<PAGE>
As filed with the Securities and Exchange Commission on December 29, 1999
Registration No. 333-83491
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
POST-EFFECTIVE
AMENDMENT NO. 2
to
FORM S-1
REGISTRATION STATEMENT
Under the Securities Act of 1933
---------------
TIBCO SOFTWARE INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 7372 77-0449727
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I. R. S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------
TIBCO Software Inc.
3165 Porter Drive
Palo Alto, CA 94304
(650) 846-5000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
VIVEK RANADIVE
President and Chief Executive Officer
TIBCO Software Inc.
3165 Porter Drive
Palo Alto, CA 94304
(650) 846-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C> <C>
LARRY W. SONSINI, Esq. ALISON S. RESSLER, Esq. JULIAN BROWN, Esq.
BRIAN C. ERB, Esq. Sullivan & Cromwell TIBCO Finance Technology Inc.
Wilson Sonsini Goodrich & Rosati 1888 Century Park East 3375 Hillview Ave.
Professional Corporation Los Angeles, CA 90067 Palo Alto, CA 94304
650 Page Mill Road (310) 712-6600 (650) 846-5000
Palo Alto, CA 94304
(650) 493-9300
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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 statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Dated December 29, 1999.
6,750,000 Shares
[LOGO OF TIBCO]
TIBCO Software Inc.
Common Stock
----------------
This prospectus covers shares of common stock of TIBCO Software Inc. to be
sold by TIBCO Finance Technology Inc. ("TFT)" to its employees and consultants
upon the exercise of options granted under TFT's stock option plan.
This prospectus also covers shares of TIBCO Software common stock previously
sold by TFT to its employees and consultants upon the exercise of options and
permits the resale by them as "selling stockholders". The selling stockholders
are listed in Appendix A.
All of the shares covered by this Registration Statement are already issued
and outstanding. The shares referred to in the first paragraph are owned by
Reuters Nederland B.V. who provides them to TFT pursuant to a Stock
Contribution Agreement between the parties. The shares referred to in the
second paragraph are owned by the selling stockholders.
Some of the selling stockholders have agreed not to offer or sell their
shares for 180 days following July 13, 1999, which was the date of TIBCO
Software's IPO prospectus.
The common stock of TIBCO Software trades on the Nasdaq National Market
under the symbol "TIBX".
You should read the risk factors beginning on page 6 in the accompanying
prospectus before purchasing the shares of common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is December 29, 1999.
<PAGE>
No dealer, salesperson or any other person is authorized to give any
information or 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, and only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 29
Management............................................................... 42
Relationship with Reuters and Certain Transactions....................... 53
Principal Stockholders................................................... 60
Description of Capital Stock............................................. 62
Shares Eligible for Future Sale.......................................... 65
Plan of Distribution..................................................... 67
Legal Matters............................................................ 68
Experts.................................................................. 68
Additional Information................................................... 68
Appendix A--Selling Stockholders......................................... A-1
Index to Financial Statements............................................ F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold and our
financial statements and notes to those statements appearing elsewhere in this
prospectus.
Our Business
We are a leading provider of software solutions that enable businesses to
integrate internal operations, business partners and customer channels in real-
time. Through our products and services, we enable computer applications and
systems to communicate efficiently across local or wide area networks,
including the Internet.
Our TIB/ActiveEnterprise product suite facilitates the distribution of
information and integration of business processes by connecting applications to
a network through a technology called The Information Bus or the TIB. This
technology uses a publish/subscribe model, in which a user specifies once the
type of information desired, and the specified information is then delivered to
the user automatically each time it becomes available. The TIB technology
allows multiple distinct applications, web sites, databases and other content
sources to be integrated and managed in real-time within a common framework.
TIB/ActiveEnterprise also enables enterprises to extend their information
infrastructures across the Internet. Our product suite is employed in high-
performance environments and provides enterprises with a comprehensive and
scalable method of distributing relevant, timely information across and beyond
the enterprise.
Our products are currently in use by over 300 companies in diverse markets
such as telecommunications, high-tech manufacturing, energy, financial services
and e-business. Current users of our TIB/ActiveEnterprise products include
3Com, Bechtel, Cedel Global Services, Chevron, Compaq, Dalkia, Ericsson,
Fidelity, First National Bank of South Africa, Goldman Sachs, Hyundai, Intel,
Intuit, Lucent Technologies, Mobil, Motorola, The Nasdaq Stock Market, National
Westminster Bank, NEC Electronics, Pacific Power, PageNet, Philips Medical,
Telia, Taiwan Semiconductor Manufacturing Company, United Microelectronics
Corp., Unibank and Yahoo!. Each of these companies, other than financial
services companies, accounted for at least $500,000 of our revenue over the
period from January 1997 through May 1999. Each of the financial services
companies accounted for at least $200,000 of our revenue during that period.
In fiscal 1997 and 1998 and the first three quarters of fiscal 1999, we had
revenue of $35.3 million, $52.8 million and $63.1 million. During those periods
we incurred net losses of $4.7 million, $13.0 million and $12.9 million. As of
August 31, 1999, we had an accumulated deficit of approximately $30.5 million.
Our Market Opportunity
As the range of computing environments and software applications used across
the typical business enterprise grows, creating a real-time enterprise through
technology is becoming vastly more complex. In today's increasingly global and
competitive environment, applications must be tightly integrated in order to
effectively manage, grow and extend the business. Enabling the real-time
exchange of information among suppliers, customers and partners can enhance
management and employee productivity, create manufacturing efficiencies and
improve customer service. We believe that many traditional application
integration solutions have failed to address all of today's information
integration needs because they lack comprehensiveness or flexibility, or use
network resources inefficiently.
Our Strategy
Our objective is to establish the TIB/ActiveEnterprise product suite as the
leading software solution for linking enterprises'
3
<PAGE>
internal operations, business partners and customer channels. The core elements
of our strategy include:
. Promote the widespread adoption of our technology. We seek to establish
our technology and product suite as the industry standard by embedding
our technology in leading vendors' products and further extending the
functionality of our solution.
. Enhance our position as a provider of Internet infrastructure. We plan to
leverage our technology to expand the solutions we offer to companies
involved in electronic commerce.
. Focus on licensing our products. We plan to focus on licensing our
products. To support this strategy, we plan to expand our relationships
with systems integrators and professional services firms.
. Leverage our expertise in specific markets. We plan to expand our
presence in markets such as telecommunications, high-tech manufacturing
and energy and capitalize on the presence of Reuters in the financial
services sector.
. Expand our international market presence. We intend to continue building
the strength of our international presence in regions such as Europe and
Asia.
Company Background
We are the successor to a portion of the business of Teknekron Software
Systems, Inc., a leading innovator in the development of software
infrastructure for the integration and delivery of market data, such as stock
quotes, news and other financial information, in trading rooms of large banks
and financial services institutions. Teknekron was acquired by Reuters, the
global news and information group, in March 1994. In January 1997, we were
established as a separate entity to focus on creating and marketing software
solutions for use in the integration of business information, processes and
applications in diverse industries outside the financial services market.
Reuters holds a majority equity interest in our company, but has agreed to
limit its voting rights. Nevertheless, Reuters has significant influence over
our company. See "Relationship with Reuters and Certain Transactions--
Stockholders Agreement" beginning on page 56 for a description of arrangements
that enables Reuters to exercise influence over our company. We license the
technology underlying some of our TIB/ActiveEnterprise products from Reuters,
and Reuters is our preferred distributor in the financial services market. When
we refer to Reuters in this prospectus, we include Reuters Group PLC and its
consolidated subsidiaries, including TFT, but excluding our company, TIBCO
Software.
Recent Developments
On November 4, 1999, we acquired substantially all of the assets of
InConcert, Inc., a subsidiary of Xerox Corporation and a developer of business
integration solutions for telecommunications companies, for $34 million in
cash. The acquisition will be accounted for under the purchase method of
accounting. We are in the process of evaluating the allocation of the purchase
price to the assets acquired, which will include in-process technology to be
written off in the fourth quarter of fiscal 1999, and goodwill, which will be
amortized over the benefit period.
On December 16, 1999, we announced results for our fourth quarter and fiscal
year ended November 30, 1999. Growth during the quarter was driven by
increasing demand for infrastructure software to conduct B2B e-business over
the Internet. Total revenues for the fourth quarter were $33.3 million, an
increase of 96% from $17.0 million in the same period a year earlier and a 39%
increase over the quarter ended August 31, 1999. Excluding non-cash charges
relating to stock-compensation, goodwill and one-time acquisition fees, our
operating net income for the fourth quarter of 1999 was $0.6 million,
4
<PAGE>
or $0.01 per share, compared to an operating net loss of $1.7 million, or $0.03
per share for the fourth quarter of 1998, (computed using pro forma weighted
average shares). Total revenues for fiscal 1999 were $96.4 million, an 83
percent increase over fiscal 1998. Excluding non-cash charges relating to
stock-compensation, goodwill and one-time acquisition fees, our operating net
loss for fiscal 1999 was $6.9 million, or $0.12 per share, compared to a net
loss of $7.9 million, or $0.17 per share for fiscal 1998 (computed using pro
forma weighted average shares). License revenues were $21.7 million for the
fourth quarter 1999, an increase of 244 percent from $6.3 million in the same
period last year. License revenues for fiscal 1999 were $57 million, an
increase of 225 percent over fiscal 1998.
We added approximately 200 new customers during the year in several key
vertical markets, including telecommunications, Internet portals,
manufacturing, energy and financial services. We also released more than two
dozen new products and product releases during the year including
TIB/PortalBuilder, a portal construction product used to build mySAP.com, a B2B
Internet portal.
5
<PAGE>
Summary Financial Information
(in thousands, except per share data)
Prior to 1997, we were part of a subsidiary of Reuters that included the
operations of TFT. Our statement of operations data for fiscal 1996 was
prepared on a carved-out basis from the financial statements of that
subsidiary. Our pro forma net loss per share reflects the automatic conversion
of all of our outstanding preferred stock into common stock upon the closing of
the IPO offering, as if such conversion occurred on December 1, 1997 or at the
date of original issuance, if later.
<TABLE>
<CAPTION>
Nine Months
Eleven Ended
Year Ended Months Ended Year Ended August 31,
December 31, November 30, November 30, ----------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------- -------
Statement of Operations
Data: (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
License................ $ 6,066 $ 6,219 $ 17,495 $11,200 $35,214
Service and
maintenance........... 24,249 29,055 35,262 24,526 27,893
------- ------- -------- ------- -------
Total revenue......... 30,315 35,274 52,757 35,726 63,107
Gross profit............ 10,709 19,427 25,075 16,007 37,129
Loss from operations.... (3,089) (5,203) (14,043) (10,643) (13,556)
Net loss................ (4,640) (4,663) (12,951) (9,758) (12,888)
Net loss per share:
Basic and diluted..... $ (0.24) $ (0.65) $ (0.50) $ (0.49)
======= ======== ======= =======
Weighted average
shares............... 19,202 20,011 19,653 26,511
======= ======== ======= =======
Pro forma net loss per
share:
Basic and diluted
(unaudited).......... $ (0.28) $ (0.26)
======== =======
Weighted average
shares
(unaudited).......... 47,002 49,748
======== =======
</TABLE>
<TABLE>
<CAPTION>
November 30,
----------------- August 31,
1997 1998 1999
------- -------- -----------
Balance Sheet Data: (unaudited)
<S> <C> <C> <C>
Cash, cash equivalents, investments, deposits
held by Reuters and
short-term investments......................... $18,318 $ 15,970 $126,670
Working capital................................. 15,168 18,301 129,974
Total assets.................................... 31,046 36,289 166,328
Accumulated deficit............................. (4,663) (17,614) (30,502)
Stockholders' equity............................ 17,167 21,704 140,664
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the events described below actually occur, our
business, financial condition or results of operations could be harmed. In such
case, the trading price of our common stock could decline, and you could lose
all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including the risks described below and elsewhere in this prospectus.
Risks Related to Our Business
Because we have a limited operating history as an independent entity, it may be
difficult for prospective investors to evaluate our business and prospects
When making an investment decision, you should consider the risks, expenses
and difficulties that we may encounter as a newly-independent company
implementing a new business strategy. We have operated as a stand-alone company
only since January 1997. Prior to January 1997, our business was conducted by a
subsidiary of Reuters that focused on providing market data, custom messaging
and integration solutions to companies in the financial services, high-tech
manufacturing and energy markets. At the time we were formed as a separate
entity, we implemented an expanded business strategy focused on deriving
license revenue from direct licensing of our TIB/ActiveEnterprise product suite
to a diverse group of customers outside the financial services market. We began
shipments of TIB/ActiveEnterprise products in the second half of fiscal 1998.
These changes have required us to adjust our business processes and hire
additional employees. We cannot be certain that our new business strategy will
be successful or that we can successfully operate as an independent entity.
Reuters has historically provided us with shared functions and services such
as accounting, legal and insurance. Although we are majority-owned by Reuters,
Reuters has no obligation to assist us except as described in "Relationship
with Reuters and Certain Transactions--Intercompany Agreements--Intercompany
Services" on page 57. If we fail to implement the financial, operational,
administrative and other systems and infrastructure necessary to support our
business as a stand-alone company, the growth of our business could be
hindered.
We have a history of losses, and we expect future losses, and if we do not
achieve and sustain profitability our business will suffer and our stock price
may decline
Although our revenue has increased in recent quarters, we may not be able to
sustain our growth or obtain sufficient revenue to achieve and sustain
profitability. We incurred net losses of approximately $4.7 million, $13.0
million and $12.9 million in fiscal 1997 and 1998 and in the first three
quarters of fiscal 1999. As of August 31, 1999, we had an accumulated deficit
of approximately $30.5 million.
Since the beginning of fiscal 1998, we have invested significantly in our
technology research and development and in building our sales and marketing
organization. We expect to continue to spend substantial financial and other
resources on developing and introducing enhancements to our existing products
and new software products and on expanding our direct sales and marketing
activities. As a result, we need to generate significant revenue to achieve and
maintain profitability. We expect that our research and development expenses
and our sales and marketing expenses will continue to increase in absolute
dollars and may increase as percentages of revenue for the forseeable future.
7
<PAGE>
Our future revenue is unpredictable, and we expect our quarterly operating
results to fluctuate, which may cause our stock price to decline
Period-to-period comparisons of our operating results may not be a good
indication of our future performance. Moreover, our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that event, our stock price would likely decline. As a result of our limited
operating history, our new business strategy and the evolving nature of the
markets in which we compete, we may have difficulty accurately forecasting our
revenue in any given period. In addition to the factors discussed elsewhere in
this section, a number of factors may cause our revenue to fall short of our
expectations or cause fluctuations in our operating results, including:
. the announcement or introduction of new or enhanced products or services
by our competitors;
. the amount and timing of operating costs and capital expenditures
relating to the expansion of our operations; and
. the capital and expense budgeting decisions of our customers.
In addition, our quarterly operating results have historically been subject
to variations throughout the year due to a general slow-down in our sales in
the summer months, particularly in Europe and, to a lesser extent, in the
United States. Specifically, we generally experience relatively lower revenue
in our third and, to a lesser extent, our first fiscal quarters. These seasonal
variations in our operating results may lead to fluctuations in our results of
operations from quarter to quarter throughout the year.
Variations in the time it takes us to sell our products may cause fluctuations
in our operating results
Variations in the length of our sales cycles could cause our revenue to
fluctuate widely from period to period. Because our operating expenses are
relatively fixed over the short term, these fluctuations could cause our
operating results to suffer in some future periods. Our customers generally
take a long time to evaluate our products, and many individuals may be involved
in the evaluation process. Because of the number of factors influencing the
sales process, the period between our initial contact with a new customer and
the time when we recognize revenue from that customer varies widely in length.
Our sales cycles typically range from three to six months. For larger
opportunities with new customers, however, these cycles can be much longer.
Our dependence on a limited number of customers for a substantial amount of our
sales could lead to fluctuations in our operating results
Our business depends on sales of our products to a limited number of
customers, which may cause fluctuations in our operating results. We do not
have long-term contracts with any of our customers. There can be no assurance
that any of our customers will continue to purchase our products in the future.
As a result, a customer that generates substantial revenue for us in one period
may not be a source of revenue in subsequent periods.
Our licensing and distribution relationship with Reuters places limitations on
our ability to conduct our business
We are substantially dependent on our licensing and distribution relationship
with Reuters and its wholly-owned subsidiary, TFT. Our relationship with
Reuters and TFT involves limitations and restrictions on our business, as well
as other risks, described below. See "Relationship with Reuters and Certain
Transactions--Intercompany Agreements--License, Maintenance and Distribution
Agreement with Reuters" beginning on page 53 for a detailed description of the
agreement that governs our licensing and distribution relationship with
Reuters.
Reuters has access to the intellectual property used in our products, and
could use the intellectual property to compete with
8
<PAGE>
us. We license the underlying TIB messaging technology incorporated into some
of our important TIB/ActiveEnterprise products from Reuters. We do not own this
technology. Reuters is not restricted from using the TIB technology to produce
products that compete with our products, and it can grant limited licenses to
the TIB technology to others who may compete with us. In addition, we must
license all the intellectual property and products we create through December
2011 to Reuters. This will place Reuters in a position to more easily develop
products that compete with our product offerings.
We must rely on Reuters and other distributors to sell our products in the
financial services market, and they may not be successful in doing so. Under
our agreements with Reuters, we are restricted from selling our products and
providing consulting services directly to companies in the financial services
market and major competitors of Reuters, and from using the TIB technology we
license from Reuters to develop products specifically for use by these
companies. Accordingly, we must rely on Reuters and other third-party resellers
and distributors to sell our products to these companies.
In fiscal 1997 and 1998, substantially all of our revenue from sales in the
financial services market, excluding sales to Cedel Global Services, consisted
of product fees paid to us by Reuters. Although Reuters is the preferred
distributor of our products in the financial services market and is required to
pay us guaranteed minimum product fee payments until the end of 2001, Reuters
has no contractual obligation to distribute our products to financial services
customers. Reuters and other distributors may not be successful in selling our
products into the financial services market, or they may elect to sell
competitive third-party products into that market, either of which may
adversely affect our revenue in that market.
Our relationship with Reuters restricts our ability to earn revenue from
sales in the financial services market. Under the license agreement, Reuters is
required to pay us product fees based on a percentage of its revenue from sales
of our products in the financial services market, excluding products that are
embedded in any TFT or Reuters products. These product fees may be materially
less than the product fees we could obtain from other distributors or resellers
in the financial services market. In addition, when we sell our products into
the financial services market through third-party distributors other than
Reuters, Reuters receives a share of our license revenue.
Our license agreement with Reuters imposes practical restrictions on our
ability to acquire other companies. The license agreement places no specific
restrictions on our ability to acquire companies with all or part of their
business in the financial services market. However, under the terms of the
license agreement, we are prohibited from bundling or combining our products
that are based on licensed technology with an acquired company's products and
services and then selling the bundled or combined products directly to
financial services companies. This prohibition could prevent us from realizing
potential synergies with companies we acquire.
If we do not retain our key management personnel and attract and retain other
highly skilled employees our business will suffer
If we fail to retain and recruit the necessary personnel, our business and
our ability to obtain new customers, develop new products and provide
acceptable levels of customer service could suffer. The success of our business
is heavily dependent on the leadership of our key management personnel,
including Vivek Ranadive, our President and Chief Executive Officer. All our
executive officers and key personnel are employees at-will. If any of these
persons were to leave our company it would be difficult to replace them, and
our business would be harmed.
Our success also depends on our ability to recruit, retain and motivate
highly skilled sales, marketing and engineering personnel. Competition for
these persons in the software industry is intense, and we may not be able to
successfully recruit, train or retain qualified personnel.
9
<PAGE>
We must expand our sales force and our network of distribution partners in
order to successfully sell our products
In connection with our establishment as a separate entity in January 1997, we
implemented a direct sales model under which we sell our products outside the
financial services market principally through our direct sales force and, to a
lesser extent, through indirect sales channels such as systems integrators,
resellers and distributors. We have only recently begun to hire and train
direct sales personnel. We are currently investing, and plan to continue
investing, significant resources to expand our direct sales force and to
develop relationships with systems integrators, resellers and distributors. We
may not be successful in expanding our direct sales force or other distribution
channels, and even if we are, such expansion might not result in an increase in
our revenues. If we fail to maintain our existing relationships with indirect
sales channel partners or fail to establish new ones, or if our revenue does
not increase correspondingly with the expenses we incur in pursuing such
relationships, our business may suffer.
Our software products may have unknown defects which could harm our reputation
or decrease market acceptance of our products
Because our customers depend on our software for their critical systems and
business functions, any interruptions caused by unknown defects in our products
could damage our reputation, cause our customers to initiate product liability
suits against us, increase our product development costs, divert our product
development resources, cause us to lose revenue or delay market acceptance of
our products, any of which could cause our business to suffer. Our product
offerings consist of complex software, both internally developed and licensed
from third parties. Complex software may contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. Although we conduct extensive testing, we may not discover software
defects that affect our current or new products or enhancements until after
they are sold. Although we have not experienced any material software defects
to date, such defects could cause our customers to experience severe system
failures.
The rapid growth of our operations could strain our resources and cause our
business to suffer
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We are increasing the scope of our operations and the size
of our direct sales force domestically and internationally, and we have
recently increased our headcount substantially. Between December 1, 1997 and
May 31, 1999, our total number of employees increased from 145 to 342.
Moreover, our revenue increased from $35.3 million in fiscal 1997 to $52.8
million in fiscal 1998, and was $63.1 million in the first three quarters of
fiscal 1999. This growth has placed and will continue to place a significant
strain on our management systems, infrastructure and resources. We expect that
we will need to continue to improve our financial and managerial controls,
reporting systems and procedures. We will also need to expand, train and manage
our workforce worldwide. Furthermore, we expect that we will be required to
manage an increasing number of relationships with various customers and other
third parties. Failure to expand any of the foregoing areas efficiently and
effectively could interfere with the growth of our business as a whole.
Our substantial and expanding international operations are subject to
uncertainties which could affect our operating results
If our revenue from international operations does not exceed the expense of
maintaining these operations, our business, financial condition and operating
results will suffer. Revenue from the sale of our products and services outside
the United States accounted for $6.3 million and $20.1 million, or 18% and 38%,
of our total revenue for fiscal 1997 and 1998. We believe that revenue from
sales outside the United States will continue to account for a material portion
of our total revenue for the foreseeable future. We are
10
<PAGE>
exposed to several risks inherent in conducting business internationally, such
as:
. fluctuations in currency exchange rates;
. unexpected changes in regulatory requirements, including imposition of
currency exchange controls, applicable to our business or to the
Internet;
. difficulties and costs of staffing and managing international operations;
. political and economic instability; and
. reduced protection for intellectual property rights in certain countries.
Any of these factors could adversely affect our international operations and,
consequently, our operating results.
Our products may infringe the intellectual property rights of others, which may
cause us to incur unexpected costs or prevent us from selling our products
We cannot be certain that our products do not infringe issued patents or
other intellectual property rights of others. Because patent applications in
the United States are not publicly disclosed until the patent is issued,
applications of which we are not aware may have been filed which relate to our
software products. We may be subject to legal proceedings and claims from time
to time in the ordinary course of our business, including claims of alleged
infringement of the patents, trademarks and other intellectual property rights
of third parties by us or our licensees in connection with their use of our
products. Intellectual property litigation is expensive and time-consuming, and
could divert our management's attention away from running our business. If we
were to discover that our products violated the intellectual property rights of
others, we would have to obtain licenses from these parties in order to
continue marketing our products without substantial reengineering. We might not
be able to obtain the necessary licenses on acceptable terms or at all, and if
we could not obtain such licenses, we might not be able to reengineer our
products successfully or in a timely fashion. If we fail to address any
infringement issues successfully, we will be forced to incur significant costs
and could be prevented from selling our products.
