
trust, mortgage, security agreement, pledge, assignment and other agreement
which has been, or will at any time(s) later be, executed by any (or all) of
the undersigned to or for the benefit of the Bank (collectively "Collateral").
Notwithstanding the above, (i) to the extent that any portion of the
indebtedness is a consumer loan, that portion shall not be secured by any deed
of trust or mortgage on or other security interest in any of the undersigned's
principal dwelling or in any of the undersigned's real property which is not a
purchase money security interest as to that portion, unless expressly provided
to the contrary in another place, or (ii) if the undersigned (or any of them)
has (have) given or give(s) Bank a deed of trust or mortgage covering real
property, that deed of trust or mortgage shall not secure this Note or any
other indebtedness of the undersigned (or any of them), unless expressly
provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the indebtedness ("guarantor") (a) fail(s) to pay this Note or any of
the indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to
pay any indebtedness owing on a demand basis upon demand; or (b) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any guarantor and the Bank; or (c) become(s)
insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy,
or a reorganization, arrangement or creditor composition proceeding, (if a
business entity) cease(s) doing business as a going concern, (if a natural
person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any
general partner of it dies, becomes incompetent or becomes the subject of a
bankruptcy proceeding or (if a corporation or a limited liability company) is
the subject of a dissolution, merger or consolidation; or (d) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the indebtedness shall be discovered to be untrue or
incomplete; or (e) if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the indebtedness; or (f) if these is any failure
by any of the undersigned or any guarantor to pay when due any of its
indebtedness (other than to the Bank) or in the observance or performance of any
term, covenant or condition in any document evidencing, securing or relating to
such indebtedness; or (g) if the Bank deems itself insecure, believing that the
prospect of payment of this Note or any of the indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (h) if there
is filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
indebtedness to be immediately due and payable (notwithstanding any provisions
???sined in the evidence thereof to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the indebtedness any ???unts owning
by the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law. In
addition, if this Note is secured by a deed of trust or mortgage covering real
property, ??? the trustor or mortgagor shall not mortgage or pledge the
mortgaged premises as security for any other indebtedness or obligations. This
???, together with all other indebtedness secured by said deed of trust or
mortgage, shall become due and payable immediately, without notice, at the
option of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge
the mortgaged premises for any other indebtedness or obligations or shall
convey, assign or transfer the mortgaged premises by deed, installment sale
contract or other instrument, or (b) if the title to the mortgaged premises
shall become vested in any other person or party in any manner whatsoever, (c)
if there is any disposition (through one or more transactions) of legal or
beneficial title to a controlling interest of said trustor or mortgagor. All
payment under this Note shall be in immediately available United States funds,
without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successor and assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge
CA 00181 (9/95)
<PAGE> 4
available under Section ?-608 of the California Uniform Commercial Code
waive(s) all other suretyship defenses or right to discharge. The undersigned
agree(s) that the Bank has the right to sell, assign, or grant participations,
or any interest, in any or all of the indebtedness, and that, in connection with
this right, but without limiting its ability to make other disclosures to the
full extent allowable, the Bank may disclose all documents and information
which the Bank now or later has relating to the undersigned or the
indebtedness. The undersigned agree(s) that the Bank may provide information
relating to this Note or to the undersigned to the Bank's parent affiliates,
subsidiaries and service providers.
The undesigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal
expenses and reasonable attorney fees, whether inside or outside counsel is
used, whether or not suit is instituted and, if suit is instituted, whether at
the trial court level, appellate level, in a bankruptcy, probate or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or incurred in any other matter or proceeding relating to
this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, endorser and other party signing
this Note in an similar capacity. If any provision of this Note is
unenforceable in whole or part for any reason, the remaining provisions shall
continue to be effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
The maximum interest rate shall not exceed the highest applicable usury ceiling.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY
JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR
IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
This note is cross defaulted and cross collateralized to all present and future
indebtedness of Calico Technology, Inc. This note is subject to the terms of a
Loan and Security Agreement dated 3/10/97 and Letter Agreement dated 5/13/98,
and any and all subsequent modification(s) thereof.
Calico Technology, Inc.
By: /s/ JOSEPH MAR Its: VP & CFO
-------------------------------------------------------------------
SIGNATURE OF TITLE
By: Its:
-------------------------------------------------------------------
SIGNATURE OF TITLE
By: Its:
-------------------------------------------------------------------
SIGNATURE OF TITLE
By: Its:
-------------------------------------------------------------------
SIGNATURE OF TITLE
4 North Second Street, Ste. 135 San Jose CA USA 95113
- --------------------------------------------------------------------------------
STREET ADDRESS CITY STATE COUNTRY ZIP CODE
- --------------------------------------------------------------------------------
FOR BANK USE ONLY CCAR #
- --------------------------------------------------------------------------------
Loan Officer Initials Loan Group Name Obligor(s) Name
MBS High Technology Calico Technology, Inc.
- --------------------------------------------------------------------------------
Loan Officer I.D. No. Loan Group No. Obligor # Note # Amount
48703 95820 1185673086 $162,762.82
- --------------------------------------------------------------------------------
CA 00161 (9/95)
<PAGE> 5
VARIABLE RATE-SINGLE PAYMENT NOTE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION #
<S> <C> <C> <C>
$250,000.00 April 23, 1998 January 20, 1999 77-0373344
- --------------------------------------------------------------------------------
</TABLE>
On the Maturity Date, as stated above, for value received, the undersigned
promise(s) to pay to the order of Comerica Bank-California ("Bank"), at any
office of the Bank in the State of California, Two Hundred Fifty Thousand and
no/100 Dollars (U.S.) with interest from the date of this Note at a per annum
rate equal to the Bank's base rate from time to time in effect plus 0.500% per
annum until maturity, whether by acceleration or otherwise or until Default, as
later defined, and after that at a default rate equal to the rate of interest
otherwise prevailing under this Note plus 3% per annum (but in no event in
excess of the maximum rate permitted by law). The Bank's "base rate" is that
annual rate of interest so designated by the Bank and which is changed by the
Bank from time to time. Interest rate changes will be effective for interest
computation purposes as and when the Bank's base rate changes. Interest shall be
calculated for the actual number of days the principal is outstanding on the
basis of a 360-day year if this Note evidences a business or commercial loan or
a 365-day year if a consumer loan. Accrued interest on this Note shall be
payable on either (i) [ ] the Maturity Date or (ii) [X] the 20th day of each
MONTH commencing May 20, 1998, until the Maturity Date when all amounts
outstanding under this Note shall be due and payable in full. If the frequency
of interest payments is not otherwise specified, accrued interest on this Note
shall be payable monthly on the first day of each month. If any payment of
principal or interest under this Note shall be payable on a day other than a day
on which the Bank is open for business, this payment shall be extended to the
next succeeding business day and interest shall be payable at the rate specified
in this Note during this extension. A late payment charge equal to 5% of each
late payment may be charged on any payment not received by the Bank within 10
calendar days after the payment due date, but acceptance of payment of this
charge shall not waive any Default under this Note.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge, assignment and other security or
collateral agreement which has been, or will at any time(s) later be, executed
by any (or all) of the undersigned to or for the benefit of the Bank
(collectively "Collateral"). Notwithstanding the above, (i) to the extent that
any portion of the indebtedness is a consumer loan, that portion shall not be
secured by any deed of trust or mortgage on or other security interest in any of
the undersigned's principal dwelling or in any of the undersigned's real
property which is not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place, or (ii) if the
undersigned (or any of them) has (have) given or give(s) Bank a deed of trust or
mortgage covering real property, that deed of trust or mortgage shall not secure
this Note or any other indebtedness of the undersigned (or any of them), unless
expressly provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the indebtedness ("guarantor") (i) fail(s) to pay any of the
indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to pay
any indebtedness owing on a demand basis upon demand; or (ii) fail(s) to comply
with any of the terms or provisions of any agreement between the undersigned (or
any of them) or any guarantor and the Bank; or (iii) become(s) insolvent or the
subject of a voluntary or involuntary proceeding in bankruptcy, or a
reorganization, arrangement or creditor composition proceeding, (if a business
entity) cease(s) doing business as a going concern, (if a natural person) die(s)
or become(s) incompetent, (if a partnership) dissolve(s) or any general partner
of it dies or becomes incompetent or becomes the subject of a bankruptcy
proceeding or (if a corporation or a limited liability company) is the subject
of a dissolution, merger or consolidation; or (a) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the indebtedness shall be discovered to be untrue or
incomplete; or (b) if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the indebtedness; or (c) if there is any failure
by any of the undersigned or any guarantor to pay when due any of its
indebtedness (other than to the Bank) or in the observance or performance of any
term, covenant or condition in any document evidencing, securing or relating to
such indebtedness; or (d) if the Bank deems itself insecure believing that the
prospect of payment of this Note or any of the indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (e) if there
is filed or issued a levy or writ or attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