Problems related to the "Year 2000 Issue" could adversely affect our business
We are exposed to various risks arising out of the change of millennium which
could adversely affect our business and operating results. Risks are posed if,
despite our investigation and remediation efforts, one or more of the following
occurs:
. our own software products contain undetected errors or defects associated
with the Year 2000 problem;
. third party hardware and software used with our software experiences
problems which are wrongly attributed to us;
. our suppliers, internal information technology systems or non-information
technology systems, including telecommunications systems and utilities,
experience problems; and
. our customers, business partners or distributors experience Year 2000
problems.
The occurrence of any of the foregoing could result in delays or losses of
revenue, diversions of our development resources, damage to our reputation,
increased service and warranty costs and litigation costs. In addition,
regardless of whether we experience Year 2000 problems, enterprises may reduce
their spending on software and systems during the latter part of 1999 and into
2000 in connection with the potential effects of the Year 2000 or to
concentrate their resources on remediation.
Risks Related to Our Industry
The market for enterprise infrastructure software may not grow as quickly as we
anticipate, which would cause our revenues to fall below expectations
The market for enterprise infrastructure software is relatively new and
evolving. We earn a substantial portion of our revenue from sales
11
<PAGE>
of our enterprise infrastructure software, including application integration
software, and related services. We expect to earn substantially all of our
revenue in the foreseeable future from sales of these products and services.
Our future financial performance will depend on continued growth in the number
of organizations demanding software and services for application integration,
e-business and information delivery, and seeking outside vendors to develop,
manage and maintain this software for their critical applications. Many of our
potential customers have made significant investments in internally developed
systems and would incur significant costs in switching to third-party products,
which may substantially inhibit the growth of the market for enterprise
infrastructure software. If this market fails to grow, or grows more slowly
than we expect, our sales will be adversely affected.
We must keep pace with rapidly changing technologies and customer demands in
order to remain competitive
If we fail to develop and introduce new products or enhancements of existing
products in a timely manner in response to technological and customer demands,
our business will suffer. The markets in which we compete are characterized by
rapid technological changes, frequent new product introductions and
enhancements and changing customer demands and industry standards. The
introduction of products incorporating new technologies and the emergence of
shifting customer requirements and changing industry standards could render our
existing products obsolete. The technological life cycles of our products are
difficult to estimate and may vary across customer market segments.
Our business depends on continued growth in use of the Internet for
communications and commerce
If use of the Internet for communications and commerce does not grow as
quickly as we expect, revenue from our Internet product and service offerings
would be adversely affected. Our strategy includes expanding our business in
the Internet infrastructure and e-business markets, as well as incorporating
the Internet as part of the solutions we offer to our customers in other
markets. Accordingly, our future success depends in part on the continued
growth in the use of the Internet for communications and commerce. The
infrastructure, products or services necessary to maintain this growth may not
be developed.
Other Risks
Reuters has significant influence over matters affecting us, and the interests
of Reuters may conflict with those of our public stockholders
Reuters is in a position to significantly influence the outcome of corporate
actions that could conflict with the interests of our public stockholders, such
as:
. amending our corporate documents;
. determining the amount and timing of dividends paid to itself and to
other holders of common stock;
. changing the size and composition of our board of directors and
committees of our board of directors; and
. otherwise controlling management and operations and the outcome of most
matters submitted for a stockholder vote.
Reuters owns 63.5% of our common stock, which will decrease to 52.2% assuming
exercise of all options under TFT's stock option plan. Reuters has agreed to
limit its right to vote its shares of our stock so that the votes cast by
Reuters will not represent more than 49% of the total votes eligible to be
cast.
In addition, pursuant to a stockholders agreement, Reuters has the right to
nominate three of the nine representatives on our board of directors and one
member of the audit and compensation committees of our board of
12
<PAGE>
directors, and stockholders that hold a majority of our stock have agreed to
vote for the Reuters nominees. Reuters also has the right under the
stockholders agreement to approve fundamental decisions relating to sales of
our company and stock issuances and acquisitions in excess of specified
thresholds.
Our stock price may be volatile, which could cause investors to lose all or
part of their investments in our stock
The stock market in general, and the stock prices of technology companies in
particular, have recently experienced volatility which has often been unrelated
to the operating performance of any particular company or companies. If market
or industry-based fluctuations continue, our stock price could decline
regardless of our actual operating performance and investors could lose all or
part of their investments.
Future dispositions of our common stock by Reuters could adversely affect the
market price of our common stock
Any sale or distribution by Reuters of a substantial amount of common stock
in the public market or to its stockholders, or the perception that such a sale
or distribution could occur, could have an adverse effect on the market price
of our common stock. Reuters currently owns approximately 63.5% of our
outstanding common stock. Reuters is not obligated to retain these shares,
except that subject to limited exceptions, it has agreed not to sell or
otherwise dispose of any shares of common stock for 180 days after the
completion of the IPO without the consent of the IPO underwriters. After the
expiration of this 180-day period, Reuters could dispose of its shares of our
common stock through a public offering, spin-off or other transaction. Reuters
has the right, under certain circumstances, to require us to register its
shares of common stock for public resale.
13
<PAGE>
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares by TFT or the
selling stockholders pursuant to this prospectus.
DIVIDEND POLICY
We have never paid dividends on our common stock or other securities. We
anticipate that we will retain any future earnings for use in the expansion and
operation of our business and we do not anticipate paying any dividends in the
foreseeable future.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of August 31, 1999.
<TABLE>
<CAPTION>
August 31, 1999
------------------
(in thousands,
except share data)
<S> <C>
Stockholders' equity:
Convertible Preferred Stock, $0.001 par value per share;
25,000,000 shares authorized, no shares issued or
outstanding................................................ $ --
Common Stock, $0.001 par value per share; 300,000,000 shares
authorized, 60,360,563 shares issued and outstanding....... 60
Additional paid-in capital.................................. 181,053
Unearned compensation....................................... (9,881)
Accumulated other comprehensive loss........................ (66)
Accumulated deficit......................................... (30,502)
--------
Total capitalization........................................ $140,664
========
</TABLE>
The table above excludes 10,413,154 shares of common stock issuable upon
exercise of outstanding options at a weighted average exercise price of $2.5722
per share and 665,074 shares reserved for future grants under our 1996 Stock
Option Plan and our 1998 Director Option Plan. See "Management--Stock Plans"
beginning on page 50 for a description of these plans, and "Description of
Capital Stock" beginning on page 62 and Note 8 of Notes to Financial Statements
beginning on page F-18 for a description of our capital stock.
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with, and
are qualified by reference to, our financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The statement of income
data for the year ended December 31, 1996, the eleven months ended November 30,
1997 and the year ended November 30, 1998, and the balance sheet data at
November 30, 1997 and 1998 are derived from, and are qualified by reference to,
our audited financial statements included elsewhere in this prospectus. The
statement of income data for the nine months ended August 31, 1998 and 1999 and
the balance sheet data at August 31, 1999 have been derived from our unaudited
financial statements included elsewhere in this prospectus. The unaudited
financial statements have been prepared on substantially the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair
presentation of the financial position and results of operations for the
period. Operating results for the nine months ended August 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
November 30, 1999.
Our financial statements discussed herein, and the following selected
financial data, reflect our historical results of operations, financial
position and cash flows. The financial statements from 1994 through 1996
contained herein and discussed below have been carved out from the financial
statements of a subsidiary of Reuters using the historical results of
operations and the historical bases of the assets and liabilities of the non-
financial business of such subsidiary. We believe that the assumptions
underlying our financial statements are reasonable. However, the financial
information included herein, particularly for periods prior to fiscal 1997, may
not necessarily reflect our future results of operations, financial position
and cash flows or the financial results we would have achieved if we had been a
separate stand-alone entity during these periods.
<TABLE>
<CAPTION>
Nine Months
Eleven Months Ended
Year Ended Year Ended Year Ended Ended Year Ended August 31,
December 31, December 31, December 31, November 30, November 30, -----------------
1994 1995 1996 1997 1998 1998 1999
------------ ------------ ------------ ------------- ------------ ------- --------
(unaudited) (unaudited)
Statement of
Operations Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
License................ $ 1,044 $ 4,487 $ 6,066 $ 6,219 $ 17,495 $11,200 $ 35,214
Service and
maintenance........... 6,945 21,507 24,249 29,055 35,262 24,526 27,893
------- -------- ------- ------- -------- ------- --------
Total revenue.......... 7,989 25,994 30,315 35,274 52,757 35,726 63,107
Cost of revenue......... 7,621 14,658 19,606 15,847 27,682 19,719 25,978
------- -------- ------- ------- -------- ------- --------
Gross profit............ 368 11,336 10,709 19,427 25,075 16,007 37,129
------- -------- ------- ------- -------- ------- --------
Operating expenses:
Research and
development........... 1,152 3,592 6,576 9,385 14,787 10,107 18,943
Sales and marketing.... 924 1,838 2,949 7,008 15,242 10,416 21,022
General and
administrative........ 1,146 1,483 2,077 3,565 4,025 2,592 5,291
Stock and other
compensation.......... 1,122 20,684 2,196 4,672 5,064 3,535 5,429
------- -------- ------- ------- -------- ------- --------
Total operating
expenses.............. 4,344 27,597 13,798 24,630 39,118 26,650 50,685
------- -------- ------- ------- -------- ------- --------
Loss from operations.... (3,976) (16,261) (3,089) (5,203) (14,043) (10,643) (13,556)
Other income (expense),
net.................... (133) (468) (1,551) 540 1,092 885 668
------- -------- ------- ------- -------- ------- --------
Net loss................ $(4,109) $(16,729) $(4,640) $(4,663) $(12,951) $(9,758) $(12,888)
======= ======== ======= ======= ======== ======= ========
Net loss per share--
basic and diluted...... $ (0.24) $ (0.65) $ (0.50) $ (0.49)
======= ======== ======= ========
Weighted average
shares--basic and
diluted................ 19,202 20,011 19,653 26,511
======= ======== ======= ========
</TABLE>
16
<PAGE>
In the fiscal years ended December 31, 1994 through 1996, our stock and other
compensation expense consisted of contingent compensation earned by employees
in connection with the acquisition of Teknekron by Reuters.
<TABLE>
<CAPTION>
December 31, November 30,
-------------------------- --------------- August 31,
1994 1995 1996 1997 1998 1999
------- -------- ------- ------- ------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data: (in thousands)
Cash, cash equivalents,
deposits held by
Reuters and short-term
investments............ $ -- $ -- $ -- $18,318 $15,970 $126,670
Working capital......... (2,430) (22,155) (2,167) 15,168 18,301 129,974
Total assets............ 4,352 9,539 10,996 31,046 36,289 166,328
Owner's net investment
(liability)............ 913 (19,574) 451 -- -- --
Stockholders' equity ... -- -- -- 17,167 21,704 140,664
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with "Selected
Financial Data" and our 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,
including those 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 develop and market a suite of software products that enables businesses to
link internal operations, business partners and customer channels in real-time.
We are the successor to a portion of the business of Teknekron Software
Systems, Inc. Teknekron developed software for the integration and delivery of
market data, such as stock quotes, news and other financial information, in
trading rooms of large banks and financial services institutions. In 1992,
Teknekron expanded its development efforts to include solutions designed to
enable complex and disparate manufacturing equipment and software
applications--primarily in the semiconductor fabrication market--to communicate
within the factory environment. Teknekron was acquired by Reuters, the global
news and information group, in 1994. Following the acquisition, continued
development of the TIB technology was undertaken to expand its use in the
financial services markets. In January 1997, our company, TIBCO Software, was
established as an entity separate from Teknekron.
We were formed to create and market software solutions for use in the
integration of business information, processes and applications in diverse
markets and industries outside the financial services sector. In connection
with our establishment as a separate entity, Reuters transferred to us certain
assets and liabilities related to our business and granted to us a royalty-free
license to the intellectual property incorporated into some of our current
software products. See "Relationship with Reuters and Certain Transactions"
beginning on page 53 for a description of our current license to this
technology. Reuters also assigned to us at that time license and service
contracts primarily within the high-tech manufacturing and energy markets,
including contracts with Intel, NEC, Motorola, Mobil and Chevron.
During fiscal 1997, our operating activities related primarily to the
development of our TIB/ActiveEnterprise suite of products, supporting the
installed base of financial services companies using TIB-based solutions sold
through Reuters and expanding our presence in the high-tech manufacturing and
energy markets. During fiscal 1998, we expanded our product development
activities and continued to invest in creating a product marketing
organization, engaging in advertising programs to build our corporate brand
identity, building our domestic and international direct sales force and
creating a general and administrative infrastructure. During the second half of
fiscal 1998, we began initial shipments of our TIB/ActiveEnterprise products,
including to companies such as PageNet, Philips Medical, Compaq and 3Com. We
also formally introduced our TIBCO.net product and service offering for
creating and managing e-business activities, and generated revenue from Yahoo!
and Netscape for enabling their stock quotation services. We intend to continue
to fund the development of additional TIB/ActiveEnterprise products and to
increase our sales and marketing activities at least through the end of fiscal
2000.
Prior to fiscal 1998, our revenue consisted primarily of license and
maintenance fees from
18
<PAGE>
the contracts assigned to us by Reuters in connection with our formation, fees
from providing integration services to customers transferred to us by Reuters
and development and maintenance fees paid to us by Reuters. Our revenue today
consists primarily of license and product fees from our customers and
distributors, including from Reuters pursuant to our license agreement with
them, both of which are primarily attributable to sales of our
TIB/ActiveEnterprise product suite. In addition, we receive fees from our
customers for providing project integration services. We also receive revenue
from our TIBCO.net customers. Revenue from these customers is a combination of
fixed service charges, a percentage of the advertising fees generated from
their TIBCO.net-enabled web pages and a charge for each user visit to these web
pages. We also receive a limited amount of revenues from our strategic
relationships with hardware vendors and systems integrators. To date, these
revenues have not been material.
We recognize revenue from software license fees upon delivery of our software
products to our customers as long as we have no significant obligations
remaining and we believe that collection of the resulting receivable is
probable. Software royalties and product fees earned through our distribution
and reseller partners are generally recognized when the partner sells the
software through to its customer. We recognize guaranteed minimum payments from
our license agreements ratably over the term of the contracts. We recognize
service revenue from the integration of our software using the percentage-of-
completion method or on a time and materials basis as services are provided. We
defer recognition of maintenance revenue, paid primarily for support and
upgrades, upon signing the maintenance contract and recognize the related
revenue ratably over the term of the contract, which is typically twelve
months. These payments are generally made in advance and are nonrefundable.
Our distributors generally pay us negotiated royalties on their sales of our
products. Reuters distributes our products to customers in the financial
services market segment. Through December 2001, Reuters must pay us product
fees based on a percentage of the revenue it derives from the sale of licenses
and maintenance for our products. Under our license agreement with Reuters,
this includes minimum guaranteed product fees of $16 million payable in
calendar 1999 with $7.1 million payable in the remainder of calendar 1999, $18
million payable in calendar 2000 and $20 million payable in calendar 2001. We
will recognize revenue in the amount of these guaranteed product fees ratably
over the contractual period. In any period where actual product fees exceed the
minimum guaranteed product fees for the year, the actual product fees and
cumulative minimum guaranteed product fees will be recognized as revenue. See
"Relationship with Reuters and Certain Transactions--License, Maintenance and
Distribution Agreement with Reuters" beginning on page 53 for a more detailed
description of our distribution relationship with Reuters, including the
minimum guaranteed product fee payments.
In 1997, we changed our fiscal year from the twelve months ending December
31st to the twelve months ending November 30th. Accordingly, our financial
results for 1997 reflect our operations for the eleven months ended November
30, 1997 and are not comparable to our results for fiscal 1998 or for any prior
period. See Note 2 of Notes to Financial Statements. Our fiscal year ends on
November 30th and our fiscal quarters end on the last Fridays of February, May
and August and November 30th of each year. For ease of readership throughout
this prospectus, we have indicated our interim fiscal periods as having ended
on the last day of the month in which such period actually ended.
Our operating results may fluctuate significantly in the future as a result
of a variety of factors, many of which are outside of our control. These
factors include the timing of significant orders and the length of our sales
cycle, technical difficulties in our software, the growth rate of the
enterprise infrastructure software market, our ability to continue to attract
and retain customers in international markets, and the success of Reuters and
other
19
<PAGE>
distributors in selling our products in the financial services market. Due to
the emerging nature of the markets in which we compete, it may be difficult to
forecast our revenue accurately. Our expense levels are based in part on our
expectations with regard to future revenue. We may be unable to adjust spending
in a timely manner to compensate for any unexpected revenue shortfall. Any of
these factors may have a material adverse effect on our business, results of
operations and financial condition. See "Risk Factors" beginning on page 7 for
a further description of these and other factors that could adversely affect
our business, results of operations and financial condition.
20
<PAGE>
Results of Operations
The following table sets forth our results of operations expressed as
percentages of revenue:
<TABLE>
<CAPTION>
Nine Months
Eleven Ended
Year Ended Months Ended Year Ended August 31,
December 31, November 30, November 30, --------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
License............... 20 % 18 % 33 % 31 % 56 %
Service and
maintenance.......... 80 82 67 69 44
--- --- --- ----- -----
Total revenue....... 100 100 100 100 100
Cost of revenue......... 65 45 52 55 41
--- --- --- ----- -----
Gross profit............ 35 55 48 45 59
--- --- --- ----- -----
Operating expenses:
Research and
development.......... 21 27 28 28 30
Sales and marketing... 10 20 29 29 33
General and
administrative....... 7 10 8 7 8
Stock and other
compensation......... 7 13 10 11 9
--- --- --- ----- -----
Total operating
expenses........... 45 70 75 75 80
--- --- --- ----- -----
Loss from operations.... (10) (15) (27) (30) (21)
Other income (expense),
net.................... (5) 2 2 3 1
--- --- --- ----- -----
Net loss................ (15)% (13)% (25)% (27)% (20)%
=== === === ===== =====
</TABLE>
Nine Months Ended August 31, 1999 Compared to Nine Months Ended August 31, 1998
Total Revenue
Total revenue increased by $27.4 million, or 77%, from $35.7 million in the
first nine months of fiscal 1998 to $63.1 million in the first nine months of
fiscal 1999. In the first nine months of fiscal 1998, NEC Electronics and Cedel
Global Services accounted for 10% and 18% of total revenue, while in the
corresponding period of 1999 Cedel Global Services accounted for 10% of total
revenue. In the first nine months of fiscal 1998, revenue from Reuters
accounted for 14% of our total revenue, while in the corresponding period of
fiscal 1999, revenue from Reuters accounted for 20% of our total revenue. In
fiscal 1998, revenue from Reuters consisted primarily of maintenance and
consulting fees for services we performed for Reuters, while in fiscal 1999,
revenue from Reuters consisted primarily of product fees from Reuters on its
sales of our products. Beginning in April 1999, under our license agreement
with Reuters, minimum guaranteed product fees from Reuters will be
approximately $1.8 million per month for the remainder of calendar 1999. See
"Relationship with Reuters and Certain Transactions--License, Maintenance and
Distribution Agreement with Reuters" beginning on page 53 for a more detailed
description of the provisions of our license agreement with Reuters
establishing these minimum guaranteed product fees.
License Revenue
License revenue increased by $24.0 million, or 214%, from $11.2 million or
31% of total revenue in the first nine months of fiscal 1998 to $35.2 million
or 56% of total revenue in the first nine months of fiscal 1999. This increase
was due primarily to increased sales of our TIB/ActiveEnterprise products,
which were introduced during the second half of fiscal 1998. The growth in
license revenue as a percentage of total revenue reflects our strategy of
pursuing a license-driven business model. We believe that license revenue will
continue to grow moderately as a percentage of total revenue for the remainder
of fiscal year 1999.
21
<PAGE>
Service and Maintenance Revenue
Service and maintenance revenue increased $3.4 million, or 14%, from $24.5
million or 69% of total revenue for the first nine months of fiscal 1998 to
$27.9 million or 44% of total revenue in the first nine months of fiscal 1999.
Cost of Revenue
Cost of revenue consists primarily of salaries and third-party contractor and
associated expenses primarily related to providing project implementation
services and, to a lesser extent, the cost of providing maintenance and
customer support services. The majority of our cost of revenue is directly
related to our service revenue. Cost of revenue increased by $6.3 million, or
32%, from $19.7 million or 55% of total revenue in the first nine months of
fiscal 1998 to $26.0 million or 41% of total revenue in the first nine months
of fiscal 1999, primarily as a result of using third-party contractors to
support our contract with Cedel Global Services and hiring additional technical
staff to support our growing installed base of customers. The decrease in cost
of revenue as a percentage of total revenue was due primarily to the increase
in license revenue as a percentage of total revenue.
Research and Development Expenses
Research and development expenses consist primarily of personnel and related
costs associated with the development of our TIB/ActiveEnterprise product
suite. Research and development expenses increased by $8.8 million, or 87%,
from $10.1 million or 28% of total revenue in the first nine months of fiscal
1998 to $18.9 million or 30% of total revenue in the first nine months of
fiscal 1999. This increase was due primarily to increases in our development
staff as we continued to expand the TIB/ActiveEnterprise product suite as well
as upgrading the performance of existing products. We believe that continued
investment in research and development is critical to attaining our strategic
objectives and, as a result, expect that spending on research and development
will continue to increase moderately in absolute dollars but remain relatively
stable as a percentage of total revenue for the remainder of fiscal 1999.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of personnel and related costs
of our direct sales force and marketing staff and marketing programs, including
advertising, trade shows, promotional materials and customer conferences. Sales
and marketing expenses increased by $10.6 million, or 102%, from $10.4 million
or 29% of total revenue in the first nine months of fiscal 1998 to $21.0
million or 33% of total revenue in the first nine months of fiscal 1999. This
increase resulted primarily from the expansion of our domestic and
international direct sales force devoted to selling our expanding suite of
TIB/ActiveEnterprise products initially released in the second half of fiscal
1998. We intend to continue to increase staff in our direct sales organization
and develop product marketing and branding campaigns and, accordingly, expect
that sales and marketing expenditures will continue to increase substantially
in absolute dollars and will increase moderately as a percentage of total
revenue over the remainder of fiscal 1999.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including executive, finance,
accounting, human resources and information systems. General and administrative
expenses increased by $2.7 million, or 104%, from $2.6 million in the first
nine months of fiscal 1998 to $5.3 million in the first nine months of fiscal
1999, primarily as a result of increased staffing and associated operational
costs related to building our general and administrative infrastructure. We
believe that general and administrative expenses will increase moderately in
absolute dollars and increase slightly as a percentage of total revenue for the
remainder of fiscal 1999 as we expand our infrastructure to support a larger,
more global organization and continue our transition to operating as a stand-
alone entity.
Stock and Other Compensation
In connection with the grant of stock options to employees and non-employee
22
<PAGE>
directors during fiscal 1997 and 1998 and the first nine months of fiscal 1999,
we recorded unearned compensation expense of $23.1 million, representing the
difference between the deemed fair value of our common stock at the date of
grant and the exercise price of such options. Such an amount, net of
amortization, is presented as a reduction of stockholders' equity and amortized
over the vesting period of the applicable option. As a result, we expect to
amortize $1.5 million, $4.1 million, $2.4 million, $1.1 million, $0.6 million
and $0.2 million of deferred compensation in the fourth quarter of fiscal 1999
and in 2000, 2001, 2002, 2003 and 2004, respectively. Stock and other
compensation increased from $3.6 million in the first nine months of fiscal
1998 to $5.4 million in the first nine months of fiscal 1999 due primarily to
the grant of stock options to new employees. In addition, the compensation
expense related to options granted to consultants is revalent at each period
and using the Black-Scholes option pricing model. As a result, fluctuations in
our stock price will result in fluctuations in the corresponding option value,
thereby increasing or decreasing the compensation expense for the period.
Other Income, Net
Other income, net includes interest and other miscellaneous income and
expense items. Other income, net decreased from $885,000 in the first nine
months of fiscal 1998 to $668,000 in the first nine months of fiscal 1999. This
decrease was due primarily to a lower average investment balance, a loss on the
disposal of fixed assets and a foreign currency translation loss related to our
foreign sales offices.
Year Ended November 30, 1998 Compared to Eleven Months Ended November 30, 1997
Total Revenue
Total revenue increased by $17.5 million, or 50%, from $35.3 million in
fiscal 1997 to $52.8 million in fiscal 1998. In fiscal 1997, revenue from
Reuters represented 27% of total revenue compared to 15% of total revenue in
fiscal 1998. Revenue from Reuters in fiscal 1997 consisted almost entirely of
revenue from consulting and maintenance services we performed for Reuters, and
in fiscal 1998 consisted of revenue from such services as well as product fees.
License Revenue
License revenue increased by $11.3 million, or 181%, from $6.2 million or 18%
of total revenue in fiscal 1997 to $17.5 million or 33% of total revenue in
fiscal 1998. This increase was due primarily to license fees earned from
initial shipments of our TIB/ActiveEnterprise products, which began during the
second half of fiscal 1998. The growth rate for license revenue both in
absolute dollars and as a percentage of total revenue reflects our transition
to a license-driven business strategy.
Service and Maintenance Revenue
Service and maintenance revenue increased by $6.2 million, or 21%, from
$29.1 million in fiscal 1997 to $35.3 million in fiscal 1998. Service and
maintenance revenue as a percentage of total revenue decreased from 82% in
fiscal 1997 to 67% in fiscal 1998. The increase in service and maintenance
revenue in absolute dollars in fiscal 1998 was primarily attributable to our
assumption from Reuters of the Cedel Global Services contract, which provided
$7.6 million in service and maintenance revenue in 1998 and no revenue in
fiscal 1997. The purchase of maintenance agreements by our larger installed
base of licensees resulted in a further $1.7 million increase in revenue. These
increases were partially offset by a $4.7 million decline in revenue from
services provided to Reuters as a result of the completion of several
development projects in 1997.
Cost of Revenue
Cost of revenue increased by $11.8 million, or 75%, from $15.8 million or 45%
of total revenue in fiscal 1997 to $27.7 million or 52% of total revenue in
fiscal 1998. This increase was primarily due to an increase in salary and
third-party contractor costs of approximately $5.0 million related to providing
services to Cedel Global Services, and to a lesser extent, to increased travel
expenses of approximately $1.0 million and salary expenses of approximately
$3.0 million for additional technical support and
23
<PAGE>
services staff to service our growing, geographically-dispersed customer base.
Research and Development Expenses
Research and development expenses increased by $5.4 million, or 58%, from
$9.4 million or 27% of total revenue in fiscal 1997 to $14.8 million or 28% of
total revenue in fiscal 1998. The increase in fiscal 1998 resulted primarily
from increases in engineering salary expense of approximately $2.6 million and
related operational costs as we continued to invest in the development of our
TIB/ActiveEnterprise product suite.
Sales and Marketing Expenses
Sales and marketing expenses increased by $8.2 million, or 117%, from $7.0
million or 20% of total revenue in fiscal 1997 to $15.2 million or 29% of total
revenue in fiscal 1998. This increase resulted primarily from a significant
expansion of our domestic and international direct sales force from 7 to 49 and
related increases in salary expense of approximately $2.0 million, and
operational costs corresponding to the release of our initial
TIB/ActiveEnterprise products. We also increased our advertising and marketing
expenses approximately by $2.2 million to promote our corporate brand identity.
General and Administrative Expenses
General and administrative expenses increased by $0.5 million, or 13%, from
$3.6 million in fiscal 1997 to $4.0 million in fiscal 1998. This increase was
due primarily to an increase in salary expense of approximately $0.8 million
related to developing our general and administrative infrastructure, partially
offset by a decline in legal expenses of approximately $0.7 million as a result
of the completion of our formation in 1997.
Stock and Other Compensation
Stock amortization expenses increased from $4.7 million in fiscal 1997 to
$5.1 million in fiscal 1998. This increase resulted primarily from the grant of
stock options to newly hired employees.
Other Income (Expense), Net
Other income (expense), net increased from $0.5 million in fiscal 1997 to
$1.1 million in fiscal 1998. This increase was due primarily to a larger
average investment balance as a result of the receipt of proceeds from our
issuance of preferred stock in May and December 1997.
Eleven Months Ended November 30, 1997 Compared to Year Ended December 31, 1996
Total Revenue
Total revenue increased by $5.0 million, or 16%, from $30.3 million in fiscal
1996 to $35.3 million in fiscal 1997. In fiscal 1996, revenue from Reuters
accounted for 36% of total revenue, while in fiscal 1997, revenue from Reuters
accounted for 27% of total revenue. In fiscal 1996 and 1997, revenue from
Reuters consisted almost exclusively of revenue from consulting and maintenance
services we provided to Reuters.
License Revenue
License revenue remained relatively constant at $6.1 million or 20% of total
revenue in fiscal year 1996, compared to $6.2 million or 18% of total revenue
in fiscal 1997.
Service and Maintenance Revenue
Service and maintenance revenue increased by $4.8 million, or 20%, from
$24.2 million or 80% of total revenue in fiscal 1996 to $29.1 million or 82% of
total revenue in fiscal 1997. This increase primarily reflects additional
project implementation activities in the high-tech manufacturing and energy
markets. This increase was partially offset by a decline in revenue of
approximately $1.4 million from services provided to Reuters for projects
related to the financial services market.
Cost of Revenue
Cost of revenue decreased by $3.8 million, or 19%, from $19.6 million or 65%
of total revenue in fiscal 1996 to $15.8 million or 45% of total revenue in
fiscal 1997. Cost of revenue for fiscal 1996 includes $5.5 million of license
fees paid to Reuters based on a percentage of our revenue derived from sales of
products incorporating the TIB technology. These payments ceased in January
1997 when Reuters granted to us a royalty-free license to
24
<PAGE>
the TIB technology in return for a one-time payment. Excluding such fees to
Reuters in fiscal 1996, cost of revenue in fiscal 1997 would have increased by
$1.6 million over fiscal 1996. This increase was primarily due to additional
consulting costs associated with the growth in project development activities.
Research and Development Expenses
Research and development expenses increased by $2.8 million, or 43%, from
$6.6 million or 21% of total revenue in fiscal 1996 to $9.4 million or 27% of
total revenue in fiscal 1997. This increase resulted primarily from an
approximate $1.6 million increase in salary expense as we invested in the
development of our TIB/ActiveEnterprise product suite.
Sales and Marketing Expenses
Sales and marketing expenses increased by $4.1 million, or 138%, from $2.9
million or 10% of total revenue in fiscal 1996 to $7.0 million or 20% of total
revenue in fiscal 1997. This increase resulted primarily from an approximate
$1.9 million increase in salary expense related to establishing our product
marketing organization, as well as an approximate $0.6 million increase in
expenses incurred in connection with advertising and promotional programs to
strengthen our corporate brand identity.
General and Administrative Expenses
General and administrative expenses increased by $1.5 million, or 72%, from
$2.1 million in fiscal 1996 to $3.6 million in fiscal 1997. The increase
resulted primarily from legal expenses of approximately $0.8 million incurred
in the formation of our company.
Stock and Other Compensation
Prior to fiscal 1997, stock and other compensation expenses consisted of
contingent compensation earned by employees in connection with the acquisition
of Teknekron by Reuters in 1994. Such contingent compensation ended in 1996.
Stock and other compensation expenses increased from $2.2 million in fiscal
1996 to $4.7 million in fiscal 1997. The increase resulted primarily from the
granting of stock options to newly hired employees.
Other Income (Expense), Net
Other expense, net was $1.6 million in fiscal 1996, compared to other income,
net of $0.5 million in fiscal 1997. The interest paid in 1996 is primarily due
to the interest cost of borrowing funds from Reuters to support working capital
requirements and operational activities. Net interest income in fiscal 1997 was
due primarily to the investment of proceeds from our issuance of preferred
stock in May 1997.
Liquidity and Capital Resources
Prior to our initial public offering, we funded our operations primarily
through the sale of our capital stock. We have raised an aggregate of
$26.7 million from the sale of preferred stock to Cisco Systems and Mayfield
venture capital funds. See "Principal Stockholders" beginning on page 60 for
more detail on Cisco's and Mayfield's equity holdings. On July 13, 1999, we
completed an initial public offering, which consisted of 9,161,667 shares of
our common stock (including 1,095,000 shares purchased by the underwriters
pursuant to their over-allotment option, 500,000 shares sold directly to Sun
Microsystems, and 266,667 shares sold directly to Yahoo! Inc.) at $15.00 per
share. Net proceeds aggregated approximately $123.6 million (net of
underwriters' commission and offering expenses of $13.8 million).
Net cash provided by operating activities in fiscal 1997 was $2.4 million,
resulting primarily from increases in accrued liabilities and receipt of
prepayments on contracts. Net cash used for operating activities in fiscal 1998
was $11.8 million, resulting primarily from our net loss. Net cash used for
operating activities in the nine months ended August 31, 1998 was $5.4 million,
resulting primarily from our net loss. Net cash used for operating activities
in the nine months ended August 31, 1999 was $7.7 million, primarily reflecting
the net loss reported for the period as well as an increase in accounts
receivable.
25
<PAGE>
Net cash used in investing activities in fiscal 1997 and 1998 was $11.1
million and $8.2 million. Net cash used in investing activities in these
periods was related primarily to the purchase of property and equipment,
principally desktop and network hardware and software, and the investment of
surplus funds received from the issuance of our preferred stock. Net cash used
in investing activities for the nine months ended August 31, 1998 was $12.6
million. Net cash used in investing activities in this period was related
primarily to the purchase of property and equipment, principally desktop and
network hardware and software. Net cash used for investing activities for the
nine months ended August 31, 1999 was $103 million, primarily related to the
purchase of short-term investments and to a lesser extent purchase of property
and equipment. The increase in purchases of property and equipment relates
primarily to the purchase of $4.9 million of equipment and leasehold
improvements from Reuters.
Net cash provided by financing activities for fiscal 1997 and 1998 was $16.7
million and $12.4 million, respectively. Net cash provided by financing
activities in the nine months ended August 31, 1998 and the nine months ended
August 31, 1999 was $12.4 and $126.5 million, respectively. Cash provided by
financing activities was the result of net proceeds from the sale of our common
stock and, to a lesser extent, our preferred stock.
We anticipate continued growth in our operating expenses for the foreseeable
future, particularly in sales and marketing expenses and, to a lesser extent,
research and development and general and administrative expenses. As a result,
we expect our operating expenses and capital expenditures to constitute the
primary use of our cash resources. In addition, we may require cash resources
to fund acquisitions or investments in complementary businesses, technologies
or product lines. We believe that the net proceeds from our initial public
offering, together with our current cash and cash equivalents, will be
sufficient to meet our anticipated cash requirements for working capital and
capital expenditures through the end of fiscal 2000.
Year 2000 Readiness Disclosure
Year 2000 Program
We established a Year 2000 program to address the issues arising from the
change of millennium. Many computer systems, as well as equipment that uses
embedded chips, store and process date information using only the last two
digits of the year. From January 1, 2000, these systems may be unable to
distinguish between 1900 and 2000. This is complicated by the fact that the
year 2000 is also a leap year. If not overcome, these problems could cause
system failures and disrupt the normal business operations of companies,
including ours.
We have addressed and are continuing to address the Year 2000 issue through
the following means:
. Awareness--making our customers, suppliers and employees aware of the
problem.
. Inventory--identifying and recording date sensitive information
technology systems and non-information technology systems.
. Development--assessment of date sensitivity and modification or
replacement of date sensitive products.
. Testing--verification of our development efforts.
. Implementation--installation of tested products and systems.
. Contingency Planning--creating and/or evaluating the needs for
contingency plans to address potential worst-case scenarios.
Our state of readiness and business risks
We have completed an assessment of both our information technology systems
and our non-information technology systems. Based upon our examination, we
believe that our non-information technology systems do not contain any elements
that are susceptible to Year 2000 problems. However, we will modify or replace
some portions of our internal information technology systems as Year 2000-
compliant
26
<PAGE>
versions of these systems are released by outside vendors (e.g. Microsoft
releases of Windows NT). If, in the worst case scenario, such replacement is
not made, or is not completed on a timely basis, our operations could be
materially affected.
As part of our Year 2000 program, we have assessed, remediated and certified
all of the standard products we currently market. We are also working with our
customers to ensure that they are aware of our Year 2000 program and have
provided them with information on which current and past products are covered
by our standard Year 2000 product warranty. Despite investigation and testing
by us, there can be no assurances that software products we developed will not
contain undetected errors or defects associated with Year 2000 date functions.
If, in the worst case scenario, our products are affected by date-related
issues, our customers may file claims against us or require us to repair any
damage to their systems caused by our products. In addition, our revenues may
be adversely affected, our maintenance, technical support and management costs
could increase and our reputation could be damaged.
Our operations also rely on third party suppliers of data,
telecommunications, utilities and building services. We have completed
contacting our critical suppliers about the nature and progress of their Year
2000 compliance to determine the extent to which their failure to remedy their
own Year 2000 problems could materially affect us. Our critical information
technology suppliers have generally provided assurances as to their Year 2000
readiness, but it has been difficult to obtain full assurances of Year 2000
compliance from telecommunications infrastructure and utility suppliers which
generally do not provide such assurances. We intend to consider use of
alternative telecommunications and utility suppliers if reasonable assurances
are not provided. Any Year 2000-related failure of any of our critical
suppliers could cause a significant disruption of our business.
Costs
As of August 31, 1999, we had spent approximately $200,000 on Year 2000
assessment, remediation and communication with customers, vendors and partners.
This cost does not include product development expenses, which inherently
include costs related to addressing date sensitivities in our products. Based
on our experience to date and our internal assessment, we do not anticipate
that additional costs associated with remedying our internal systems will be
material.
Contingency plans
We are in the process of creating contingency plans to deal with potential
worst-case scenarios and intend to complete such plans before the fourth
quarter of fiscal 1999. We already have in place as part of our day-to-day
operations plans that can be executed in the event of certain service failures.
These operational plans will form the basis of any Year 2000 contingency plan
after being checked for applicability and enhanced as appropriate.
Recent Accounting Pronouncements
In October 1997, March 1998 and December 1998, the American Institute of
Certified Public Accountants, also known as the AICPA, issued Statements of
Position commonly called SOPs, 97-2, "Software Revenue Recognition", SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2, "Software Revenue
Recognition'" and 98-9, "Modification of SOP 97-2, "Software Revenue
Recognition' with Respect to Certain Transactions" (collectively, "SOP 97-2").
We are required to adopt the provisions of SOP 97-2 for transactions entered
into in the fiscal year beginning December 1, 1998. SOP 97-2 provides guidance
on recognizing revenue on software transactions and superseded SOP 91-1. We
believe that the adoption of SOP 97-2 will not have a significant impact on our
current licensing or revenue recognition practices. However, should we adopt
new or change our existing licensing practices, our revenue recognition
practices
27
<PAGE>
may be subject to change to comply with the accounting guidance provided in SOP
97-2.
In March 1998, the AICPA issued SOP 98-1, "Software for Internal Use", which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. We do not expect that the
adoption of SOP 98-1 will have a material impact on our financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard, or SFAS, No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999 and establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. We do not expect that the
adoption of SFAS No. 133 will have a material impact on our financial
statements.
28
<PAGE>
BUSINESS
We develop and market a suite of software products that enables businesses to
link internal operations, business partners and customer channels in real-time.
Our product suite, TIB/ActiveEnterprise, allows multiple distinct applications,
web sites, databases and other content sources to be integrated and managed
within a common framework. Our products also enable enterprises to extend their
information infrastructures across the Internet to integrate their business
processes and information with customers, suppliers and partners.
TIB/ActiveEnterprise's core technology, known as The Information Bus or the
TIB, is an integration platform that enables enterprises and users to
automatically transmit, receive, filter and personalize digital information in
real-time. The Information Bus also facilitates real-time, two-way
communications between distributed computer networks and mobile information
devices such as hand-held computers, pagers and digital cellular phones. Our
products are currently in use by over 300 companies in diverse markets such as
telecommunications, high-tech manufacturing, energy, financial services and e-
business.
Industry Background
Driven by accelerating competition and the increasing demands of customers,
many enterprises today are seeking to expand and improve the scope, speed and
efficiency of their business processes. Just as markets are becoming
increasingly global and corporate relationships become increasingly complex,
the business environment today demands a more tightly integrated network of
supplier, customer and partner relationships. Emerging challenges and
opportunities are forcing businesses to become more efficient, in many cases by
adjusting their operations and strategies in real-time. The timely exchange of
information across and beyond the enterprise provides opportunities to leverage
management resources, create manufacturing efficiencies and improve customer
service. For example, real-time information exchange with suppliers and
customers expedites order fulfillment, decreases inventory carrying costs,
provides enhanced sales opportunities through direct customer interaction and
facilitates e-business.
Enabling a real-time enterprise through technology is a complex undertaking.
The range of computing environments and software applications utilized across
the typical business organization is vast and growing, involving both mainframe
and minicomputer legacy systems and more recently introduced client/server
environments. Many organizations are incorporating powerful new software
applications that operate on an enterprise-wide basis and serve as interfaces
to customers and suppliers. At the same time, enterprises are seeking to better
exploit their existing information systems and take advantage of their prior
technology investments by integrating previously independent legacy
applications and databases. In addition to purchasing applications from
independent software vendors, many organizations continue to run customized,
internally developed solutions for specific applications. Moreover, many
organizations have in recent years extended operations overseas and acquired
new businesses. In the process, they have adopted applications that address the
specific needs of local markets and have inherited applications from acquired
businesses. All of these applications must be integrated in order to manage and
grow the extended enterprise, with its network of customer and business partner
relationships.
The emergence of Internet-based business models has also increased the
importance of an enterprise's ability to integrate existing applications and
business processes and to conduct business in real-time. The core product of
many emerging Internet businesses is information itself, which increases in
value with timeliness and comprehensiveness. Many businesses are expanding
their use of portals--Internet-based platforms for providing access to services
and content--to include the dissemination of internal corporate information to
employees and business partners. Internet technology has facilitated the real-
time
29
<PAGE>
transaction of business, but enterprises will be required to effectively
integrate back office systems and combine multiple sources of information to
capitalize on the promise of the Internet.
As the complexity of business operations has increased and enterprises have
sought to tighten linkages with partners and customers and capitalize on the
growth of e-business, enterprises have perceived the need to create a fully-
integrated business environment. The integration of business information and
processes requires technology that can coordinate multiple distinct computer
applications and platforms and distribute information about business events to
where the information is needed--both within and outside of the organization--
as the events occur.
We believe that many traditional application integration solutions have
failed to address all of the information integration needs of enterprises in
today's real-time, Internet-driven business environment due to one or more of
the following factors:
. Lack of Comprehensiveness. Existing middleware and integration software
products generally provide only a portion of the overall solution. This
forces companies to integrate multiple, incompatible technologies to
address the total business problem, creating an environment that is
difficult and costly to maintain.
. Lack of Modularity. Existing solutions generally are not modular and do
not provide enterprises with flexibility in meeting business needs. As a
result, enterprises are required to use all or none of a technology.
. Passive Model of Information Distribution. Existing solutions generally
employ a request/reply model of information dissemination that requires
specific requests to be made before information can be distributed. This
means an application must know that information exists before it can ask
for it. The intervals between successive requests to and replies from the
database for information represent unnecessary, and potentially costly,
delays in the business processes of the enterprise.
. Lack of Scalability. Existing solutions generally do not scale either in
terms of transaction volumes or geographically, often because they are
based on an oversimplified "hub and spoke" model that forces all
transactions through one central server or software component.
. Excessive Use of Network Capacity. The request/reply model requires that
multiple users often make multiple requests for the same information,
crowding the network with inquiries that convey no new information. As a
result, solutions employing the request/reply model use network capacity
unnecessarily.
The Yankee Group, an international strategic planning, technology
forecasting and market research firm established in 1970, has estimated in an
independent, publicly-available report that annual revenues worldwide from
application and data integration software--a subset of the enterprise
infrastructure software market--will reach $5.0 billion by the end of 2001,
compared to $1.6 billion in 1997. This represents a compound annual growth
rate of approximately 45%. The market for the next wave of enterprise
infrastructure technology extends beyond the conventional application
integration or middleware market to target a number of additional technology
areas including e-business and systems management.
The TIBCO Software Solution
Our solution allows multiple computer applications and platforms to
communicate in real-time across local or wide area networks, including the
Internet. The TIB technology facilitates the distribution of information and
the integration of business processes by connecting each application to the
network through a single interface, instead of linking each application
directly to all others. The benefits of the TIB technology are implemented
through TIB/ActiveEnterprise, an integrated suite of
30
<PAGE>
products that provides a software platform for the real-time distribution of
information. The primary benefits of TIB/ActiveEnterprise are set forth below:
Comprehensive Solution
Our TIB/ActiveEnterprise product suite provides a comprehensive solution for
the integration and management of information and business processes.
TIB/ActiveEnterprise permits the integration of diverse applications, databases
and content sources to allow both internal system linkages and external
linkages with partners, suppliers and customers. By establishing these
linkages, TIB/ActiveEnterprise facilitates the real-time flow of information
within and beyond the boundaries of the enterprise and enables the integration
of business processes, regardless of the location or compatibility of the
enterprise's diverse applications and platforms. Finally, TIB/ActiveEnterprise
provides the means to monitor and administer applications within an
enterprise's overall computing environment, facilitating continuous and
reliable operation.
Real-time Information Distribution
The TIB/ActiveEnterprise product suite is based on a real-time communications
and information distribution model using our publish/subscribe communications
technology. This technology delivers information to users automatically as it
becomes available, based on a user's specification of the type of information
desired. With TIB/ActiveEnterprise, a business can create a real-time
information technology environment that eliminates the delay inherent in most
business activities as information is requested, located and delivered. In
addition, TIB/ActiveEnterprise can support more traditional point-to-point
transactional systems, and can also store information for later delivery.
Personalized Information Delivery
Our technology enables each user, or subscriber, to identify and receive only
the information they desire or need. The technology allows users to "tune in"
to information on a given subject in much the same way that users of broadcast
media like television or radio are able to selectively receive information
being distributed to a diverse audience. As new information meeting the user's
criteria is distributed, or published, across the network, the subscriber
automatically receives it as soon as it becomes available. In this way, our
technology minimizes the need for recipients to sift through routine
information to access desired content, thereby permitting more efficient
business processes.
Modular and Flexible
Our TIB/ActiveEnterprise software products can be used together, deployed as
independent components or integrated with an enterprise's existing middleware
components. The modularity of TIB/ActiveEnterprise enables enterprises to
leverage their existing technology investments or to start with a limited TIB
implementation that the enterprise can expand as its information distribution
and integration needs grow.
Efficient Use of Network Capacity
The TIB technology is designed to make efficient use of an enterprise's
available network bandwidth while scaling with the capabilities of the network.
With TIB/ActiveEnterprise, information destined for multiple users is sent only
once, rather than as separate messages for each user. In this way, several
subscribers can receive the content they need simultaneously with one message,
reducing the complexity and cost of information distribution within the
enterprise. In addition, because TIB/ActiveEnterprise utilizes the same
fundamental networking standard that underlies the Internet, we can efficiently
incorporate the Internet as part of our solution.
Employed in Demanding, High-Performance Environments
The original TIB technology was developed more than a decade ago for use in
financial trading operations. The technology has also been deployed in other
demanding, high-performance environments including multi-billion dollar
semiconductor fabrication plants,
31
<PAGE>
telecommunications and energy companies and e-businesses. We have updated and
expanded the TIB technology to incorporate the knowledge gained from operating
in these environments.
Strategy
Our objective is to establish TIB/ActiveEnterprise as the leading software
solution for linking enterprises' internal operations, business partners and
customer channels. The core elements of our strategy include:
Promote the Widespread Adoption of Our Technology
Because the market for enterprise infrastructure software is relatively new
and evolving, we believe that an opportunity exists to establish the TIB
technology as a widely-accepted standard in the field. To this end, we seek to
strengthen and expand our strategic relationships with key technology vendors
in an effort to embed our software into their networking equipment and database
offerings. For example, Cisco embeds our technology in its Internetworking
Operating System, facilitating our sale of TIB/ActiveEnterprise solutions to
enterprises that use Cisco's Internet routers. Cisco has also made a
substantial equity investment in our company and owns approximately 7.3% of our
common stock. We also have strategic relationships with 3Com, i2 Technologies
and Sybase that provide for the resale of our products or the embedding of our
technology into products offered by these companies.
Enhance Our Position as a Provider of Internet Infrastructure
We are expanding our presence in the e-business and Internet portal markets
through a targeted product and service offering we call TIBCO.net. TIBCO.net
facilitates the automated presentation and flow of Internet-based data and the
integration of this data with diverse applications within the enterprise.
TIBCO.net tailors our TIB/ActiveEnterprise offering for the specific needs of
e-business in much the same way that our other vertical market offerings shape
our products for use in specific industries. In addition to our software
solution, we provide Internet-hosting solutions for Internet portals. TIBCO.net
currently provides the infrastructure through which Internet portals such as
Yahoo! and Netscape deliver financial and other information to their users. We
are also developing relationships to expand our access to sources of
information on finance, travel, sports and weather.
Pursue a License-Driven Business Strategy
Our business strategy focuses on licensing products rather than on providing
integration and support services. To support this strategy, we are augmenting
our direct sales force and our professional services group by establishing
reseller and joint marketing relationships with systems integrators and
professional services firms such as Deloitte Consulting, EDS and Ernst & Young.
We believe that these partners provide us with broad technical knowledge as
well as domain expertise in vertical markets.
Leverage Vertical Market Expertise
Our sales strategy is to leverage our expertise in vertical markets in an
attempt to shorten our sales and implementation cycles in those markets. As we
gain experience in a vertical market, we create an industry-specific template
for our technology. These templates modify the TIB/ActiveEnterprise suite to
capitalize on its core, cross-industry benefits while tailoring solutions to
meet the specific needs of companies in particular industries. This template
approach allows us to reduce our implementation times and rapidly expand our
initial points of success in a given vertical market. We have created
customized TIB/ActiveEnterprise templates in the telecommunications, high-tech
manufacturing and energy industries, and we seek to extend this expertise into
new markets as appropriate.
Capitalize on the Presence of Reuters in the Financial Services Industry
We have a close relationship with Reuters, our major stockholder and a
leading global news and information group. We sell our
32
<PAGE>
products in the financial services industry primarily through Reuters. We
believe that the established presence and expertise of Reuters in the financial
services industry will provide us with sales and marketing advantages in that
market. Through Reuters, we can also assist our customers in securing access to
a wealth of real-time information, including news and financial data, in
conjunction with our TIBCO.net Internet product and service offerings.
Expand International Market Presence
We are currently expanding our sales and marketing capabilities to accelerate
our penetration of the worldwide market for our products. We are expanding our
presence in Europe through our vertical market focus in the communications and
energy sectors. We have also developed a strong presence in Taiwan through our
solutions for the high-tech manufacturing market and in Australia through our
solutions for the electric utility market. For fiscal 1998, revenue from sales
of our products and services outside the United States accounted for 38% of our
total revenue. We intend to continue increasing our global sales coverage by
adding direct sales staff and sales offices internationally, as well as by
expanding our relationships with resellers and systems integrators outside the
United States.
Continue to Enhance Our Technology and Products
We plan to continue to extend the functionality and enhance the capabilities
of our TIB/ActiveEnterprise product suite, as well as increase the number of
leading enterprise applications we support by developing standard adapters to
connect them to the TIB. We have established relationships with enterprise
application vendors, including SAP, Siebel Systems, i2 Technologies and
PeopleSoft, that provide for the marketing of our products and the promotion of
the interoperability of our software. We continue to develop new
TIB/ActiveEnterprise components and to upgrade our existing products to
incorporate new technological advances. For example, in late fiscal 1999, we
plan to introduce a new component of our TIB/Active Enterprise product suite
designed to manage e-business and other transactional activities.
Products
TIB/ActiveEnterprise Product Suite
TIB/ActiveEnterprise is a suite of products that can be deployed individually
or function as an integrated solution. Our TIB/ActiveEnterprise products
provide the following key functions of the enterprise information
infrastructure:
. Messaging--enables the movement of information between applications.
. Connectivity--integrates various legacy and third party applications by
connecting them to a common infrastructure.
. Information Transformation and Flow Management --manages the conversion
and translation of data and controls the flow of information and the
interaction of business processes throughout the enterprise.
. Monitoring and Management--provides the means for the enterprise to
administer its applications environment and ensure reliable operations.
. Content Display--provides the display console through which users are
notified of and view business event information.
33
<PAGE>
TIB/ActiveEnterprise Model
Our TIB/ActiveEnterprise suite of products provides enterprise users with the
functionality depicted in the following diagram:
[Set forth is a visual representation of the functionality provided by our
TIB/Active Enterprise product suite]
Messaging (Events, Data & Transactions)
Our messaging products are the foundation of our TIB/ActiveEnterprise product
suite. These products simplify the problem of integrating diverse computer
applications by connecting each application to the network with a single
interface, instead of linking each application directly to all others. Our
products support a wide range of communication models used in the enterprise.
Our three complementary messaging products are described below:
. TIB/Rendezvous is our flagship messaging product. TIB/Rendezvous supports
publish/subscribe as well as request/reply messaging, and facilitates
personalized information delivery. TIB/Rendezvous leverages the
networking protocols of the Internet to offer a range of service levels
in the delivery of information. TIB/Rendezvous provides efficient,
reliable information delivery and high scalability, and can be embedded
in an enterprise's existing information system.
. TIB/ETX is a transaction-based messaging system designed for use in
environments that require a greater degree of transaction management and
control than is provided by a standard messaging solution. TIB/ETX
provides a transactional form of publish/subscribe messaging similar to
traditional computer transaction models.
. TIB/ObjectBus is our object request broker, or ORB, product. ORBs enable
computer systems to operate more efficiently by employing reusable, self-
contained pieces of software code known as objects. TIB/ObjectBus allows
TIB/ActiveEnterprise to integrate with CORBA 2.0, a major programming
standard for object-oriented applications. TIB/ObjectBus can be fully
integrated with our messaging software, combining the efficiency of an
object oriented computing model with the scalability, performance and
ease of use benefits of TIB/Rendezvous.
34
<PAGE>
Connectivity
TIB/Adapters are our software components that link applications to the TIB
environment, thus enabling these applications to communicate with each other.
We take an innovative approach to application integration by using a
TIB/Adapter as the single point of integration for the application. Our
TIB/Adapter products are as follows:
. Standard TIB/Adapters connect several leading enterprise applications and
complementary middleware products to the TIB environment. We offer a
series of standard TIB/Adapters designed to link applications and other
software by SAP, Siebel Systems, PeopleSoft, IBM and Oracle, among
others, to the TIB.
. TIB/Adapter SDK is our software toolkit that allows our customers and
systems integrators to build custom TIB/Adapters to link applications to
the TIB environment. This product provides a common framework for the
rapid development of new TIB/Adapters.
Information Transformation and Flow Management
In order to facilitate the efficient movement of information across
enterprise applications, a solution must have the ability to translate content
from one format to another and to effectively govern the manner in which
information flows between applications. Our transformation and flow management
products translate data from each application into a format that is understood
by other applications throughout the enterprise as described below:
. TIB/MessageBroker is our scalable message routing and transformation
system. TIB/MessageBroker combines and transforms data from applications
into formats that can be understood by other applications, and routes
data according to rules or criteria defined by the enterprise.
TIB/MessageBroker also allows an enterprise to conduct transactions and
exchange information with customers and business partners. Unlike many
competing technologies, TIB/MessageBroker requires no independent
database or third-party messaging system.
. TIB/IntegrationManager controls the flow of information among components
in the TIB/ActiveEnterprise environment. TIB/IntegrationManager allows
the enterprise to define business rules that govern where information
should go and under what conditions. TIB/IntegrationManager coordinates
the message transport and transformation functions of
TIB/ActiveEnterprise.
Content Display
To conduct business in real-time, an enterprise must have the ability to
provide a simple display tool for users to access and view business event
information. Our products in this area are designed to combine information from
the TIB/ActiveEnterprise environment with content from external sources, such
as web pages, to create an integrated display that can be personalized to the
specific needs of the end-user. Our content display products are described
below:
. TIB/ContentBroker aggregates information from enterprise applications,
corporate web sites and other content sources based on an enterprise's
preferences, and delivers the requested information directly to users'
desktops as soon as it becomes available. TIB/ContentBroker reduces the
need for enterprises to support multiple end -user interfaces that allow
users to request information from various sources.
. TIB/EventConsole is a display for users to view the content aggregated by
TIB/ContentBroker. TIB/EventConsole provides personalized notifications
from enterprise information sources, including databases, document
servers, web servers, enterprise resource planning systems and legacy
systems, directly to the desktop computers of the
35
<PAGE>
appropriate users. TIB/EventConsole also enables users to receive up-to-
date information remotely.
Monitoring and Management
TIB/Hawk is our product for monitoring and managing applications. Through an
intuitive graphical user interface, TIB/Hawk can be configured to monitor
systems and applications in a local or wide area network and act autonomously
when pre-defined conditions occur. For example, upon the occurrence of a
particular event, TIB/Hawk can send an alarm to the TIB/Hawk display or through
e-mail or a pager, and can run preset responses. System events are viewed
through a display application that, through the use of publish/subscribe
messaging, can operate anywhere on the network and in multiple locations
simultaneously without any change in system configuration. TIB/Hawk uses
network resources only when responding to the occurrence of pre-defined events,
significantly reducing management and monitoring overhead.
TIB/ActiveEnterprise Product Suite
Our TIB/ActiveEnterprise products are depicted in the following diagram:
[Set forth here is a visual representation of our TIB/ActiveEnterprise
products]
. Allows multiple distinct applications, web sites, databases and other
content sources to be integrated and managed in real-time.
. Facilitates the distribution of information and integration of
business processes by connecting each application through patented
technology called The Information Bus or the TIB.
. Enables enterprises to extend their information infrastructures
across the Internet.]
TIBCO.net
As part of our strategy to extend the reach of TIB/ActiveEnterprise,
TIBCO.net provides a solution for the creation, monitoring and administration
of demanding, high-performance platforms for e-business services, such as
Internet or enterprise portals or corporate web sites. Using
TIB/ActiveEnterprise, we can create real-time, scalable information systems for
our customers, such as the financial information system we created for Yahoo!.
TIBCO.net allows our customers to combine internal business systems with
external content, such as news or market pricing data. Our customers in turn
can bundle this information for real-time delivery to their customers,
suppliers, partners and employees. In addition, TIBCO.net provides our
customers with the ability to integrate and deliver business information in
real-time across the Internet through our reliable multicast technology.
36
<PAGE>
TIBCO.net represents a further evolution of TIB/ActiveEnterprise for use in
Internet-enabled businesses. TIBCO.net is offered to our customers either as a
TIBCO-hosted service, providing time-to-market advantages, or as a package of
products and services for implementation at the customer's site.
TIBCO.net, through its implementation of TIB/ActiveEnterprise, supports a
broad range of communications methods and protocols enabling the delivery of
information through a wide range of devices and presentation technologies,
including Internet browsers, pagers, hand-held computers and digital cellular
phones.
By applying our experience in supplying real-time information, we have
developed several services and products that enterprises can use to create
comprehensive content distribution systems. We can offer companies the ability
to provide their users with access to information from a variety of web pages
that can be accessed using TIB/ContentBroker. In addition, we can assist our
customers in securing access to popular news and information services from
Reuters and other information providers.
We are currently developing TIB/Adapters in order to provide access to
several additional information sources, pertaining to finance, travel, sports,
weather and healthcare.
Services
Professional Services
Our professional services offerings include a wide range of consulting
services such as systems planning, architecture and design, custom development
and systems integration for the rapid deployment of our TIB/ActiveEnterprise
products. We offer professional services with the initial deployment of our
products, as well as on an ongoing basis to address the continuing needs of our
customers. Our professional services staff is located in Palo Alto, Virginia,
London and Sydney, enabling us to perform installations and respond to customer
demands rapidly across the Americas, Europe and Asia. As of February 28, 1999,
our professional services group consisted of 104 employees, including
individuals with domain expertise in the telecommunications, energy and other
industries. Many of our professional services employees have advanced degrees
and/or substantial industry expertise in systems architecture and design. We
expect that the number of service professionals and the scope of the services
offered will increase as we continue to address the expanding enterprise
infrastructure needs of large organizations.
We have established reseller and joint marketing relationships with
professional service organizations and system integrators, including Deloitte
Consulting, EDS, Ernst & Young, Compaq Services and Sapient, to cooperate in
the deployment of our products to clients. These relationships help promote our
TIB/ActiveEnterprise product suite and provide additional technical expertise
to enable us to provide the full range and volume of professional services our
customers require to deploy TIB/ActiveEnterprise.
Maintenance and Support
We offer an array of software maintenance and support services to our
customers. Our support organization provides services seven days a week,
twenty-four hours a day. We have a worldwide support organization with key
operations centers in Palo Alto, London and Sydney to ensure global coverage
for our customers. These centers provide the infrastructure for our around-the-
clock call centers and hotline support.
We offer a range of support packages that allow our customers to choose the
level of support that fits the needs and budgets of their organizations.
Customers also have access to on-site support which is charged on a time and
materials basis.
Training
We provide training for customer personnel at our main office as well as at
customer locations. We also provide training for our professional services
partners to enhance their
37
<PAGE>
effectiveness in integrating our products. In addition, we develop custom
education programs to address the specific needs of individual customers and
partners.
Users of TIBCO Software Products
TIBCO Software's customer base includes businesses from many industries,
including telecommunications, high-tech manufacturing and energy, as well as
pharmaceuticals, retail, general manufacturing and the Internet. The following
is a partial list of current users of our TIB/Active Enterprise products. Each
of these companies, other than the financial services companies, accounted for
at least $500,000 of our revenue during the period from January 1997 through
August 1999. Each of the financial services companies accounted for at least
$200,000 of our revenue during that period. We believe that the amount and type
of products purchased by these customers is representative of our client
relationships generally.
Telecom Energy Financial Services
Ericsson Chevron Cedel Global
PageNet Marubeni Services
Telia Mobil Fidelity
Pacific Power First National Bank
High-Tech Manufacturing of South Africa
Internet and Other Goldman Sachs
3Com The Nasdaq Stock
Compaq Bechtel Market
Hyundai Intuit National Westminster
Intel Yahoo! Bank
Lucent Technologies Unibank
Motorola
NEC Electronics
Philips Medical
Taiwan Semiconductor Manufacturing Company
United Microelectronics Corp.
Under the terms of our license agreement with Reuters, we are generally
required to sell our products to companies in the financial services market
through third-party distributors and systems integrators. Reuters is the
preferred distributor of our products in that market. Reuters pays us a product
fee when it sells our products to financial services companies, but this
product fee is lower than the amount of revenue we would recognize if we sold
our products directly to these companies. See "Relationship with Reuters and
Certain Transactions--Intercompany Agreements-- License, Maintenance and
Distribution Agreement with Reuters" beginning on page 53 for a detailed
description of our distribution relationship with Reuters. All financial
services companies listed in the above table other than Cedel Global Services
purchased our products through Reuters.
Our contract with Cedel Global Services, a company that provides services to
the finance industry, was assigned to us by Reuters effective January 1, 1998
in consideration for our assumption of the obligations of TFT under the
agreement, and we sell our products and consulting services directly to Cedel
Global Services pursuant to an exception in our license agreement with Reuters.
In fiscal 1998 and in the first three quarters of fiscal 1999, Cedel Global
Services accounted for 17% and 10% of our revenue. Our contract with Cedel
Global Services expires in December 2000. In addition, in fiscal 1997, NEC
Electronics accounted for 17% of our revenue. No other trade customer accounted
for more than 10% of our revenue in the first three quarters of 1999 or in
either of fiscal 1998 or fiscal 1997.
38
<PAGE>
Sales and Marketing
Sales
We currently market our software and services primarily through a direct
sales organization, complemented by indirect sales channels. As of August 31,
1999, our direct sales force included 30 commissioned sales representatives
located in 8 U.S. cities and in 10 locations internationally across North
America, Europe and Asia. We have established distribution and licensing
relationships with several strategic hardware vendors, database providers,
software and toolset developers, systems integrators and implementation
consultants. We have also developed alliances with key solution providers to
target vertical industry sectors, including health care, telecommunications,
and manufacturing.
Under the terms of our license agreement with Reuters, we generally cannot
sell our products directly into the financial services market. Accordingly, we
generally sell our products to companies in the financial services industry
through third-party distributors and systems integrators. Reuters is the
preferred distributor of our products in that market. See "Relationship with
Reuters and Certain Transactions--Intercompany Agreements--License, Maintenance
and Distribution Agreement with Reuters" beginning on page 53 for a detailed
description of our distribution relationship with Reuters. We believe that our
distribution relationship with Reuters, a global news and information group,
has strengthened the penetration of our products in the financial services
industry. Product fees from Reuters on its sales of our products in the
financial services industry accounted for 16% of our revenue in the first three
quarters of fiscal 1999, 6% of our revenue in fiscal 1998 and less than 1% of
our revenue in fiscal 1997.
Marketing
We utilize a wide variety of marketing programs which are intended to attract
potential customers and to promote TIBCO Software and its brand names. We use a
mix of market research, analyst updates, seminars, direct mail, print
advertising, trade shows, speaking engagements, public relations, customer
newsletters, and web site marketing in order to achieve these goals. Our
marketing department also produces collateral material for distribution to
potential customers including presentation materials, white papers, brochures,
and fact sheets. We also host annual user conferences for our customers and
provide support to our channel partners with a variety of programs and training
and product marketing support materials.
Information Technology Advisory Council
We have assembled an Information Technology Advisory Council composed
primarily of chief information officers from leading Fortune 500 manufacturing
and financial companies. The Information Technology Advisory Council meets at
least semiannually to review our design plans and products and to provide us
with specific feedback on our technology applications and market focus.
Product Development
We have been granted a perpetual, royalty-free license to the underlying TIB
messaging technology as it existed on December 31, 1996. See "Relationship with
Reuters and Certain Transactions--Intercompany Agreements--License, Maintenance
and Distribution Agreement with Reuters" beginning on page 53 for a more
detailed description of this license. We have concentrated our product
development efforts since then both on enhancing this licensed technology and
on developing new products. We expect that most of our enhancements to existing
products and new products will be developed internally. However, we will
evaluate on an ongoing basis the acquisition of externally developed
technologies for integration into our product lines.
We expect that a substantial majority of our research and development
activities will be related to developing enhancements and extensions to our
TIB/ActiveEnterprise product lines. Historically, our product development
efforts were focused on creating the TIB/ActiveEnterprise solution. Our
development focus has now shifted to expanding the number of available
TIB/Adapters and developing
39
<PAGE>
additional pre-packaged integration solutions for specific markets.
As of August 31, 1999, there were 120 employees in our research and
development organization. We expect that we will continue to commit significant
resources to product development in the future. To date, all product
development costs have been expensed as incurred.
Competition
The market for our products and services is extremely competitive and subject
to rapid change. In addition, we compete with various providers of single
components of application integration solutions, including IBM, New Era of
Networks, Iona and BEA with respect to messaging components and Vitria,
CrossWorlds, STC and Active Software with respect to other components. We
believe that of these companies, IBM has the potential to offer the most
complete set of products for application integration. We also face competition
for certain aspects of our product and service offerings from major systems
integrators. We expect additional competition from other established and
emerging companies. In addition, we may face pricing pressures from our current
competitors and new market entrants in the future. We believe that the
competitive factors affecting the market for our products and services include
product functionality and features; quality of professional services offerings;
product quality, performance and price; ease of product implementation; quality
of customer support services; customer training and documentation; and vendor
and product reputation. The relative importance of each of these factors
depends upon the specific customer environment. Although we believe that our
products and services currently compete favorably with respect to such factors,
we may not be able to maintain our competitive position against current and
potential competitors.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our present or future competitors may be able to develop products
comparable or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends or customer requirements, or devote
greater resources to the development, promotion and sale of their products than
we do. Accordingly, we may not be able to compete effectively in our markets,
competition may intensify and that future competition may harm our business and
operating results. If we are not successful in developing enhancements to
existing products and new products in a timely manner, achieving customer
acceptance or generating higher average selling prices, our gross margins may
decline, and our business and operating results may suffer.
Our license agreement with Reuters does not prohibit Reuters from providing
enterprise infrastructure software products and services in competition with
us. Reuters currently sells our products to financial services companies and
creates products based on the TIB technology specifically for financial
services companies. In addition, pursuant to the license agreement, Reuters has
access to the source code for our products. Although Reuters currently does not
create TIB-based products designed for general use in all markets, if Reuters
were to decide to begin providing information integration products and services
in our markets, we would face additional competition for such customers.
Proprietary Technology
Our success is dependent upon our proprietary software technology. We license
the patents for the TIB technology underlying some of our TIB/ActiveEnterprise
products, including TIB/Rendezvous and TIB/ETX, from Reuters. Consequently, we
can assert infringement of these products only through Reuters or with the
consent of Reuters. While we have pending patent applications, we do not
currently have any issued patents and rely principally on trade secret,
copyright and trademark laws, nondisclosure and other contractual agreements to
protect our technology. We also believe that factors such as the technological
and creative skills of our personnel, product enhancements and new product
developments are essential to establishing and maintaining a
40
<PAGE>
technology leadership position. We enter into confidentiality and/or license
agreements with our employees, distributors and customers, and limit access to
and distribution of our software, documentation and other proprietary
information. Nevertheless, the steps we have taken may fail to prevent
misappropriation of our technology, and the protections we have may not prevent
our competitors from developing products with functionality or features similar
to our products. Furthermore, third parties might independently develop
competing technologies that are substantially equivalent or superior to our
technologies. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries. If we fail to protect
our proprietary technology, our business could be seriously harmed.
Although we do not believe our products infringe the proprietary rights of
any third parties, third parties may nevertheless assert infringement claims
against us or our customers in the future. Furthermore, we may initiate claims
or litigation against third parties for infringement of our proprietary rights
or to establish the validity of our proprietary rights. Litigation, whether
resolved in our favor or not, would cause us to incur substantial costs and
divert our management resources from productive tasks, which could harm our
business. Parties making claims against us could secure substantial damages, as
well as injunctive or other equitable relief which could effectively block our
ability to license our products in the United States or abroad. Such a judgment
could seriously harm our business. If it appears necessary or desirable, we may
seek licenses to intellectual property if we believe that our technology
potentially infringes on such technology. We may not, however, be able to
obtain such licenses on commercially reasonable terms or at all, and the terms
of any offered licenses might not be acceptable to us. The failure to obtain
necessary licenses or other rights could seriously harm our business. As the
number of software products in our industry increases and the functionality of
those products further overlaps, we believe that software developers may become
increasingly subject to infringement claims. Any such claims, with or without
merit, would probably be time consuming and expensive to defend, and could
seriously harm our business. We are not aware of any currently pending claims
that our products, trademarks or other proprietary rights infringe upon the
proprietary rights of third parties.
"TIBCO", "The Information Bus", "TIB" and the names of our products are our
trademarks or tradenames.
Employees
As of August 31, 1999, we employed 390 persons, including 89 in sales and
marketing, 120 in research and development, 46 in finance and administration
and 135 in client services and technical support. Of our 390 employees, 50 were
located in Europe, and 33 in Australia and Asia. We believe that our
relationship with our employees is good.
Legal Proceedings
From time to time we have been subject to legal proceedings and claims in the
ordinary course of business. We are not now involved in any material legal
proceedings.
Executive Offices and Web Site
Our principal executive office is located at 3165 Porter Drive, Palo Alto,
California 94304, and our telephone number at that address is (650) 846-5000.
We maintain a web site at www.tibco.com. Information contained on our site is
not part of this prospectus.
Facilities
We lease approximately 93,000 square feet in a single office building located
in Palo Alto, California. We also lease office space in Virginia and Australia
and in various cities in the United States and internationally to support our
sales and marketing personnel worldwide. We believe that our existing
facilities are adequate to meet our current and foreseeable requirements, or
that suitable additional space will be available on commercially reasonable
terms.
41
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information with respect to our
executive officers and directors as of July 22, 1999.
Executive Officers and Directors
<TABLE>
<CAPTION>
Name Age Position(s)
------------------------- --- -----------------------------------------------
<C> <C> <S>
Vivek Y. Ranadive 41 President, Chief Executive Officer and Chairman
of the Board
Paul G. Hansen 49 Executive Vice President, Finance and Chief
Financial Officer
Rajesh U. Mashruwala 47 Executive Vice President, Sales and Marketing
Executive Vice President, General Counsel and
Robert P. Stefanski 37 Secretary
Executive Vice President, Engineering and
Richard M. Tavan 50 Operations
Christopher G. O'Meara 41 Vice President, Finance
Douglas M. Atkin 36 Director
Yogen K. Dalal 49 Director
Edward R. Kozel 43 Director
Donald J. Listwin 40 Director
Larry W. Sonsini 58 Director
John G. Taysom 45 Director
Phillip E. White 56 Director
Philip K. Wood 44 Director
</TABLE>
Vivek Y. Ranadive has served as President, Chief Executive Officer and
Chairman of the Board of TIBCO Software since its inception in January 1997.
From 1985 to 1997, Mr. Ranadive served as the Chairman and CEO of Teknekron. In
addition, Mr. Ranadive served as President, Chief Executive Officer and
Chairman of the Board of TFT from its inception until December 1998.
Mr. Ranadive received his B.S. in electrical engineering and computer science
and his M.S. in engineering from the Massachusetts Institute of Technology and
his M.B.A. from Harvard University.
Paul G. Hansen has served as Executive Vice President and Chief Financial
Officer of TIBCO Software since July 1998. From 1984 to July 1998, Mr. Hansen
held various positions at Adaptec, Inc., a publicly-traded supplier of
bandwidth management solutions, including Vice President, Finance, Chief
Financial Officer and Assistant Secretary from 1988 to July 1998. Mr. Hansen
received his B.S. in business from the State University of New York.
Rajesh U. Mashruwala has served as Executive Vice President, Sales and
Marketing of TIBCO Software since March 1997. From February 1995 to March 1997,
Mr. Mashruwala held various positions at TIBCO Software and TIBCO Inc.,
including Vice President, Enterprise Business Applications of TIBCO Software.
From October 1993 to February 1995, Mr. Mashruwala was President of Media
Computer Technology, Inc., a provider of magnetic and optical media products.
Mr. Mashruwala received his degree in engineering from the Indian Institute of
Technology, Bombay and his M.S. in engineering from the University of
California, Berkeley.
Robert P. Stefanski has served as Executive Vice President, General Counsel
of TIBCO Software since May 1998 and as Secretary of TIBCO Software since May
1997. From November 1996 to March 1998, Mr. Stefanski was the Director of
Intellectual Property for Reuters America, Inc., an affiliate of ours. From
September 1989 to November 1996, Mr. Stefanski was an associate with the law
firm of Weil, Gotshal & Manges. Mr. Stefanski received his B.S. in mathematics
from Northern Michigan University and his M.S. in engineering and his J.D. from
the University of Michigan.
Richard M. Tavan has served as Executive Vice President, Engineering and
42
<PAGE>
Operations of TIBCO Software since January 1997. From November 1986 to January
1997, Mr. Tavan held various positions at TIBCO Inc., including Vice President,
Engineering. From June 1983 to November 1986, Mr. Tavan was Director of
Engineering for 3Com Corporation. Mr. Tavan received his B.S. in electrical
engineering and computer science from the Massachusetts Institute of
Technology.
Christopher G. O'Meara has served as Vice President, Finance, of TIBCO
Software since August 1998. From June 1992 to July 1998, Mr. O'Meara was
Corporate Vice President and Treasurer at Adaptec. Mr. O'Meara received his
B.A. in economics from Stanford University and his M.B.A. from Northwestern
University.
Douglas M. Atkin was appointed a director of TIBCO Software in July 1999.
Since 1998, Mr. Atkin has been Chief Executive Officer of Instinet Corporation,
a subsidiary of Reuters. From 1992 to 1998, Mr. Atkin was CEO of Instinet
International, a subsidiary of Reuters. Mr. Atkin received his B.A. in
economics from Tufts University.
Yogen K. Dalal has been a director of TIBCO Software since December 1997.
Since September 1991, Mr. Dalal has been a Partner of Mayfield Fund, a venture
capital firm. Mr. Dalal is a director of BroadVision, Inc., a supplier of
Internet business applications, and several privately-held companies. Mr. Dalal
received his B.S. in electrical engineering from the Indian Institute of
Technology, Bombay and his M.S. and Ph.D. in electrical engineering from
Stanford University.
Edward R. Kozel has been a director of TIBCO Software since May 1997. Mr.
Kozel is a director of Cisco Systems, and served in various capacities at Cisco
from 1989 through April 1998, most recently as Chief Technology Officer and
Senior Vice President Business Development.
Donald J. Listwin has been a director of TIBCO Software since October 1998.
Since February 1990, Mr. Listwin has been with Cisco Systems, Inc., where he
has held a variety of positions and is currently an Executive Vice President.
Mr. Listwin also serves on the board of directors of Software.com and E-Tek
Dynamics. Mr. Listwin received his B.S. in electrical engineering from the
University of Saskatchewan, Canada.
Larry W. Sonsini has been a director of TIBCO Software since May 1997. Mr.
Sonsini has been an attorney with the law firm of Wilson Sonsini Goodrich &
Rosati since 1966 and currently serves as the Chairman of the firm's Executive
Committee. Mr. Sonsini also serves as a director of Lattice Semiconductor
Corporation, Novell, Inc. and Pixar. Mr. Sonsini received A.B. and L.L.B.
degrees from the University of California, Berkeley.
John G. Taysom was appointed a director of TIBCO Software in July 1999. Since
1982, Mr. Taysom has been employed by Reuters and is currently the Managing
Director of Reuters Greenhouse Fund, a venture capital fund. Mr. Taysom is
currently a director of Digimarc Corporation, a maker of electronic anti-
counterfeiting products, and several other privately held companies. Mr. Taysom
received his B.Sc. in economics from Bath University.
Phillip E. White has been a director of TIBCO Software since May 1997. Since
August 1997, Mr. White has been President of Marketing Consultants. From
January 1989 to July 1997, Mr. White was the Chief Executive Officer of
Informix Software, Inc., a provider of innovative database products. Mr. White
currently serves on the board of directors of Legato Systems, a storage
management software provider, Adaptec and several privately held companies. Mr.
White received his B.A. in business from Illinois Wesleyan University and his
M.B.A. from Illinois State University.
Philip K. Wood has been a director of TIBCO Software since our inception.
Since September 1990, Mr. Wood has been employed by Reuters and currently
serves as Deputy Finance Director. Prior to joining Reuters in September 1990,
Mr. Wood was a partner at Price Waterhouse. Mr. Wood is currently a director of
TFT, Instinet Corporation and several other subsidiaries of Reuters.
43
<PAGE>
Mr. Wood received his M.A. in physics from Balliol College, Oxford University.
Pursuant to a stockholders' agreement among us, Reuters and certain of our
other stockholders, Messrs. Atkin, Taysom and Wood were selected to serve on
our board of directors by Reuters; Messrs. Kozel and Listwin were selected by
Cisco; and Messrs. Dalal, Sonsini and White were selected by Mr. Ranadive.
The service of some of our directors as directors, officers or employees of
Reuters could create or appear to create potential conflicts of interest when
these directors are faced with decisions that could have different implications
for us and Reuters. Such decisions may be required in connection with potential
acquisitions or financing transactions or other corporate opportunities that
may be suitable for both us and Reuters or TFT. None of our significant
corporate stockholders, including Reuters, is prohibited from competing with
us. See "Risk Factors -- Our licensing and distribution relationship with
Reuters places limitations on our ability to conduct our business" beginning on
page 7 for more information on the potential for competition between us and
Reuters. Directors of a corporation owe fiduciary duties to all of the
stockholders of that corporation, and Delaware law governs situations where a
potential or actual conflict of interest may arise.
Reuters has the right under a stockholders agreement to nominate three of our
nine directors so long as it holds 40% or more of our outstanding shares of
voting stock. If Reuters holds less than 40% but at least 25% of our voting
shares, Reuters will have the right to nominate two directors. If Reuters holds
less than 25% but at least 10% of the issues and outstanding voting shares,
Reuters will have the right to nominate one director. If the total number of
our directors is increased, Reuters will have the right to nominate the lowest
number of directors such that Reuters-nominated directors constitute at least
that portion of our board of directors that Reuters could have nominated under
the foregoing rights if our board consisted of nine directors. See
"Relationship with Reuters and Certain Transactions--Stockholders Agreement"
beginning on page 56 for a more detailed description of these arrangements.
Each officer serves at the discretion of our board of directors. There are no
family relationships among any of our directors or officers.
Director Compensation
Our Director Stock Option Plan provides for automatic grants of options to
purchase common stock to our directors who are not also our employees. See "--
Stock Plans--1998 Director Option Plan" beginning on page 50 for a more
detailed description of this plan. Additionally, in June 1999, we granted to
Reuters an option to purchase 150,000 shares of our common stock at an exercise
price of $6.00 per share under our director stock option plan. Reuters has the
right to transfer this option to the Reuters-nominated directors. Directors do
not receive any cash compensation for serving on our board of directors.
Committees of the Board of Directors
Our board of directors has had standing audit and compensation committees,
which assist the board of directors in the discharge of its responsibilities.
The audit committee reports to our board of directors regarding the
appointment of our independent public accountants, the scope and fees of
prospective annual audits and the results thereof, compliance with our
accounting and financial policies and management's procedures and policies
relative to the adequacy of our internal accounting controls. Members of the
audit committee are elected by the board and serve for one-year terms. The
audit committee currently consists of Messrs. Dalal, Wood and Kozel.
The compensation committee reviews and approves the annual salary and bonus
for each executive officer consistent with the terms of any applicable
employment agreement, reviews, approves and recommends terms and conditions for
all employee benefit plans, and
44
<PAGE>
administers our stock option plan. Stock option grants are approved by the
stock option sub-committee of the compensation committee. Pursuant to the
stockholders agreement, Reuters has the right to nominate one member of our
compensation committee. Members of our compensation committee other than the
Reuters representative are appointed by the board of directors and serve one-
year terms. The compensation committee currently consists of Messrs. Listwin,
Wood and Dalal. The stock option subcommittee currently consists of Messrs.
Listwin and Dalal.
Compensation Committee Interlocks and Insider Participation
During fiscal 1998, our compensation committee consisted of Messrs. Listwin
and White and Simon Yencken, one of our former directors. Neither Mr. Listwin
nor Mr. Yencken were our employees or employees of our subsidiaries during
fiscal 1998 or at any time prior to fiscal 1998. Since August 1997, Mr. White
has provided consulting services to us. In connection with these consulting
services, we paid $314,000 to Mr. White and granted him options to purchase
150,000 shares of our common stock in fiscal 1998. In fiscal 1998, we also
granted to Mr. White options to purchase 50,000 shares of common stock for
serving as a director. In fiscal 1997, we paid $79,000 to Mr. White and granted
him options to purchase 200,000 shares of our common stock for consulting
services rendered.
Mr. Listwin is Executive Vice President of Cisco Systems, Inc. Another of our
directors, Mr. Kozel, was an executive officer at Cisco during part of fiscal
1998 and is currently a member of Cisco's board of directors. In March 1999, we
granted Cisco a license to embed our TIB/Rendezvous product and multicasting
technology in its Internetworking Operating System and Cisco Networking
Services for Active Directory, or CNS/AD, products in exchange for a license
fee of $1.5 million. The terms of this transaction were the result of arm's-
length negotiations between Cisco and us and were approved by a majority of our
board of directors, including a majority of our independent and disinterested
directors. We believe that the terms of the technology licensing agreement with
Cisco are no less favorable to us than we could have negotiated with an
unaffiliated third party.
During fiscal 1998, Mr. Ranadive, our President, Chief Executive Officer and
Chairman, served as President, Chief Executive Officer and Chairman of TFT.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a
corporation's certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director for monetary damages for
breach of his or her fiduciary duties as a director, except for liability for:
. any breach of the duty of loyalty to the corporation or its stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporate
Law; or
. any transaction from which the director derived an improper personal
benefit. See "Description of Capital Stock--Limitation of Liability;
Indemnification" beginning on page 63 for a more detailed description of
our obligation to indemnify our directors.
Our bylaws provide that we must indemnify our directors and officers and may
indemnify our employees and agents to the fullest extent permitted by Delaware
law.
We have entered into agreements to indemnify our directors and officers in
addition to the indemnification provided for in our certificate of
incorporation and bylaws. Under these agreements, we are obligated, among other
things, to indemnify our directors and officers for attorneys' fees, other
expenses,
45
<PAGE>
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of us, arising
out of such person's services as our director or officer, any subsidiaries or
any other company or enterprise to which the person provides services at our
request. We believe that these provisions and agreements are necessary to
attract and retain qualified individuals to serve as directors and officers.
At present, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. We are not aware of any threatened litigation or proceeding that
might result in a claim for such indemnification.
46
<PAGE>
Executive Compensation and Employment Agreements
The following table sets forth information concerning the compensation
received for services rendered to us during fiscal 1998 by our current Chief
Executive Officer and our four other most highly compensated executive officers
during the year ended November 30, 1998 whose salary and bonus for fiscal 1998
equaled or exceeded $100,000, whom we refer to as the named executive officers.
Amounts under the "Bonus" column include bonuses earned in fiscal 1998, but
deferred until a later year. In determining the amount of bonuses paid to our
named executive officers, the compensation committee considered the financial
performance of our company and the performance of the executives as compared to
the performance of comparable companies and compensation data from such
companies.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
-------------------- ------------
Securities
Underlying All Other
Name and Principal Positions Salary Bonus Options Compensation
---------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Vivek Y. Ranadive.............. $455,000(1) $200,000 232,500 --
President, Chief Executive
Officer and Director
Paul G. Hansen................. 88,141(2) 40,000 450,000 --
Executive Vice President and
Chief Financial Officer
Rajesh U. Mashruwala........... 213,333 85,000 62,500 --
Executive Vice President,
Sales and Marketing
Robert P. Stefanski............ 159,375(3) 75,000 18,000 41,430(4)
Executive Vice President,
General Counsel and Secretary
Richard M. Tavan............... 234,000 66,000 36,000 --
Executive Vice President,
Engineering and Operations
</TABLE>
- --------
(1) We were reimbursed $226,450 of this amount by Reuters for time Mr. Ranadive
spent working on matters for TFT.
(2) Mr. Hansen began his employment with us as Executive Vice President and
Chief Financial Officer in July 1998. His current salary is $260,000 per
year.
(3) Mr. Stefanski began his employment with us as Executive Vice President and
General Counsel in March 1998. His current salary is $245,000 per year.
(4) Represents amount reimbursed for relocation expenses.
47
<PAGE>
The following table sets forth information as to stock options granted to all
named executive officers during the fiscal year ended November 30, 1998. These
options were granted under our 1996 Stock Option Plan and, unless otherwise
indicated, provide for vesting as to 20% of the underlying common stock one
year after the date of grant, then ratably over a period of 48 months
thereafter. Options were granted at an exercise price equal to 100% of the fair
market value of our common stock on the date of grant, as determined by our
board of directors. The amounts under "Potential Realizable Value at Assumed
Annual Rate of Stock Appreciation for Option Term" represent the hypothetical
gains of the options granted based on assumed annual compound stock
appreciation rates of 5% and 10% over the initial public offering price per
share of $15.00 for the full ten-year term of the options. The assumed rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of future common
stock prices.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Percent Value at Assumed
Number of Total Annual Rate
Securities Options of Stock Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Per Expiration ----------------------
Name Granted(#) in Fiscal Year Share Date 5% 10%
---- ---------- -------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Vivek Y. Ranadive....... 232,500 5.3% $1.00 4/01/08 $5,448,266 $ 8,813,177
Paul G. Hansen.......... 450,000(1) 10.3 2.60 7/27/08 9,825,030 16,337,745
Rajesh U. Mashruwala.... 62,500 1.4 1.00 4/01/08 1,464,588 2,369,131
Robert P. Stefanski..... 18,000(2) 0.4 1.00 4/01/08 421,801 682,310
Richard M. Tavan........ 36,000 0.8 1.00 4/01/08 843,602 1,364,620
</TABLE>
- --------
(1) These options vested as to 37,500 of the underlying shares on the date of
grant with the remainder vesting as to 20% of the underlying shares one
year after the date of grant then ratably over 48 months thereafter.
(2) Mr. Stefanski also has the right to purchase 80,000 shares of our common
stock at a weighted average price per share of $0.72 pursuant to
Reuters/TFT Employee Stock Purchase Arrangements described under
"Relationship with Reuters and Certain Transactions--Reuters/TFT Employee
Stock Purchase Arrangements" on page 58.
48
<PAGE>
The following table sets forth information with respect to unexercised
options held by the named executive officers as of November 30, 1998. Amounts
under "Unexercisable" in the table below include unvested options
notwithstanding the fact that they are immediately exercisable upon grant
because unvested shares are subject to repurchase by us at the original
exercise price upon the employee's cessation of service. The amounts under
"Value of Unexercised In-the-Money Options" were calculated by determining the
difference between the exercise price and the initial public offering price of
$15.00 per share.
Aggregate Stock Option Exercises In Fiscal 1998 and Fiscal Year-End Values
<TABLE>
<CAPTION>
Number of Securities
Underlying
Shares Unexercised Options Value of Unexercised
Acquired at November 30, 1998 In-the-Money Options
on Exercise Value ------------------------- -------------------------
Name (#) Shares Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vivek Y. Ranadive....... -- $ -- 2,944,444 871,389 $42,399,995 $12,455,002
Paul G. Hansen.......... 38,461 284,611 -- 411,538 -- 5,103,071
Rajesh U. Mashruwala.... -- -- 48,333 189,167 695,996 2,699,005
Robert P. Stefanski..... 40,000 376,000 5,000 123,000 72,000 1,908,000
Richard M. Tavan........ -- -- -- 36,000 -- 504,000
</TABLE>
All of our executive officers are employed at-will. However, Mr. Ranadive's
employment may only be terminated upon 120 days written notice and Mr.
Stefanski's employment may only be terminated upon six months written notice
pursuant to agreements entered into with us. All other employees may be
terminated without cause upon two weeks written notice or with cause at any
time.
Each of our executive officers is a party to our standard non-disclosure
agreement. Under the non-disclosure agreements, for one year following their
termination, our employees agree not to solicit any other employee to leave the
company. The employees also agree not to disclose any confidential information
that they obtained during their employment to any third parties at any time
during or subsequent to their employment. In addition, any inventions,
discoveries or improvements created by the employees during their employment
belong to us.
49
<PAGE>
Stock Plans
TIBCO Software 1996 Stock Option Plan
Our 1996 Stock Option Plan, as amended and restated, provides for the grant
to employees of incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, for the grant to employees,
officers, directors and consultants of nonstatutory stock options and provides
eligible employees with the right to participate in a salary deferral employee
stock purchase program, or "ESPP", intended to qualify under Section 423 of the
Internal Revenue Code. The amended and restated 1996 plan has been approved by
our board of directors and our stockholders. Unless terminated sooner, the 1996
plan will terminate automatically in May of 2009. A total of 15,225,818 shares
of common stock has been reserved for issuance pursuant to the 1996 plan, plus
annual increases equal to the lesser of (1) 5,000,000 shares, or (2) 3.5% of
the outstanding shares on the first day of each fiscal year. An individual may
be granted options to purchase a maximum of 750,000 shares of common stock each
year, in addition to an option to purchase up to 750,000 shares in connection
with that individual's commencement of service. As of August 31, 1999, there
were options to purchase 10,003,154 shares of common stock outstanding under
the 1996 plan, all of which are exercisable, but 2,223,311 of which would be
subject to repurchase by us if exercised on that date. The outstanding options
have exercise prices ranging from $0.60 per share to $6.00 per share, and a
weighted average exercise price of $2.22 per share.
The 1996 plan is administered by the compensation committee of our board of
directors, which, in the case of options intended to qualify as "performance-
based compensation" within the meaning of Section 162(m) of the Internal
Revenue Code, consists of two or more "outside directors" within the meaning of
Section 162(m) of the Internal Revenue Code. The committee has the power to
determine the terms of the options granted, including, but not limited to, the
participants who will be granted options, the exercise price, the number of
shares subject to each option, the exercisability thereof and the form of
consideration payable upon such exercise. The board has the authority to amend,
suspend or terminate the 1996 plan, subject to shareholder approval when
required by applicable law, provided that no such action may adversely affect
any share of common stock previously issued and sold or any option previously
granted under the 1996 plan.
Options granted under the 1996 plan are not generally transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by such optionee. Options granted under the 1996 plan must generally be
exercised within three months of the Optionee's separation of service from us,
or within twelve months if such optionee's termination is due to the optionee's
death or disability, but in no event later than the expiration of the option's
ten year term. The exercise price of all incentive stock options granted under
the 1996 plan must be at least equal to the fair market value of our common
stock on the date of grant. The exercise price of nonstatutory stock options
granted under the 1996 plan is determined by the committee, but with respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue
Code, the exercise price must at least be equal to the fair market value of the
common stock on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value of the common stock
on the date of grant and the term of any incentive stock option must not exceed
five years. The term of all other options granted under the 1996 plan may not
exceed ten years.
The 1996 plan provides that in the event of our merger with or into another
corporation or a sale of substantially all of our assets, each outstanding
option shall be assumed or an equivalent option substituted by the successor
50
<PAGE>
corporation. If an option is not assumed or substituted as described in the
preceding sentence, each such option shall become fully vested and exercisable,
including shares that would not otherwise be vested or exercisable, for a
period of 15 days from the date of such notice, and the option will terminate
upon the expiration of such period.
The ESPP permits participants to purchase common stock through payroll
deductions of up to 10% of the participant's "compensation". The maximum number
of shares a participant may purchase during a single purchase period is 1,000
shares.
Employees are eligible to participate in the ESPP if they are customarily
employed by the Company or any participating subsidiary for at least 20 hours
per week and more than five months in any calendar year. However, any employee
who
. immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
. whose rights to purchase stock under all employee stock purchase plans of
the Company accrues at a rate which exceeds $25,000 worth of stock for
each calendar year
may not be granted a right to purchase stock under the ESPP.
The ESPP provides for consecutive, overlapping, twenty-four month offering
periods. The offering periods generally start on the first trading day on or
after January 1 and July 1 of each year, except for the first such offering
period which commenced on the first trading day on or after the effective date
of the IPO offering and ends on the last trading day on or before June 30,
2001. Each offering period includes four six-month purchase periods.
Amounts deducted and accumulated by participants are used to purchase shares
of common stock at the end of each purchase period. The price of stock
purchased under the ESPP is generally 85% of the lower of the fair market value
of our common stock (1) at the beginning of the offering period or (2) at the
end of the purchase period. In the event the fair market value at the end of a
purchase period is less than the fair market value at the beginning of the
offering period, the participants will be withdrawn from the current offering
period following exercise and automatically re-enrolled in a new offering
period. The new offering period will use the lower fair market value as of the
first date of the new offering period to determine the purchase price for
future purchase periods.
Participants may end their participation in the ESPP at any time during an
offering period, at which time they will be refunded their payroll deductions
to date. Participation ends automatically upon termination of employment with
us.
Rights granted pursuant to the ESPP are not transferable by a participant
other than by will, or the laws of descent and distribution. The ESPP provides
that, in the event of our merger with or into another corporation or a sale of
substantially all of our assets, each outstanding right may be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding rights, the offering period
then in progress will be shortened and a new exercise date will be set.
The board has the authority to amend or terminate the ESPP, except that no
such action may adversely affect any outstanding rights to purchase stock under
the ESPP. Notwithstanding the previous sentence, the board may terminate an
offering period on any exercise date if the board determines that the
termination of the offering period is in our best interests and those of our
stockholders. Notwithstanding anything to the contrary, the board may in its
sole discretion amend the ESPP to the extent necessary and desirable to avoid
unfavorable financial accounting consequences by altering the purchase price
for any offering period, shortening any offering period or allocating remaining
shares among the participants.
TIBCO Software 1998 Director Option Plan
Our 1998 Director Option Plan, as amended and restated, provides that each
51
<PAGE>
director is eligible to participate in the director plan. The director plan was
adopted by our board of directors and stockholders in June 1999. The director
plan has a term of ten years from June 1999, but may be terminated sooner by
the board. A total of 825,000 shares of our common stock have been reserved for
issuance under the director plan. As of August 31, 1999, there were options to
purchase 410,000 shares of common stock outstanding under the director plan,
410,000 of which are exercisable. These outstanding options have exercise
prices ranging from $1.00 to $9.00 per share and a weighted average exercise
price of $4.9634 per share.
The director plan provides for discretionary grant of options to employee
directors and for non-discretionary grants of options to each non-employee
director. Beginning on or about October 1, 1999, on January 1, April 1, July 1
and October 1 of each year, each non-employee director will receive automatic
option grants of 5,000 shares of common stock. In addition, in June 1999,
Reuters was granted an initial option to purchase 150,000 shares of common
stock.
Each option will be fully vested on the date of grant and have a term of 10
years. The exercise price of all options shall be 100% of the fair market value
per share of our common stock on the date of grant, generally determined with
reference to the closing price of the common stock as reported on the Nasdaq
National Market.
Options granted under the director plan are not generally transferable by the
director. However, the option to purchase 150,000 shares held by Reuters may be
transferred by Reuters to the Reuters-nominated directors. Options granted
under the director plan must generally be exercised within three months of the
date that director ceases to be a director or within twelve months if such
termination is due to the optionee's death or disability. The option to
purchase 150,000 shares of our common stock granted to Reuters under the
director plan is not affected by the termination, death or disability of any of
the Reuters-nominated directors.
If it is determined that automatic annual option grants to non-employee
directors that are subject to vesting will not result in unfavorable accounting
consequences to us, then the director plan will be amended to change the
quarterly automatic options grants that are fully vested to automatic annual
option grants that are subject to vesting.
52
<PAGE>
RELATIONSHIP WITH REUTERS AND CERTAIN TRANSACTIONS
Relationship with Reuters
We are the successor to a portion of the business of Teknekron Software
Systems, Inc., which was acquired by Reuters in 1994. Teknekron subsequently
changed its name to TIBCO Inc., and in January 1997, we were established as an
entity separate from TIBCO Inc. In connection with our formation as a separate
entity, we issued and sold 19,000,000 shares of our common stock and 20,000,000
shares of our Series A preferred stock to an affiliate of Reuters for $10.0
million plus the net book value of the assets transferred to us. We were formed
to create and market software solutions for use in the integration of business
information, processes and applications in all industries outside of the
financial services market.
TIBCO Inc. subsequently changed its name to TIBCO Finance Technology, Inc.
and focuses its business on providing TIB-based software and custom solutions
to the financial services and insurance industries. Under our license agreement
with Reuters, Reuters, through TFT, is the exclusive distributor of our
products in the financial services market for a term of five years, subject to
the limited exceptions described below.
As of August 31, 1999, Reuters owned approximately 62.6% of our outstanding
shares of common stock, or approximately 53.43% if all of the options under
TFT's stock option plan had been exercised, but has agreed to limit its voting
rights. See "--Stockholders Agreement" beginning on page 56 for a description
of this voting limitation.
Intercompany Agreements
License, Maintenance and Distribution Agreement with Reuters
On December 31,1996, we entered into a license, maintenance and distribution
agreement with Reuters and its wholly-owned subsidiary, TFT. The agreement was
amended in May 1999. The license agreement provides for the license of
technology and proprietary rights from Reuters to us, the license of technology
from us to Reuters, the maintenance of the licensed technology, the right of
Reuters to distribute our products and the related distribution fees and
limitations on our business in the financial services industry, all as further
described below. Reuters may exercise its rights under the license agreement
through its affiliates. Revenue from Reuters and TFT under the license,
maintenance and distribution agreement, consisting primarily of product fees on
sales by TFT of our products to financial services companies, was $0.8 million
in fiscal 1997, $3.7 million in fiscal 1998 and $12.7 million in the first nine
months of fiscal 1999.
Ownership of Intellectual Property Used in Our Products. Reuters owns the
underlying TIB intellectual property and technology, including the basic
publish/subscribe technology, that was in existence on December 31, 1996 and
that is incorporated into some of our TIB/ActiveEnterprise products including
TIB/Rendezvous, TIB/Hawk and TIB/ETX. We own all technology and related
intellectual property rights, including patents, copyrights, trade secrets,
trademarks and other similar rights, independently developed by us since our
formation on January 1, 1997. This includes both enhancements and improvements
to the licensed TIB technology and new technology unrelated to the licensed TIB
technology. We also own our trademarks and tradenames, including TIBCO, TIB,
The Information Bus and the names of our products. We license these marks back
to Reuters royalty-free for use in TFT's trade name and in connection with the
sale and marketing of our products and services and those of Reuters.
Reuters License of the TIB Technology to Us. Under the terms of the license
agreement, Reuters granted us a perpetual, royalty-free license to the
underlying TIB messaging technology in existence on December 31, 1996 in
exchange for a one-time license fee of $10.0 million. The license includes
rights to use the TIB technology to develop and maintain products, to provide
services to customers relating to the licensed technology, and to sell,
sublicense and distribute products utilizing the licensed technology both
directly and indirectly.
53
<PAGE>
The license may not be unilaterally terminated, and Reuters may not grant to
any non-affiliated third party a license to the TIB technology of substantially
the same or broader scope than that granted to us. We may not assign or
transfer our rights under the license without the consent of Reuters.
License of Our Technology to Reuters. Since the effectiveness of the license
agreement, we have substantially enhanced and further developed the licensed
TIB technology and products. We have also created several new products and new
technologies. The license agreement provides Reuters with a perpetual, royalty-
free license to use and exploit the technology developed by us through December
2011 internally for the purpose of developing, providing, maintaining and
enhancing any Reuters' products or services and through embedding the
technology or any technology derived therefrom in Reuters', or any of its
affiliates', products or services. Although TFT is not authorized under the
license agreement to sell our products to non-financial services customers
unless they are embedded into TFT's financial products, Reuters and its other
affiliates are authorized to do so.
Limitations on Our Use of the Licensed Technology in the Financial Services
Market. The license agreement prohibits us from using the technology we license
from Reuters to create products which contain functionality or features
specifically designed for use by financial services companies, or to assist
third parties in doing so. Financial services companies include entities
engaged in commercial banking, investment banking, insurance and other
financial services. Further, subject to the exceptions described below, the
license agreement prevents us from selling products and services based on the
technology we license from Reuters directly to financial services companies and
major competitors of Reuters, and from providing consulting or other services
related to such products directly to such companies.
Exclusive Right of Reuters to Distribute Our Products in the Financial
Services Market. Reuters is the preferred distributor of our products in the
financial services market, and we have agreed not to appoint any other third
party reseller to sell our products principally in this market. In addition,
for a term of five years, Reuters has the exclusive right to distribute our
products to customers in the financial services market segment, subject to the
exceptions described below. During this exclusivity period, and subject to the
exceptions described below, we are prevented from providing any products or
consulting services to financial services companies, including products and
services unrelated to or not incorporating the licensed TIB technology. When
Reuters sells licenses to and maintenance contracts for our products, it must
pay us 40% of its revenue from such sales, except with respect to products
embedded in Reuters or TFT products. However, if Reuters sells licenses to and
maintenance contracts for our products through an unaffiliated third-party,
then Reuters must pay us 50% of its revenue from such sales. We believe that
the product fees paid by Reuters to us reflects commercially reasonable terms.
Reuters Minimum Guaranteed Product Fees. Reuters must pay us minimum
guaranteed product fees of $16 million payable in calendar 1999, $18 million
payable in calendar 2000 and $20 million payable in calendar 2001. On an annual
basis beginning in 2002, Reuters may elect to extend the payment of minimum
guarantees on an annual basis with minimum guarantees of at least $20 million
in each of 2002 and 2003 and at least 110% of the prior year's minimum
guaranteed product fees in each year thereafter. If Reuters does not extend the
payment of minimum guarantees, the restrictions against our direct sales to
financial services customers will be removed with respect to our non-financial
software products that are sold as an off-the-shelf, stand-alone product
pursuant to an industry standard shrink wrap or click wrap license and that are
intended by us to be used by the end-user without the requirement for
additional customization, or consulting services, which we call commodity
products, and the product fee rate Reuters must pay will decrease to 35%. We
believe that the product fee rate paid by Reuters to us reflects commercially
reasonable terms.
Adjustment of Reuters Products Fees. If the license agreement is materially
breached by us, or if the financial services market
54
<PAGE>
restrictions or exclusive distribution terms are determined to be invalid by a
court, or if after the expiration of our exclusive distribution relationship
with Reuters we sell products or provide services directly to companies in the
financial services market, Reuters may elect to cease paying minimum guaranteed
product fees and the product fee rates paid to us by Reuters will decrease to
30%. In addition, in the event we materially breach the license agreement, we
thereafter will be prohibited from selling or distributing to financial
services companies commodity products, or, after the expiration of the five-
year exclusive distribution relationship with Reuters, Commodity Products that
are based on the technology we license from Reuters, even though Reuters no
longer pays us minimum guaranteed product fees.
Exceptions Permitting Us to Sell Directly to Financial Services Companies. We
are permitted under the license agreement to license our TIBCO.net
Internet/Intranet hosting services directly to all customers, including
financial services market customers. We must pay Reuters a fee equal to 10% of
our revenue from the sale of TIBCO.net services to financial services market
customers. We have agreed in the license agreement that we will not include as
part of the TIBCO.net Internet/Intranet hosting services any products
specifically designed for use by financial services companies or services that
use such products, except that we may include software for hosting stock quotes
and other financial market data in the hosting services.
In addition, we have an agreement with Cedel Global Services providing for an
enterprise license to all of our products and for consulting and development
services. Cedel provides settlement and clearing technology and services to
banks in Europe and other countries. The Cedel agreement was assigned to us by
TFT in consideration for our assumption of the obligations of TFT under the
agreement. The Cedel agreement is deemed to be an exception from the
restrictions on the sale of our products and services to financial services
market customers.
Finally, if we acquire a company that sells products or services to financial
services companies, we can continue to provide such products and services to
such companies after the acquisition. We are prohibited, however, from
providing the acquired company's products or services to financial services
companies with any of our products that are based on the licensed TIB
technology.
Exceptions Permitting Us to Use Third Party Distributors in the Financial
Services Market. Although Reuters is our exclusive distributor in the financial
services market, we are permitted under the license agreement to use other
distributors and resellers to distribute and sell our products to financial
services market customers, provided that we do not appoint these distributors
to sell primarily into the financial services market. When we realize revenue
from sales by our third-party distributors of our products to financial
services companies, we must pay Reuters 50% of such revenue. Our third party
distributors may also provide substantial consulting services in connection
with the sale of our products. We have agreed to assist Reuters in establishing
distribution relationships directly with any of our third-party distributors
that sell our products in the financial services market. We are not required to
pay any product fees to Reuters on sales of our products in the financial
services market by original equipment manufacturers who have embedded or
bundled our products with their own.
Our Obligation to Provide Maintenance Services for Reuters and its Customers.
We have agreed to provide maintenance and support to Reuters for its customers
that acquire our products and have purchased maintenance. Reuters must pay us a
fee for maintenance of our products at the same rate it pays on sales of our
products. So long as Reuters is required to pay us a minimum guarantee, we must
maintain, at no charge to Reuters, at least ten full-time employees for
maintenance, marketing and technical support for our products sold by Reuters.
The terms of the License Agreement were the result of negotiations between
Reuters, TFT and us and were approved by a majority of our board of directors,
including a majority of our independent and disinterested directors.
55
<PAGE>
Stockholders Agreement
We entered into an amended and restated stockholders agreement with Reuters,
Cisco Systems, Mayfield and Vivek Ranadive on July 13, 1999.
Reuters Voting Limitations. Under the stockholders agreement, Reuters agreed
to limit its right to vote its shares of our stock such that the votes cast by
Reuters will not represent more than 49% of the total votes eligible to be
cast in any matter submitted to a vote of our stockholders. In accordance with
the terms of the stockholders agreement, any shares held by Reuters that
exceed 49% of our outstanding stock will be voted by us in the same proportion
as all shares held by stockholders other than Reuters.
Reuters Right to Nominate Directors. Reuters has the right under the
stockholders agreement to nominate three of our nine directors so long as it
holds 40% or more of our outstanding shares of voting stock. If Reuters holds
less than 40% but at least 25% of our voting shares, Reuters will have the
right to nominate two directors. If Reuters holds less than 25% but at least
10% of our issued and outstanding voting shares, Reuters will have the right
to nominate one director. If the total number of our directors is increased,
Reuters will have the right to nominate the lowest number of directors such
that Reuters-nominated directors constitute at least that portion of our board
of directors that Reuters could have nominated under the foregoing rights if
our board consisted of nine directors. So long as Reuters has the right to
nominate at least one director, we have agreed that Reuters will also have the
right to nominate one member of our compensation committee.
Reuters Right to Approve Fundamental Decisions. In addition, under the
stockholders agreement, so long as Reuters owns 30% or more of our voting
shares, we will be required to obtain the consent of Reuters in order to
consummate any of the following transactions:
. The issuance of our equity securities or securities convertible into,
exchangeable for, or options or rights to acquire our equity securities
in any calendar year in excess of 5% of our outstanding capital stock on
December 31 of the prior year, or in any three-year period in excess of
10% of our outstanding capital stock at the beginning of the period. This
limitation will not apply to securities issued under our equity
compensation plans or securities issued in acquisitions permitted under
the stockholders agreement without the consent of Reuters.
. Any merger, consolidation, share exchange, any sale, lease, exchange or
other dissolution of all or any substantial part of our assets.
. Any acquisition by us, whether by merger, stock purchase, asset purchase
or otherwise, of any business or entity where the value of the
acquisition is in excess of either 15% of our market capitalization or
15% of our total revenues in the last four, full fiscal quarters,
provided that in each case such amount exceeds $75 million.
Registration Rights. Under the stockholders agreement, the holders of
45,710,152 shares of common stock as of May 31, 1999 or their permitted
transferees are entitled to rights with respect to registration of all of
their shares under the Securities Act. Because these shares can be registered
under the stockholders agreement, we call them registrable securities. Under
these registration rights, beginning nine months following the closing of the
IPO, certain holders of a majority of the then outstanding registrable
securities may require that we register their shares for public resale,
provided that the anticipated aggregate offering price of the securities to be
registered is at least $10 million (a "demand registration"). We are not
obligated to register these shares after we have effected two such demand
registrations. However, Reuters is entitled to six additional demand
registrations for its shares of our common stock beginning six months after
the IPO, provided that the anticipated aggregate offering price of the
securities to be registered is at least $25 million and provided further that
we are not required to effect more than one such registration during each six-
month period.
56
<PAGE>
Additionally, holders of a majority of the then outstanding registrable
securities may require us to register their shares for public resale on Form S-
3 or similar short-form registration statement, provided that we are not
obligated to effect more than one such registration in any twelve month period
and provided further that the anticipated aggregate offering price of the
securities to be registered is at least $5.0 million. We will be responsible
for all expenses in connection with the first two demand registrations, the
first four additional demand registrations of Reuters and the first two
registrations on Form S-3 or similar short form registration statement (other
than underwriting discounts and commissions).
Furthermore, in the event we elect to register any of our shares of common
stock for purposes of effecting any public offering for cash for our own
account or for the account of Reuters, the holders of registrable securities
are entitled to include their shares of common stock in such registration,
subject to the right of the managing underwriter to reduce the number of shares
proposed to be registered in view of market conditions. We will be responsible
for all expenses, other than underwriting discounts and commissions, in
connection with any such registration. All registration rights provided to
holders of registrable securities will terminate upon the date ten years after
the consummation of the IPO, or at such time holder is entitled to sell all of
its shares in any three months period under Rule 144 under the Securities Act.
We have also agreed to cooperate in effecting the registration on an
appropriate form of shares of our common stock sold by Reuters to TFT employees
and consultants upon the exercise by such employees and consultants of purchase
rights granted to them by Reuters. We have agreed to pay all expenses, other
than any underwriting discounts and commissions, in connection with any such
registration. See "--Reuters /TFT Employee Stock Purchase Agreements" on page
58 for a description of these rights.
Reuters Information Rights. We are required under the stockholders agreement
to deliver monthly, quarterly and annual financial statements and quarterly and
annual operating budgets and projections to Reuters so long as Reuters holds
20% or more of our voting shares. We are also required to use our best efforts
to allow the independent accountants of Reuters to have access to our audit
work papers and to assist in any review undertaken by our independent
accountants, and if such access is denied, we are required to reimburse Reuters
for the costs of any extra audit work undertaken by Reuters.
Amendment and Termination of Reuters Voting Limitations, Reuters Right to
Approve Certain Fundamental Decisions and Reuters Right to Nominate Directors.
The provisions of the stockholders agreement relating to the agreement of
Reuters to limit its right to vote our shares may not be amended by any party
and will automatically terminate once Reuters beneficially owns less than a 49%
of our outstanding common stock. The provisions of the stockholders agreement
relating to the right of Reuters to approve major issuances of equity
securities, mergers and acquisitions can only be amended with the consent of
Reuters so long as Reuters holds at least 30% of our outstanding common stock.
Additionally, the provisions relating to the right of Reuters to nominate
directors can only be amended with the consent of Reuters so long as Reuters
holds at least 10% of our common stock.
The terms of the stockholders agreement were the result of negotiations
between the parties thereto and were approved by a majority of our board of
directors, including a majority of our independent and disinterested directors.
Intercompany Services
We have agreed with TFT that TFT will provide us with operating and
administrative services for a transition period after the IPO offering. These
services include network and information technology infrastructure support,
facilities support and human resources support. These services are generally
those that TFT had been providing before TFT moved into its new corporate
headquarters at 3375 Hillview Avenue, Palo Alto. Our agreement with TFT
includes
57
<PAGE>
service levels based on our past practice with TFT. We have a right to request
that TFT continue to provide these services through the first quarter of 2000,
but would anticipate that the need for many of such services will diminish
during calendar year 1999. We recorded expenses of $1.9 million in fiscal 1997
and $2.9 million in fiscal 1998 for administrative and various other services
provided to us by TFT. In addition, we incurred rent expense of $1.4 million in
fiscal 1997 and $1.6 million in fiscal 1998 relating to our sub-lease of office
space from TFT and our rental of certain furniture and fixtures from TFT.
We and TFT have also agreed to participate with each other in disaster
recovery and Year 2000 contingency planning and to cooperate in other efforts
intended to assure an orderly transition. In the event that we and TFT have
inadvertently failed to specify a service that was being previously performed
by TFT for us, we have preserved the ability to include that additional service
in our agreement. We believe that total fees payable by us through the end of
calendar 1999 under our agreement with TFT will be less than $1.0 million.
We believe that the terms of the intercompany services provided by TFT are on
terms no less favorable to us than we could have negotiated with an
unaffiliated third party.
TFT Stock Option Plan
The TFT Option Plan relates to an aggregate of up to 6,750,000 shares of
TIBCO Software common stock held by Reuters. Rights to purchase 5,346,532
shares of our common stock from Reuters remained outstanding as of August 31,
1999. Upon exercise of one of these rights, Reuters is required to transfer
shares of our common stock owned by it to the employee or consultant, thereby
reducing Reuters' ownership of our common stock. We are not required to issue
any shares of our common stock and do not receive any proceeds when one of
these rights is exercised. If rights to purchase 5,346,532 shares of our common
stock were exercised, Reuters' percentage ownership of our common stock would
decrease from 62.6% to 53.43%.
Transactions with Cisco Systems
In March 1999, we granted Cisco a three-year license to embed our
TIB/Rendezvous product and multicasting technology in its Internetworking
Operating System and Cisco Networking Services for Active Directory, or CNS/AD,
products in exchange for a license fee of $1.5 million. The terms of this
transaction were the result of arm's-length negotiations between Cisco and us
and were approved by a majority of our board of directors, including a majority
of our independent and disinterested directors. We believe that the terms of
the technology licensing agreement with Cisco are no less favorable to us than
we could have negotiated with an unaffiliated third party.
Other Transactions
Since August 1997, Mr. White, one of our directors, has provided consulting
services to us. In connection with these consulting services, we paid $314,000
to Mr. White and granted him options to purchase 150,000 shares of our common
stock in fiscal 1998. In addition, we granted to Mr. White options to purchase
50,000 shares of common stock for serving as a director. In fiscal 1997, we
paid $79,000 to Mr. White and granted him options to purchase 200,000 shares of
our common stock for consulting services rendered. The compensation expense
related to these consulting services is based upon the fair value of the
underlying common shares at the end of each financial reporting period.
In June 1999, we granted to Reuters an option to purchase 150,000 shares of
our common stock under our director stock option plan. This option vested
immediately upon grant, has an exercise price of $6.00 per share and may be
transferred by Reuters to the Reuters-nominated directors. The option is not
affected by the termination, death or disability of any of the Reuters-
nominated directors.
We agreed to reimburse Reuters for $2.1 million of expenses incurred by it in
connection with the IPO.
Since our formation, we have from time to time entered into arrangements with
TFT
58
<PAGE>
regarding the sharing of employees on various customer projects. For services
we provided to TFT under these arrangements, we recognized revenue of
approximately $4.0 million in fiscal 1997 and $2.2 million in fiscal 1998. For
services TFT provided to us under these arrangements, we recorded expenses of
approximately $1.6 million in fiscal 1997 and $5.8 million in fiscal 1998.
We engage the law firm of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, to handle legal matters. Larry W. Sonsini, one of our directors,
is a member of Wilson Sonsini. Our payments to Wilson Sonsini did not exceed
five percent of Wilson Sonsini's gross revenues in its last fiscal year.
All future transactions, including loans, between us and our officers,
directors and principal stockholders and their affiliates will be approved by a
majority of our Board of Directors, including a majority of the independent and
disinterested directors, and these transactions will be on terms no less
favorable to us than we could have obtained from unaffiliated third parties.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of November 30, 1999, of:
. each person or entity who is known by us to beneficially own five percent
or more of the outstanding shares of our common stock,
. each director,
. our chief executive officer and our four other most highly compensated
executive officers during fiscal 1999, and
. all of our directors and executive officers as a group.
Selling stockholders who have purchased options granted under TFT's stock
option plan are listed in Appendix A.
Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of common stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of November 30, 1999 are deemed outstanding.
Such shares, however, are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. In computing the number of shares
beneficially owned by a person, shares of common stock that are subject to our
right of repurchase at the original exercise price paid per share, or such
shares that are subject to exercisable but unvested options, are not included.
Unvested options are immediately exercisable upon grant, provided that upon the
optionee's cessation of service, any unvested shares are subject to repurchase
by us at the original exercise price paid per share.
The address of each individual listed in the table is TIBCO Software Inc.,
3165 Porter Drive, Palo Alto, CA 94304. As of May 31, 1999, we had 607
stockholders of record and 50,681,852 shares of our common stock and preferred
stock convertible into common stock outstanding. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
each stockholder named in the table has had sole voting and investment power
with respect to the shares set forth opposite such stockholder's name.
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name Owned Ownership
---- ------------ ----------
<S> <C> <C>
Reuters Group PLC and related entities (1)
85 Fleet Street
London, EC4P 4AJ..................................... 37,767,312 58.61%
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134................................... 4,365,000 6.77
Mayfield Fund (2)
2800 Sand Hill Road
Menlo Park, CA 94025................................. 2,861,316 4.44
Vivek Y. Ranadive (3)................................. 4,141,374 6.43
Paul G. Hansen (4).................................... 156,018 *
Robert P. Stefanski (5)............................... 112,049 *
Richard M. Tavan (6).................................. 184,399 *
Rajesh U. Mashruwala (7).............................. 121,874 *
Douglas M. Atkin...................................... 20,000 *
Yogen K. Dalal (8).................................... 2,877,982 4.47
Edward R. Kozel (9)................................... 4,398,334 6.82
Donald J. Listwin (10)................................ 4,381,667 6.80
Larry W. Sonsini (11)................................. 33,333 *
John G. Taysom........................................ -- *
Phillip E. White (12)................................. 175,830 *
Philip K. Wood ....................................... -- *
All directors and executive officers as a group
(15 persons) (13).................................... 16,688,734 25.89
</TABLE>
60
<PAGE>
- --------
* Less than one percent.
(1) Represents shares held by Reuters Nederland B.V. Includes 4,722,790 shares
reserved for sale to employees and consultants of TFT pursuant to the
exercise by such employees and consultants of purchase rights granted or
to be granted to them by Reuters. Subsequent to May 31, 1999, we granted
Reuters an option to purchase 150,000 shares of our common stock under our
director stock option plan. Reuters has agreed to limit its voting power
such that the votes cast by Reuters will not represent more than 49% of
the total votes eligible to be cast in any matter submitted to a vote of
our stockholders.
(2) Includes 2,718,250 shares held by Mayfield IX and 143,066 shares held by
Mayfield Associates Fund III.
(3) Includes 3,629,708 shares subject to options exercisable within 60 days of
November 30, 1999. Excludes 65,000 shares subject to our right of
repurchase and 99,375 shares that are subject to options that are unvested
but exercisable within 60 days of November 30, 1999.
(4) Includes 115,230 shares subject to options exercisable within 60 days of
November 30, 1999. Excludes 673 shares subject to our right of repurchase
and 333,807 shares that are subject to options that are unvested but
exercisable within 60 days of November 30, 1999.
(5) Includes 42,549 shares subject to options exercisable within 60 days of
November 30, 1999. Excludes 127,950 shares that are subject to options
that are unvested but exercisable within 60 days of November 30, 1999.
(6) Includes 11,000 shares subject to options exercisable within 60 days of
November 30, 1999. Excludes 120,000 shares subject to our right of
repurchase and 37,400 shares subject to options that are unvested but
exercisable within 60 days of November 30, 1999.
(7) Includes 20,000 shares subject to options exercisable within 60 days of
November 30, 1999. Excludes 170,624 shares subject to our right of
repurchase exercisable within 60 days of November 30, 1999.
(8) Includes 16,667 shares subject to options exercisable within 60 days of
November 30, 1999. Also includes 2,718,250 shares held by Mayfield IX and
143,066 shares held by Mayfield Associates Fund III. Mr. Dalal disclaims
beneficial ownership of all shares except to the extent of his pecuniary
interest in the partnerships.
(9) Includes 33,333 shares subject to options exercisable within 60 days of
November 30, 1999. Also includes 4,365,000 shares held by Cisco Systems,
Inc. Mr. Kozel, one of our directors, is a member of the board of
directors of Cisco Systems and disclaims beneficial ownership of all
shares held by Cisco Systems.
(10) Includes 16,667 shares subject to options exercisable within 60 days of
November 30, 1999. Also includes 4,365,000 shares held by Cisco Systems,
Inc. Mr. Listwin, one of our directors, is an executive officer of Cisco
Systems and disclaims beneficial ownership of all shares held by Cisco
Systems.
(11) Includes 33,333 shares subject to options exercisable within 60 days of
November 30, 1999.
(12) Includes 68,599 shares subject to options exercisable within 60 days of
November 30, 1999. Excludes 92,896 shares subject to our right of
repurchase and 146,592 shares subject to options that are unvested but
exercisable with 60 days of November 30, 1999.
(13) Includes 3,932,723 shares subject to options exercisable within 60 days of
November 30, 1999. Excludes 418,644 shares subject to our right of
repurchase and 952,518 options that are unvested but exercisable within 60
days of November 30, 1999.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Pursuant to our Certificate of Incorporation, we have authority to issue
300,000,000 shares of common stock, and 25,000,000 shares of preferred stock,
par value $0.001 per share.
Set forth below is a description of our common stock and the preferred stock
that may be issued under our Certificate of Incorporation.
Common Stock
The holders of our common stock other than Reuters are entitled to one vote
per share on all matters to be voted upon by the stockholders. Reuters has
agreed that it will limit its right to vote its shares of our common stock so
that the votes cast by Reuters will not represent more than 49% of the total
votes eligible to be cast in any matter submitted to a vote of our
stockholders. The holders of common stock are entitled to receive ratably those
dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available for dividends. We have never declared
dividends in the past and do not intend to do so in the foreseeable future. In
the event of our liquidation, dissolution or winding-up, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock then
outstanding, if any. Our common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable.
Preferred Stock
Our Certificate of Incorporation authorizes 25,000,000 shares of undesignated
preferred stock, although no shares are outstanding. Our board of directors has
the authority to issue preferred stock in one or more series and to establish
the rights, preferences, privileges and restrictions granted to or imposed on
any unissued shares of preferred stock and to fix the number of shares
constituting any series and the designations of such series, without any
further vote or action by the stockholders. Our board of directors will have
the authority, without approval of the stockholders other than Reuters as
provided in the stockholders agreement, to issue preferred stock that has
voting and conversion rights superior to the common stock which may affect the
voting power of the holders of common stock and could have the effect of
delaying, deferring or preventing a change in control. We have no plans to
issue any shares of preferred stock.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, the statute prohibits a
publicly-held Delaware corporation from engaging in a business combination with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the stockholder. For purposes of Section 203, an
"interested stockholder" is defined to include any person that is
. the owner of 15% or more of the outstanding voting stock of the
corporation,
. an affiliate or associate of that corporation and was the owner of 15% or
more of the voting stock outstanding of the corporation, at any time
within three years immediately prior to the relevant date, and
. an affiliate or associate of the persons described above.
Section 203 of the Delaware General Corporation Law may make it more difficult
for an "interested stockholder" to effect various
62
<PAGE>
business combinations with a corporation for a three-year period, although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or bylaws, elect for the corporation not to be governed by
Section 203, effective 12 months after adoption. Neither our Certificate of
Incorporation nor our Bylaws exempt us from the restrictions imposed under
Section 203. We anticipate that the provisions of Section 203 may encourage
companies interested in acquiring us to negotiate in advance with our board of
directors because the stockholder approval requirement would be avoided if a
majority of the directors then in office approve either the business
combination or the transaction that results in the stockholder becoming an
interested stockholder.
So long as Reuters owns at least 30% of our outstanding voting shares, we
will be required to obtain its consent in order to consummate certain
significant corporate transactions, including equity issuances, mergers,
consolidations, sales of assets or certain acquisitions. See "Relationship with
Reuters and Certain Transactions--Intercompany Agreements--Stockholders
Agreement" beginning on page 56.
Annual meetings of stockholders shall be held to elect our board of directors
and transact such other business as may be properly brought before the meeting.
Special meetings of stockholders may be called by the Chairman, the President,
any vice president or any one member of the board of directors. Our Certificate
of Incorporation and Bylaws provide that any action required or permitted to be
taken by our stockholders may be effected at a duly called annual or special
meeting of the stockholders. In addition, our Certificate of Incorporation and
Bylaws provide for an advance notice procedure for nomination by stockholders
of candidates for election of directors as well as other stockholder proposals
to be considered at annual stockholders' meetings.
Our Certificate of Incorporation may be amended with the approval of a
majority of the board of directors and the holders of a majority of our
outstanding voting securities.
The number of directors shall be fixed by resolution of the board of
directors. The size of the board of directors is currently fixed at nine
members. Reuters has the right under a stockholders agreement to nominate three
of our nine directors so long as it holds 40% or more of our outstanding shares
of voting stock. If Reuters holds less than 40% but at least 25% of our voting
shares, Reuters will have the right to nominate two directors. If Reuters holds
less than 25% but at least 10% of the issued and outstanding voting shares,
Reuters will have the right to nominate one director. If the total number of
our directors is increased, pursuant to the stockholders agreement, Reuters
will have the right to nominate the lowest number of directors such that
Reuters-nominated directors constitute at least that portion of our board of
directors that Reuters could have nominated under the foregoing rights if our
board consisted of nine directors.
Our directors shall be elected at the annual meeting of the stockholders,
except for filling vacancies. Directors may be removed with the approval of the
holders of a majority of the voting power present and entitled to vote at a
meeting of stockholders. Vacancies and newly-created directorships resulting
from any increase in the number of directors may, subject to the right of
Reuters to nominate directors as described above, be filled by a majority of
the directors then in office (although less than a quorum of the full board), a
sole remaining director, or the holders of a majority of the voting power
present and entitled to vote at a meeting of stockholders.
The presence, in person or by proxy, of the holders of a majority of the
votes entitled to be cast by the stockholders entitled to vote generally shall
constitute a quorum for stockholder action at any meeting.
Limitation of Liability; Indemnification
Our Certificate of Incorporation contains provisions permitted under Delaware
law relating
63
<PAGE>
to the liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty,
except in certain circumstances involving certain wrongful acts, including
. for any breach of the director's duty of loyalty to us or our
stockholders,
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
. under Section 174 of the Delaware General Corporation Law, or
. for any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or any stockholder rights
to seek non-monetary relief, such as an injunction or rescission, in the event
of a breach of a director's fiduciary duty. These provisions will not alter a
director's liability under federal securities laws. Our Bylaws also contain
provisions indemnifying our directors and officers to the fullest extent
permitted by Delaware law. We believe that these provisions are necessary to
attract and retain qualified individuals to serve as directors and officers.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is BankBoston, N.A.
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the IPO offering, there was no public market for our common stock.
We cannot predict the effect, if any, that sales of shares of the common stock
to the public or the availability of shares for sale to the public will have on
the market price of the common stock prevailing from time to time.
Nevertheless, sales of a significant number of shares of common stock in the
public market, or the perception that such sales may occur, could adversely
affect the prevailing market price of our common stock.
As of July 15, 1999, we had 59,843,519 shares of common stock outstanding.
The 8,395,000 shares of common stock sold in the IPO and, subject to the lock-
up agreements described below, the 766,667 shares of common stock sold in the
concurrent offerings to Yahoo and Sun Microsystems, along with the 6,750,000
shares that may be sold in this offering, are freely tradeable without
restriction under the Securities Act, except for shares purchased by our
"affiliates", as that term is defined in Rule 144 under the Securities Act. The
remaining 50,681,852 shares of common stock held by existing stockholders are
"restricted shares", as that term is defined in Rule 144, of which 2,142,500
were issued upon the exercise of options and remain subject to our right of
repurchase at the original purchase price upon the employee's cessation of
service. Of these restricted shares, approximately 1,905,631 shares will become
eligible for sale in the public market at various times during the 180 days
following July 15, 1999 and approximately 48,776,221 shares will become
eligible for sale at various times after 180 days from the July 15, 1999. The
holders of 45,710,152 of these are entitled to rights with respect to
registration of these shares as more fully described under "Relationship with
Reuters and Certain Transactions" beginning on page 53.
In general, under Rule 144 as currently in effect, holders of restricted
securities who have beneficially owned these securities for at least one year
will be entitled to sell a number of shares of common stock within any three-
month period equal to the greater of (1) 1% of the then outstanding shares of
the common stock, which is approximately 590,000 share, or (2) the average
weekly reported volume of trading of the common stock on The Nasdaq National
Market during the four calendar weeks preceding such sale. Additionally, these
"sales" are subject to manner of sale and notice requirements and requirements
as to the availability of current public information concerning the company.
As of August 31, 1999, there were vested options to purchase approximately
4,539,324 shares of common stock outstanding. In addition, TFT employees and
consultants hold vested rights to purchase approximately 690,376 shares of our
common stock from Reuters, and have purchased 1,208,142 shares of our common
stock from Reuters upon the exercise of such rights. In October 1999 we filed a
registration statement on Form S-8 covering all options granted under our 1996
Stock Option Plan. Shares of common stock registered under the S-8 and this
registration statement are, subject to rule 144 volume limitations applicable
to affiliates, available for sale in the open market, except where such shares
are subject to vesting restrictions with us or the lock-up agreements described
below. See "Management--Stock Plans" beginning on page 50 for a description of
these plans.
In connection with the IPO and concurrent offerings, each of TIBCO Software,
Cisco, Mayfield, Reuters and its affiliates, Yahoo!, Sun Microsystems,
executive officers, directors and employees of our company and employees of TFT
that own 15,000 or more shares of our common stock has agreed that, without the
prior written consent of the representatives of the IPO underwriters, during
the period ending 180 days after the date of the IPO prospectus, it will not
directly or indirectly offer, sell, contract to sell or otherwise dispose of,
any shares of common stock or any securities substantially similar to our
common stock, including but not limited to any securities convertible into or
exchangeable for, or that represent the right to
65
<PAGE>
receive, common stock or any such substantially similar securities.
The above restrictions do not apply to the following:
. the issuance by us of options to purchase common stock pursuant to our
existing stock option plan, or the issuance by us of shares of common
stock upon the exercise of any option granted under our existing stock
option plan;
. the sale by TFT of shares pursuant to this offering;
. transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after
completion of the IPO offering; and
. with respect to individuals, transfers by gift, will or intestate
succession; with respect to partnerships, transfers to partners; with
respect to trusts, transfers to beneficiaries; and with respect to
corporations, transfers to stockholders and majority-owned subsidiaries;
provided that in each case the transferee agrees to be bound by the
agreement imposing a similar lock-up 180-day restriction.
66
<PAGE>
PLAN OF DISTRIBUTION
This prospectus covers shares of our common stock to be sold by TFT to its
employees and consultants upon the exercise of options granted under TFT's
stock option plan. This prospectus also covers shares of our common stock
previously sold by TFT to its employees and consultants upon the exercise of
options and permits the resale by them as selling stockholders. We will not
receive any proceeds from the sale of shares by TFT or the selling
stockholders.
The shares to be sold by TFT to its employees and consultants pursuant to its
stock option plan will be sold at pre-determined prices in accordance with the
related stock option agreements entered into between TFT and such employees and
consultants. TFT has the right to obtain such shares from Reuters Nederland
B.V. pursuant to a Stock Contribution Agreement between the parties.
Some of the selling stockholders who hold a minimum of 15,000 shares of our
common stock have agreed not to offer or sell their shares for 180 days
following the date of the IPO prospectus.
The shares to be sold by the selling stockholders will be sold at market
prices either directly to purchasers or through dealers or agents, which may
receive compensation in the form of commissions from the selling stockholders
and/or the purchasers for whom they act as a dealer or agent.
The selling stockholders and any dealers or agents that participate in the
distribution may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profits and commissions or discounts received by them
may be considered to be underwriting compensation under the Securities Act. The
selling stockholders may also dispose of shares by writing options on the
shares or by settling short sales of the shares. The selling stockholders may
sell shares of our common stock from time to time at varying prices determined
at the time of sale. They may also sell shares of our common stock pursuant to
Rule 144 under the Securities Act.
67
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by TFT and the selling
stockholders will be passed upon for us by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Larry W. Sonsini, a member of
Wilson Sonsini, is one of our directors. As of May 31, 1999, Mr. Sonsini
beneficially owned 33,333 shares of our common stock.
EXPERTS
The financial statements of TIBCO Software Inc. as of November 30, 1997 and
1998 and for year ended December 31, 1996, the eleven months ended November 30,
1997 and the year ended November 30, 1998 and the financial statements of
InConcert, Inc. as of December 31, 1997 and 1998 and for the years then ended,
included in this Prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Commission a Registration Statement on Form S-1 under
the Securities Act of 1933 with respect to the shares of common stock offered
hereby. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules thereto. For further
information with respect to us and the common stock offered hereby, reference
is made to the registration statement and the exhibits and schedules filed
therewith. All contracts that are material to the registrant, and all the
material terms of these contracts, have been disclosed in this prospectus.
However, statements contained in this prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the registration statement. A copy of the
registration statement, and the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N. W., Washington, D.C. 20549, and
at the Commission's regional offices located at the Citicorp 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 such offices upon the payment
of the fees prescribed by the Commission. The public may obtain information on
the operations of the public reference facilities in Washington, D.C. by
calling the SEC at 1-800-SEC-0330. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the site is http://www.sec.gov.
68
<PAGE>
APPENDIX A
Selling Stockholders
The following table sets forth the names of the selling stockholders and the
number and percentage of shares of our common stock beneficially owned by each
of the selling stockholders as of December 20, 1999. All selling stockholders
are former TFT employees. The number of shares in the following table
represents the number of shares of common stock the person holds plus the
number of options to purchase common stock which are exercisable within 60 days
of December 20, 1999. There are 6,750,000 shares authorized under TFT's stock
option plan. 4,631,899 shares are reserved for sale to employees and
consultants pursuant to their exercise of purchase rights granted or to be
granted to them by TFT as of December 20, 1999. Assuming the exercise of all of
the reserved options, ownership by Reuters will decrease from 62.6% to 53.3%.
<TABLE>
<CAPTION>
Number of Percentage Number of
Shares of Shares
Beneficially Shares Offered
Selling Stockholders Owned Outstanding Hereby
- -------------------- ------------ ----------- ---------
<S> <C> <C> <C>
Bittman, Thomas ............................. 8,500 * 8,500
Bruell, Ansgar .............................. 17,500 * 17,500
Cheung, Freddie Kam.......................... 5,333 * 5,333
Chi, Maurice ................................ 12,500 * 12,500
Chien, Edward ............................... 6,875 * 6,875
Convey, Michael ............................. 22,500 * 22,500
Coslett, Peter .............................. 12,500 * 12,500
Duran, Randy ................................ 48,500 * 48,500
Dwyer, William .............................. 15,000 * 15,000
Erhili, Laurence............................. 7,500 * 7,500
Fenick, William.............................. 5,250 * 5,250
Focken, Richard.............................. 14,167 * 14,167
Kershaw, Ian................................. 25,000 * 25,000
Maiuolo, Antonio............................. 11,000 * 11,000
McMahon, John................................ 8,500 * 8,500
Momtaz, Cameron.............................. 11,000 * 11,000
Murphy, Lynne................................ 5,751 * 5,751
Saed, Delgir................................. 9,000 * 9,000
Sandrini, Jerome............................. 25,000 * 25,000
Siegler, Norman.............................. 5,000 * 5,000
Suzuki, Hiroyuki............................. 5,500 * 5,500
------- -------
Totals....................................... 281,876 281,876
======= =======
</TABLE>
- --------
*Less than one percent.
A-1
<PAGE>
TIBCO SOFTWARE INC.
INDEX TO FINANCIAL STATEMENTS
TIBCO Software Inc.
<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheet............................................................. F-3
Statement of Operations................................................... F-4
Statement of Stockholders' Equity/Owner's Net Investment (Liability)...... F-5
Statement of Cash Flows................................................... F-6
Notes to Financial Statements............................................. F-7
Unaudited Pro Forma Combined Financial Information........................ F-24
</TABLE>
InConcert, Inc.
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-30
Balance Sheet.............................................................. F-31
Statement of Operations.................................................... F-32
Statement of Stockholders' Equity (Deficit)................................ F-33
Statement of Cash Flows.................................................... F-34
Notes to Financial Statements.............................................. F-35
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of TIBCO Software Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity/owner's net investment (liability) and of
cash flows present fairly, in all material respects, the financial position of
TIBCO Software Inc. (See Note 1) at November 30, 1997 and 1998, and the results
of its operations and its cash flows for the year ended December 31, 1996,
eleven months ended November 30, 1997, and the year ended November 30, 1998, in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States, 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.
/s/ PricewaterhouseCoopers LLP
San Jose, California
April 23, 1999, except for Note 10,
which is as of November 4, 1999
F-2
<PAGE>
TIBCO SOFTWARE INC.
BALANCE SHEET
(in thousands, except per share data)
<TABLE>
<CAPTION>
November 30,
----------------- August 31,
1997 1998 1999
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 8,059 $ 547 $ 16,344
Deposits held by Reuters....................... 10,259 15,423 --
Short-term investments......................... -- -- 110,326
Accounts receivable, net of allowances $2,668,
$1,694, and $1,858, respectively.............. 7,238 13,234 23,426
Due from related parties....................... 3,192 1,829 2,799
Other current assets........................... 299 1,853 2,743
------- -------- --------
Total current assets.......................... 29,047 32,886 155,638
Property and equipment, net..................... 1,254 3,171 9,893
Other assets.................................... 745 232 797
------- -------- --------
$31,046 $ 36,289 $166,328
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 950 $ 3,190 $ 5,535
Accrued liabilities............................ 6,216 7,834 14,157
Deferred revenue............................... 6,713 3,561 5,972
------- -------- --------
Total current liabilities..................... 13,879 14,585 25,664
------- -------- --------
Commitments (Note 7)
Stockholders' equity:
Preferred Stock................................ 24 27 --
Common Stock, $0.001 par value; 100,000 shares
authorized; 20,668, 22,377 and 60,361 shares
issued and outstanding in 1997, 1998 and 1999
.............................................. 21 22 60
Additional paid-in capital..................... 26,552 46,499 181,053
Unearned compensation.......................... (4,767) (7,230) (9,881)
Accumulated other comprehensive loss........... -- -- (66)
Accumulated deficit............................ (4,663) (17,614) (30,502)
------- -------- --------
Total stockholders' equity.................... 17,167 21,704 140,664
------- -------- --------
$31,046 $ 36,289 $166,328
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TIBCO SOFTWARE INC.
STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Eleven Nine Months
Year Ended Months Ended Year Ended Ended August 31,
December 31, November 30, November 30, -----------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
License revenue:
Non-related parties.... $ 6,066 $ 6,062 $ 14,511 $ 8,995 $ 22,906
Related parties........ -- 157 2,984 2,205 12,308
------- ------- -------- ------- --------
Total license
revenue.............. 6,066 6,219 17,495 11,200 35,214
------- ------- -------- ------- --------
Service and maintenance
revenue:
Non-related parties.... 13,417 19,648 30,577 21,834 25,567
Related parties........ 10,832 9,407 4,685 2,692 2,326
------- ------- -------- ------- --------
Total service and
maintenance revenue.. 24,249 29,055 35,262 24,526 27,893
------- ------- -------- ------- --------
Total revenue........ 30,315 35,274 52,757 35,726 63,107
------- ------- -------- ------- --------
Cost of revenue:
Cost of license
revenue............... 3,668 366 984 731 2,051
Cost of service and
maintenance revenue... 15,938 15,481 26,698 18,988 23,927
------- ------- -------- ------- --------
Total cost of revenue... 19,606 15,847 27,682 19,719 25,978
------- ------- -------- ------- --------
Gross profit............ 10,709 19,427 25,075 16,007 37,129
------- ------- -------- ------- --------
Operating expenses:
Research and
development........... 6,576 9,385 14,787 10,107 18,943
Sales and marketing.... 2,949 7,008 15,242 10,416 21,022
General and
administrative........ 2,077 3,565 4,025 2,592 5,291
Stock and other
compensation.......... 2,196 4,672 5,064 3,535 5,429
------- ------- -------- ------- --------
Total operating
expenses............. 13,798 24,630 39,118 26,650 50,685
------- ------- -------- ------- --------
Loss from operations.... (3,089) (5,203) (14,043) (10,643) (13,556)
------- ------- -------- ------- --------
Other income (expense),
net:
Interest income
(expense), net........ (1,518) 527 1,394 1,113 1,040
Other income (expense),
net................... (33) 13 (302) (228) (372)
------- ------- -------- ------- --------
Total other income
(expense), net....... (1,551) 540 1,092 885 668
------- ------- -------- ------- --------
Net loss................ $(4,640) $(4,663) $(12,951) $(9,758) $(12,888)
======= ======= ======== ======= ========
Net loss per share:
Basic and diluted..... $ (0.24) $ (0.65) $ (0.50) $ (0.49)
======= ======== ======= ========
Weighted average
shares............... 19,202 20,011 19,653 26,511
======= ======== ======= ========
Pro forma net loss per
share:
Basic and diluted
(unaudited).......... $ (0.28) $ (0.26)
======== ========
Weighted average
shares (unaudited)... 47,002 49,748
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TIBCO SOFTWARE INC.
STATEMENT OF STOCKHOLDERS' EQUITY/OWNER'S NET INVESTMENT (LIABILITY)
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred
Owner's Net Stock Common Stock Additional Total
Investment -------------- -------------- Paid-in Unearned Accumulated Stockholders'
(Liability) Shares Amount Shares Amount Capital Compensation Deficit Equity
----------- ------- ------ ------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... $(19,574) -- $-- -- $-- $ -- $ -- $ -- $ --
Net loss................ (4,640) -- -- -- -- -- -- -- --
Net cash contribution
from Owner.............. 24,665 -- -- -- -- -- -- -- --
-------- ------- ---- ------- ---- -------- ------- -------- --------
Balance at December 31,
1996.................... 451 -- -- -- -- -- -- -- --
Capitalization from
Owner................... (451) -- -- -- -- 451 -- -- 451
Issuance of Series A
Preferred Stock to
Reuters................. -- 20,000 20 -- -- 9,961 -- -- 9,981
Issuance of Common Stock
to Reuters.............. -- -- -- 19,000 19 -- -- -- 19
Return of capital to
Reuters................. -- -- -- -- -- (10,000) -- -- (10,000)
Issuance of Series B
Preferred Stock, net.... -- 4,365 4 -- -- 15,702 -- -- 15,706
Exercise of Common Stock
options................. -- -- -- 1,668 2 999 -- -- 1,001
Unearned compensation,
net..................... -- -- -- -- -- 9,439 (4,767) -- 4,672
Net loss................ -- -- -- -- -- -- -- (4,663) (4,663)
-------- ------- ---- ------- ---- -------- ------- -------- --------
Balance at November 30,
1997.................... -- 24,365 24 20,668 21 26,552 (4,767) (4,663) 17,167
Issuance of Series C
Preferred Stock, net.... -- 2,861 3 -- -- 10,995 -- -- 10,998
Exercise of Common Stock
options, net............ -- -- -- 1,709 1 1,425 -- -- 1,426
Unearned compensation,
net..................... -- -- -- -- -- 7,527 (2,463) -- 5,064
Net loss................ -- -- -- -- -- -- -- (12,951) (12,951)
-------- ------- ---- ------- ---- -------- ------- -------- --------
Balance at November 30,
1998.................... $ -- $27,226 $ 27 $22,377 $ 22 $ 46,499 $(7,230) $(17,614) $ 21,704
======== ======= ==== ======= ==== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TIBCO SOFTWARE INC.
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Eleven Months Nine Months
Year Ended Ended Year Ended Ended August 31,
December 31, November 30, November 30, ------------------
1996 1997 1998 1998 1999
------------ ------------- ------------ -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (4,640) $ (4,663) $(12,951) $ (9,758) $(12,888)
Adjustments to
reconcile net loss to
net cash provided by
(used for) operating
activities:
Depreciation and
amortization.......... 370 924 1,073 720 1,343
Amortization of
unearned
compensation.......... -- 4,672 5,064 3,535 5,429
Changes in assets and
liabilities:
Accounts receivable... (1,363) 1,083 (5,996) (1,510) (10,192)
Due from related
parties.............. -- (3,192) 1,339 2,380 (970)
Other assets.......... 819 253 (1,017) 254 (1,463)
Accounts payable...... 291 659 2,240 (461) 2,345
Accrued liabilities... (21,367) 1,342 1,618 (50) 6,323
Deferred revenue...... 2,908 1,333 (3,152) (551) 2,411
-------- -------- -------- -------- --------
Net cash provided by
(used for) operating
activities.......... (22,982) 2,411 (11,782) (5,441) (7,662)
-------- -------- -------- -------- --------
Cash flows from
investing activities:
Deposits held by
Reuters............... -- (10,259) (5,164) (10,911) 15,423
Purchases of
investments........... -- (110,384)
Purchases of property
and equipment, net.... (1,283) (800) (2,990) (1,640) (8,065)
-------- -------- -------- -------- --------
Net cash provided by
(used for) investing
activities.......... (1,283) (11,059) (8,154) (12,551) (103,026)
-------- -------- -------- -------- --------
Cash flows from
financing activities:
Net investment from
Owner................. 24,265 -- -- -- --
Proceeds from issuance
of Preferred Stock.... -- 25,668 10,998 10,998 --
Return of capital...... -- (10,000) -- -- --
Borrowings from
Reuters............... -- 3,000 -- -- --
Repayment of borrowings
from Reuters.......... -- (3,000) -- -- --
Proceeds from issuance
of Common Stock....... -- 1,039 1,426 1,369 126,485
-------- -------- -------- -------- --------
Net cash provided by
financing
activities.......... 24,265 16,707 12,424 12,367 126,485
-------- -------- -------- -------- --------
Net change in cash and
cash equivalents....... -- 8,059 (7,512) (5,625) 15,797
Cash and cash
equivalents at
beginning of period.... -- -- 8,059 8,059 547
-------- -------- -------- -------- --------
Cash and cash
equivalents at end of
period................. $ -- $ 8,059 $ 547 $ 2,434 $ 16,344
======== ======== ======== ======== ========
Supplemental cash flow
disclosure:
Cash paid for
interest.............. $ 1,518 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
1. THE COMPANY
TIBCO Software Inc. ("TIBCO Software" or the "Company") is the successor to a
portion of the business of Teknekron Software Systems, Inc. ("Teknekron").
Teknekron was founded in 1985 and pioneered the development of "publish and
subscribe" computing by creating the software infrastructure for the
integration and delivery of market data (e.g., stock quotes, news and other
financial information) in the trading rooms of large banks and financial
institutions. This publish and subscribe technology, know as The Information
Bus or "TIB," permitted the integration of disparate information from various
data sources and its distribution across a variety of networks and platforms
within these banks and financial institutions and in the world's largest stock
exchanges.
Teknekron was acquired by a subsidiary of Reuters Group PLC ("Reuters"), the
global news and information group, in 1994 and the underlying technology rights
owned by Teknekron were assigned to Reuters. In 1996, Teknekron changed its
name to TIBCO Inc. In November 1996, TIBCO Software was incorporated in
Delaware as a separate entity from TIBCO Inc., which subsequently changed its
name to TIBCO Finance Technology, Inc. ("TFT"). TIBCO Software was formed to
create and market software solutions for use in the integration of business
information, processes and applications in diverse industries outside the
financial services market. Through a license and distribution agreement,
Reuters is the exclusive distributor of TIBCO Software products in the
financial services market, subject to limited exceptions.
Effective as of January 1, 1997, the Company's capital structure was
established, and the transfer to TIBCO Software of certain assets, liabilities
and customer contracts previously owned by Reuters was substantially completed.
Prior to January 1, 1997, operations were conducted by Reuters and its
subsidiaries. The financial statements for these periods are presented on a
carve-out basis prepared from historical accounting records of Reuters and
include the historical operations transferred to TIBCO Software by Reuters. In
this context, no direct ownership relationship existed in the operations
comprising TIBCO Software. Accordingly, Reuters and its subsidiaries' net
investment in TIBCO Software ("Owner's Net Investment") is shown in lieu of
Stockholders' Equity in the accompanying Financial Statements for this period.
Net Cash Contributions from Owner prior to January 1, 1997 include funds
transferred between Reuters and TIBCO Software for operating needs.
The Statement of Operations includes all revenue and expenses directly
attributable to TIBCO Software, costs for facilities, functions and services
used by TIBCO Software at shared sites and costs for certain functions and
services performed by centralized Reuters organizations. Such shared costs are
directly charged to TIBCO Software based on usage. In addition, services
performed by TIBCO Software on behalf of Reuters are directly charged to
Reuters.
Prior to January 1, 1997, all charges and allocations of cost for facilities,
functions and services performed by Reuters and its subsidiaries for TIBCO
Software have been deemed to have been paid by TIBCO Software to Reuters, in
the period in which the expense was recorded in the Financial Statements.
Allocations during this period were based on level of effort, revenue, or
usage, depending on the nature of the cost. Subsequent to January 1, 1997, such
costs are billed directly under transitional service agreements or by mutual
agreement in advance; and income taxes are paid directly to the taxing
authorities as appropriate.
All of the allocations and estimates in the Financial Statements are based on
assumptions that management believes are reasonable under the circumstances and
would not have been materially different from the costs and expenses that would
have resulted if TIBCO Software had been operated as a separate entity for
periods prior to January 1, 1997.
F-7
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Change in Year End
Effective January 1, 1997, the Company changed its fiscal quarter ends to the
last Friday in February, May and August and November 30th and its fiscal year
end to November 30th. For purposes of presentation, the Company has indicated
its interim fiscal periods as having ended on the last day of the month in
which such period actually ended.
Unaudited Interim Results
The accompanying interim financial statements as of August 31, 1999, and for
the nine months ended August 31, 1998 and 1999, are unaudited. The unaudited
interim financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position, results of operations and cash
flows as of August 31, 1999 and for the nine months ended August 31, 1998 and
1999. The financial data and other information disclosed in these notes to
financial statements related to these periods are unaudited. The results for
the nine months ended August 31, 1999 are not necessarily indicative of the
results to be expected for the year ending November 30, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash, Cash Equivalents, Investments and Deposits Held by Reuters
At November 30, 1997 and 1998, cash consisted primarily of deposits with
large financial institutions. The deposits held by Reuters earn a market rate
of interest and are due upon written notice. The Company considers all highly
liquid investment securities with original maturities of three months or less
to be cash equivalents. Short-term investments consist primarily of highly
liquid debt securities.
Management determines the appropriate classification of marketable securities
at the time of purchase and evaluates such designation as of each balance sheet
date. To date, all marketable securities have been classified as available-for-
sale and are carried at fair value with unrealized gains and losses, if any,
included in stockholders' equity. Unrealized gains and losses were not material
for all periods presented. Realized gains and losses and declines in value of
securities judged to be other than temporary are included in interest income.
Interest and dividends on all securities are included in interest income.
F-8
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents, deposits held by Reuters and
accounts receivable. Cash, cash equivalents and deposits held by Reuters are
deposited with financial institutions that management believes are
creditworthy. The Company's accounts receivable is derived from revenue earned
from customers located primarily in the United States, Australia, Europe and
Taiwan. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
The Company maintains an allowance for doubtful accounts receivable based upon
the expected collectibility of accounts receivable. The following table
summarizes the revenue from customers in excess of 10% of the total revenue:
<TABLE>
<CAPTION>
Nine Months
Eleven Months Ended
Year Ended Ended Year Ended August 31,
December 31, November 30, November 30, ------------
1996 1997 1998 1998 1999
------------ ------------- ------------ ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Reuters.................... 36% 27% 15% 14% 20%
Cedel Global Services...... N/A N/A 17% 18% 10%
NEC Electronics, Inc....... N/A 17% N/A 10% N/A
Litlenet, Inc.............. 11% N/A N/A N/A N/A
[others]
</TABLE>
Capitalized Software Development Costs
The Company has not capitalized any software development costs to date and is
in compliance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed." Capitalization of software development costs begins upon the
establishment of technological feasibility of the product. After technological
feasibility is established, material software development costs are
capitalized. The capitalized cost is then amortized on a straight-line basis
over the estimated product life, or on the ratio of current revenues to total
projected product revenues, whichever is greater. To date, the period between
achieving technological feasibility, which the Company has defined as the
establishment of a working model which typically occurs when beta testing
commences, and the general availability of such software has been short, and
software development costs qualifying for capitalization have been
insignificant.
Property and Equipment
Property and equipment are stated at cost. Depreciation is generally computed
using the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Furniture and
fixtures..... 5-10 years
Equipment..... 3-5 years
Leasehold
improvements.. Shorter of the lease term or the estimated useful life
</TABLE>
Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be
F-9
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Disposed of." 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.
Revenue Recognition
License revenue consists principally of revenue earned under software license
agreements and is generally recognized when the software has been shipped,
there are no significant obligations remaining, and collection is probable.
When contracts contain multiple elements wherein vendor specific objective
evidence exists for all undelivered elements, the Company accounts for the
delivered elements in accordance with the "residual method" prescribed by
Statement of Position ("SOP") 98-9. Any maintenance included in these
arrangements is recognized ratably over the term of the arrangement. Revenue
from subscription license agreements, which include software, rights to future
software and maintenance, is deferred and recognized ratably over the term of
the arrangement.
Revenue from subscription license agreements which include software, rights
to future software and maintenance, is deferred and recognized ratably over the
term of the subscription period. Software royalties and products fees earned
through our distribution and reseller partners are generally recognized when
the partner sells through to its customer.
Service revenue consists primarily of revenue received for performing product
development, implementation of system solutions, on-site support, consulting
and training. Service revenue is generally recognized as the services are
performed or on the percentage-of-completion method of accounting, depending on
the nature of the project. Under the percentage-of-completion method, revenue
recognized is that portion of the total contract price equal to the ratio of
costs expended to date to the anticipated final total costs, based on current
estimates of the costs to complete the project. To the extent that these
arrangements include license fees, such fees are recorded as license revenue
based on the percentage-of-completion ratio. If the total estimated costs to
complete a project exceed the total contract amount, indicating a loss, the
entire anticipated loss would be recognized currently.
Maintenance revenue consists of fees for providing software updates and
technical support for software products (post-contract support or "PCS").
Maintenance revenue is recognized ratably over the term of the agreement.
Payments received in advance of services performed are recorded as deferred
revenue. Allowances for estimated future returns and discounts are provided for
upon recognition of revenue.
Advertising Expense
Advertising costs are expensed as incurred and totaled approximately $0.1
million, less than $0.1 million, and $1.6 million for the year ended December
31, 1996, the eleven months ended November 30, 1997 and the year ended November
30, 1998, respectively.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies with
the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
Net Loss per Share
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings
per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
provisions of SFAS No. 128 and
F-10
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(Continued)
SAB 98, basic net loss per share is computed by dividing the net loss available
to common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weight average number of common and
potential common shares outstanding during the period if their effect is
dilutive. Potential common shares comprise of Common Stock subject to
repurchase and incremental shares of Common Stock issuable upon the exercise of
stock options and upon the conversion of Convertible Preferred Stock
("Preferred Stock").
The following table sets forth the computation of basic and dilutive net loss
per share for the periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months
Eleven Months Ended
Ended Year Ended August 31,
November 30, November 30, -----------------
1997 1998 1998 1999
------------- ------------ ------- --------
(unaudited)
<S> <C> <C> <C> <C>
Net loss......................... $(4,663) $(12,951) $(9,768) $(12,888)
======= ======== ======= ========
Basic and diluted:
Weighted average shares
outstanding................... 19,484 21,725 21,313 28,565
Weighted average shares subject
to repurchase................. (282) (1,714) (1,660) (2,054)
------- -------- ------- --------
Weighted average shares used to
compute basic and diluted net
loss per share.................. 19,202 20,011 19,653 26,511
======= ======== ======= ========
Net loss per share--basic and
diluted......................... $ (0.24) $ (0.65) $ (0.50) $ (0.49)
======= ======== ======= ========
</TABLE>
The following table sets forth potential common shares 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>
Nine Months
Eleven Months Ended
Ended Year Ended August 31
November 30, November 30, -------------
1997 1998 1998 1999
------------- ------------ ------ ------
(unaudited)
<S> <C> <C> <C> <C>
Weighted average effect of potential
common shares:
Series A Preferred Stock........... 20,000 20,000 20,000 17,143
Series B Preferred Stock........... 2,692 4,365 4,365 3,741
Series C Preferred Stock........... -- 2,626 2,526 2,453
Common Stock subject to
repurchase........................ 282 1,714 1,660 2,054
Stock options...................... 240 3,713 3,767 7,831
------ ------ ------ ------
23,214 32,418 32,318 33,222
====== ====== ====== ======
</TABLE>
Pro Forma Net Loss per Share (Unaudited)
Pro forma net loss per share for the year ended November 30, 1998 and the
nine months ended August 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 Preferred Stock into shares of Common
Stock effective upon the closing of the offering, as if such conversion
occurred on
F-11
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(Continued)
December 1, 1997 or at the date of original issuance, if later. The resulting
pro forma adjustment includes an increase in the weighted average shares used
to compute basic and diluted net loss per share of 26,991 and 23,337 for the
year ended November 30, 1998 and the nine months ended August 31, 1999,
respectively. The pro forma effects of these transactions are unaudited and
have been reflected in the accompanying pro forma Statement of Operations.
Pro Forma Stockholders' Equity (Unaudited)
Immediately prior to the effective date of the offering, all of the
Convertible Preferred Stock outstanding will automatically convert into Common
Stock at a one-to-one ratio. The pro forma effects of these transactions are
unaudited and have been reflected in the accompanying Pro Forma Stockholders'
Equity as of August 31, 1999.
Derivative Financial Instruments
The Company enters into foreign currency forward exchange contracts ("forward
contracts") to manage exposure related to certain foreign currency
transactions. The Company does not enter into derivative financial instruments
for trading purposes. All outstanding forward contracts at the end of the
period are marked-to-market, with unrealized gains and losses included in net
income as a component of other income (expense), net. As of November 30, 1998,
the Company had outstanding forward contracts with notional amounts totaling
approximately $1.6 million. These contracts, which mature at various dates
through July 1999, are hedges of certain foreign currency transaction exposures
in the Australian dollar and French franc. The estimated fair value at November
30, 1998 was negligible.
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 assets and liabilities 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 assets and liabilities is
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 Net Loss
Effective December 1, 1997, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive loss is comprised of net loss, foreign currency translation gains
or losses and unrealized gains or losses on available-for-sale marketable
securities. The Company's unrealized gains and losses on available for sale
marketable securities and foreign currency translation gains or losses have
been insignificant for all periods presented.
Recent Accounting Pronouncements
In October 1997, March 1998 and December 1998, the American Institute of
Certified Public Accountants ("AICPA") issued SOP 97-2, "Software Revenue
Recognition," SOP 98-4, "Deferral of
F-12
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(Continued)
the Effective Date of a Provision of SOP 97-2, "Software Revenue Recognition"'
and SOP 98-9, "Modification of SOP 97-2, "Software Revenue Recognition' with
Respect to Certain Transactions" (collectively, "SOP 97-2"). The Company is
required to adopt the provisions of SOP 97-2 for transactions entered into in
the fiscal year beginning December 1, 1998. SOP 97-2 provides guidance on
recognizing revenue on software transactions and superseded SOP 91-1. The
Company believes that the adoption of SOP 97-2 will not have a significant
impact on its current licensing or revenue recognition practices. However,
should the Company adopt new or change its existing licensing practices, the
Company's revenue recognition practices may be subject to change to comply with
the accounting guidance provided in SOP 97-2.
In March 1998, the AICPA issued SOP 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP 98-1 will have a material impact on its financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999 and establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
The Company does not expect that the adoption of SFAS No. 133 will have a
material impact on its financial statements.
3. BALANCE SHEET COMPONENTS
(in thousands)
<TABLE>
<CAPTION>
November 30,
----------------
1997 1998
------- -------
<S> <C> <C>
Accounts receivable, net:
Accounts receivable......................................... $ 9,241 $11,024
Unbilled fees and services.................................. 665 3,904
------- -------
9,906 14,928
Less: Allowance for doubtful accounts and returns........... (2,668) (1,694)
------- -------
$ 7,238 $13,234
======= =======
Property and equipment, net:
Equipment................................................... $ 2,178 $ 4,973
Furniture and fixtures...................................... -- 146
Leasehold improvements...................................... -- 49
------- -------
2,178 5,168
Less: Accumulated depreciation and amortization............. (924) (1,997)
------- -------
$ 1,254 $ 3,171
======= =======
Accrued liabilities:
Compensation and employee related........................... $ 4,040 $ 5,810
Expenses.................................................... 2,176 2,024
------- -------
$ 6,216 $ 7,834
======= =======
</TABLE>
F-13
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES DISCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
----------------
Balance Charged Balance
at Charged to Costs at End
Beginning against and of
of Period Revenue Expenses Deductions Period
--------- ------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996.... $ 249 $1,279 $ 20 $ -- $1,548
Eleven months ended November 30,
1997........................... 1,548 1,576 16 (472) 2,668
Year ended November 30, 1998.... 2,668 1,133 194 (2,301) 1,694
</TABLE>
5. RELATED PARTY TRANSACTIONS
Reuters
The Company has significant transactions with Reuters and TFT, including
licensing arrangements, development contracts and shared functions and
services. The following is a summary of the transactions for the periods
indicated (in thousands):
Revenue and cost of revenue
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
December 31, November 30, November 30,
Description 1996 1997 1998
- ----------- ------------ ------------- ------------
<S> <C> <C> <C>
License fees............................ $ -- $ 157 $2,984
------- ------ ------
Service and maintenance revenue:
Subscription agreement................ -- 3,896 354
Maintenance agreement................. -- 688 750
Services contracts.................... 5,802 796 485
Shared personnel...................... -- 4,027 2,202
Development reimbursement............. 5,030 -- 894
------- ------ ------
Total service and maintenance....... 10,832 9,407 4,685
------- ------ ------
$10,832 $9,564 $7,669
======= ====== ======
</TABLE>
In 1994, Reuters entered into an arrangement with Teknekron whereby Teknekron
was granted a non-exclusive license to certain software and the right to
sublicense the software to its customers. In exchange for this right, Teknekron
was obligated to pay Reuters a product fee. TIBCO Software's portion of the fee
due to Reuters totaled approximately $5.5 million for the year ended
December 31, 1996 and was included in cost of revenue in the accompanying
Statement of Operations. These product fee obligations ceased with the
formation of TIBCO Software in January 1997.
In 1995, Reuters and Teknekron entered into a Research & Development and
Consulting Services Agreement (the "Services Agreement"). Under the Services
Agreement, Reuters agreed to reimburse Teknekron 110% of reasonable research
and development costs to maintain and enhance
F-14
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. RELATED PARTY TRANSACTIONS--(Continued)
the underlying technology. Any software developed became the property of
Reuters. The Services Agreement also provided for maintenance, support, and
consulting. Service revenue recognized from Reuters associated with the
Services Agreement totaled approximately $10.8 million for the year ended
December 31, 1996.
With the formation of TIBCO Software in January 1997, the Company entered
into a license, maintenance and distribution agreement (the "License
Agreement") with Reuters and TFT. Under the terms of the License Agreement, the
Company was granted a perpetual, royalty-free license to the underlying TIB
messaging technology in existence on December 31, 1996. The licensed TIB
technology includes technology underlying some of the Company's current
products. The license includes rights to use the TIB technology to develop and
maintain products, to provide services to customers relating to the licensed
technology, and to sell, sublicense and distribute products utilizing the
licensed technology both directly and through third party distributors,
resellers and original equipment manufacturers. In consideration of the License
Agreement, the