indebtedness to be immediately due and payable (notwithstanding any provisions
contained in the evidence of it to the contrary), sell or liquidate all or any
portion of the collateral, set off against the indebtedness any amounts owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law. In
addition, if this Note is secured by a deed of trust or mortgage covering real
property, then the trustor or mortgagor shall not mortgage or pledge the
mortgaged premises as security for any other indebtedness or obligations. This
Note, together with all other indebtedness secured by said deed of trust or
mortgage, shall become due and payable immediately, without notice, at the
option of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge
the mortgaged premises for any other indebtedness or obligations or shall
convey, assign or transfer the mortgaged premises by deed, installment sale
contract or other instrument, or (b) if the title to the mortgaged premises
shall become vested in any other person or party in any manner whatsoever, or
(c) if there is any disposition (through one of more transactions) of legal
beneficial title to a controlling interest of said trustor or mortgagor. All
payments under this Note shall be in immediately available United States funds,
without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices, and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-605 of the California Uniform
Commercial Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the Bank has the right to sell,
assign, or grant participations, or any interest, in any or all of the
indebtedness, and that, in connection with this right, but without limiting its
ability to make other disclosures to the full extent allowable, the Bank may
disclose all documents and information which the Bank now or later has relating
to the undersigned or the indebtedness. The undersigned agree(s) that the Bank
may provide information relating to this Note or to the undersigned to the
Bank's parent, affiliates, subsidiaries and service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal
expenses and reasonable attorney fees, whether inside or outside counsel is
used, whether or not the suit is instituted and, if suit in instituted, whether
at the trial court level, appellate level, in a bankruptcy, probate or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or incurred in any other matter or proceeding relating to
this Note.
<PAGE> 6
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
The maximum interest rate shall not exceed the highest applicable usury ceiling.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY
JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR
IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
This note is cross defaulted and cross collateralized to all present and future
indebtedness of Calico Technology, Inc. This note is subject to the terms of a
Loan and Security Agreement dated 3/10/97 and Letter Agreement dated 5/13/98,
and any and all subsequent modification(s) thereof.
Calico Technology, Inc.
[SIGNATURE ILLEGIBLE]
By: Its: VP & CFO
- -------------------------------------------------------------
SIGNATURE OF TITLE
By: Its:
- -------------------------------------------------------------
SIGNATURE OF TITLE
By: Its:
- -------------------------------------------------------------
SIGNATURE OF TITLE
By: Its:
- -------------------------------------------------------------
SIGNATURE OF TITLE
North Second Street, Ste. 135 San Jose CA USA 95113
- --------------------------------------------------------------------------------
STREET ADDRESS CITY STATE COUNTRY ZIP CODE
- --------------------------------------------------------------------------------
FOR BANK USE ONLY CCAR #
- --------------------------------------------------------------------------------
Loan Officer Initials Loan Group Name Obligor(s) Name
[ILLEGIBLE] High Technology Calico Technology, Inc.
- --------------------------------------------------------------------------------
Loan Officer I.D. No. Loan Group No. Obligor # Note # Amount
48703 95820 1185673086 $250,000.00
- --------------------------------------------------------------------------------
<PAGE> 7
VARIABLE RATE-INSTALLMENT NOTE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION #
<S> <C> <C> <C>
$14,897.21 April 23, 1998 January 20, 2002 77-0373344
- -------------------------------------------------------------------------------
</TABLE>
For Value Received, the undersigned promise(s) to pay to the order of Comerica
Bank-California ("Bank"), at any office of the Bank in the State of California
Fourteen Thousand Eight Hundred Ninety Seven and 21/100 Dollars (U.S.) in
installments of $506.40 each inclusive of interest on the unpaid balance from
the date of this Note at a per annum rate equal to the Bank's base rate from
time to time in effect plus 0.500% per annum until maturity, whether by
acceleration or otherwise, or until Default, as later defined, and after that
at a default rate equal to the rate of interest otherwise prevailing under this
Note plus 3% per annum (but in no event in excess of the maximum rate permitted
by law). Interest shall be calculated for the actual number of days the
principal is outstanding on the basis of a 360 day year if this Note evidences
a business or commercial loan or a 365 day year if a consumer loan. The Bank's
"base rate" is that annual rate of interest so designated by the Bank and which
is changed by the Bank from time to time. Interest rate changes will be
effective for interest computation purposes as and when the Bank's base rate
changes. Installments of principal and accrued interest due under this Note
shall be payable on the 20th day of each month, commencing* February 20, 1999,
and the entire remaining unpaid balance of principal and accrued interest shall
be payable on the Maturity Date set forth above. If the frequency of principal
and interest installments is not otherwise specified, installments of principal
and interest due under this Note shall be payable monthly on the first day of
each month.
*Nine Monthly Interest Only Payments shall commence on May 20, 1998.
In the event the periodic installments set forth above are inclusive of
interest, these installments are calculated at an assumed fixed interest rate
and an assumed amortization term. The amortization term ends on January 20,
2002 (If left blank, the amortization terms ends on the Maturity Date). In the
event this Note evidences a business or commercial loan and the Bank's base
rate changes, the Bank, at its sole option, may from time to time recalculate
the periodic installment amount so that the remaining periodic installments
will fully amortize the remaining loan balance within the remaining
amortization term in equal installments at the interest rate then being charged
under this Note. THE UNDERSIGNED AGREE(S) TO PAY THE PERIODIC INSTALLMENTS AS
THEY MAY BE RECALCULATED BY THE BANK, AT THE BANK'S SOLE OPTION, FROM TIME TO
TIME AND ACKNOWLEDGE(S) THAT A RECALCULATION SHALL NOT AFFECT THE MATURITY DATE
OR THE OTHER TERMS AND PROVISIONS OF THIS NOTE. If this Note or any installment
under this Note shall become payable on a day other than a day on which the
Bank is open for business, this payment may be extended to the next succeeding
business day and interest shall be payable at the rate specified in this Note
during this extension. Any payments of principal in excess of the installment
payments required under this Note need not be accepted by the Bank (except as
required under applicable law), but if accepted shall apply to the installments
last falling due. A late installment charge equal to 5% of each late
installment may be charged on any installment payment not received by the Bank
within 10 calendar days after the installment due date, but acceptance of
payment of this charge shall not waive any default under this Note.
????? Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtedness)" are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with ???? Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any
other collateral, rights and properties described in each and every deed of
trust, mortgage, security agreement, pledge, assignment and other agreement
which has been or will at any time(s) later be, executed by any (or all) of the
undersigned to or for the benefit of the Bank (collectively "Collateral").
Notwithstanding the above, (i) to the extent that any portion of the
Indebtedness is a consumer loan, that portion shall not be secured by any deed
of trust or mortgage on or other security interest in any of the undersigned's
principal dwelling or in any of the undersigned's real property which is not a
purchase money security interest as to that portion, unless expressly provided
to the contrary in another place, or (ii) if the undersigned (or any of them)
has (have) given or give(s) Bank a deed of trust or mortgage covering real
property, that deed of trust or mortgage shall not secure this Note or any
other indebtedness of the undersigned (or any of them), unless expressly
provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the Indebtedness ("guarantor") (a) fails(s) to pay this Note or any of
the Indebtedness when due, by maturity, acceleration or otherwise, or fail(s)
to pay any Indebtedness owing on a demand basis upon demand; or (b) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any guarantor and the Bank; or (c) become(s)
insolvent or the subject of a voluntary or involuntary proceeding in
bankruptcy, or a reorganization, arrangement or creditor composition
proceeding, (if a business entity) cease(s) doing business as a going concern,
(if a natural person) die(s) or become(s) incompetent, (if a partnership)
dissolve(s) or any general partner of it dies, becomes incompetent or becomes
the subject of a bankruptcy proceeding or (if a corporation or a limited
liability company) is the subject of a dissolution, merger or consolidation; or
(d) if any warranty or representation made by any of the undersigned or any
guarantor in connection with this Note or any of the Indebtedness shall be
discovered to be untrue or incomplete; or (e) if there is any termination,
notice of termination, or breach of any guaranty, pledge, collateral assignment
or subordination agreement relating to all or any part of the Indebtedness; or
(f) if there is any failure by any of the undersigned or any guarantor to pay
when due any of its Indebtedness (other than to the Bank) or in the observance
or performance of any term, covenant or condition in any document evidencing,
securing or relating to such indebtedness; or (g) if the Bank deems itself
insecure, believing that the prospect of payment of this Note or any of the
Indebtedness is impaired or shall fear deterioration, removal or waste of any
of the Collateral; or (h) if there is filed or issued a levy or writ of
attachment or garnishment or other like judicial process upon the undersigned
(or any of them) or any guarantor or any of the Collateral, including without
limit, any accounts of the undersigned (or any of them) or any guarantor with
the Bank, then the Bank, upon the occurrence of any of these events (each a
"Default"), may at its option and without prior notice to the undersigned (or
any of them), declare any or all of the Indebtedness to be immediately due and
payable (notwithstanding any provisions contained in the evidence thereof to
the contrary), sell or liquidate all or any portion of the Collateral, set off
against the Indebtedness any amounts owing by the Bank to the undersigned (or
any of them), charge interest at the default rate provided in the document
evidencing the ???ant indebtedness and exercise any one or more of the rights
and remedies granted to the Bank by any agreement with the undersigned (??? any
of them) or given to it under applicable law. In addition, if this Note is
secured by a deed of trust or mortgage covering real property, ??? the trustor
or mortgagor shall not mortgage or pledge the mortgaged premises as security
for any other indebtedness or obligations. This ???, together with all other
indebtedness secured by said deed of trust or mortgage, shall become due and
payable immediately, without notice, at the option of the Bank, (a) if said
trustor or mortgagor shall mortgage or pledge the mortgaged premises for any
other indebtedness or obligations or shall convey, assign or transfer the
mortgaged premises by deed, installment sale contract or other instrument, or
(b) if the title to the mortgaged premises shall become vested in any other
person or party in any manner whatsoever, or (c) if there is any disposition
(through one or more transactions) of legal or beneficial title to a
controlling interest of said trustor or mortgagor. All payments under this Note
shall be in immediately available United States funds, without setoff or
counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge
<PAGE> 8
available under Section 3-605 of the California Uniform Commercial Code and
waive(s) all other suretyship defenses or right to discharge. The undersigned
agree(s) that the Bank has the right to sell, assign, or grant participations,
or any interest, in any or all of the indebtedness, and that, in connection
with this right, but without limiting its ability to make other disclosures to
the full extent allowable, the Bank may disclose all documents and information
which the Bank now or later has relating to the undersigned or the
Indebtedness. The undersigned agree(s) that the Bank may provide information
relating to this Note or to the undersigned to the Bank's parent, affiliates,
subsidiaries and service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether inside or outside counsel is used, whether
or not suit is instituted and, if suit is instituted, whether at the trial court
level, appellate level, in a bankruptcy, probate or administrative proceeding or
otherwise) incurred in collecting or attempting to collect this Note or incurred
in any other matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
The maximum interest rate shall not exceed the highest applicable usury ceiling.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
Calico Technology, Inc.
By: [Signature Illegible] Its: VP & CFO
--------------------------------- -----------------------------------
SIGNATURE OF TITLE
By: Its:
--------------------------------- -----------------------------------
SIGNATURE OF TITLE
By: Its:
--------------------------------- -----------------------------------
SIGNATURE OF TITLE
4 North Second Street, Ste. 135 San Jose CA USA 95113
- -------------------------------------------------------------------------------
STREET ADDRESS CITY STATE COUNTRY ZIP CODE
================================================================================
FOR BANK USE ONLY CCAR#
- --------------------------------------------------------------------------------
Loan Officer Initials Loan Group Name Obligor(s) name
MBS High Technology Calico Technology, Inc.
- --------------------------------------------------------------------------------
Loan Officer I.D. No. Loan Group No. Obligor # Note # Amount
48703 95820 1185673086 $14,897.21
================================================================================
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated July 13, 1999, except for Note 12, which is as of August 24, 1999,
relating to the consolidated financial statements of Calico Commerce, Inc.,
which appears in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
August 25, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 10, 1998, with respect to the financial
statements of FirstFloor Software, Inc. included in the Registration Statement
(Form S-1) and related Prospectus of Calico Commerce, Inc. for the registration
of shares of its common stock.
/s/ ERNST & YOUNG LLP
Palo Alto, California
August 25, 1999
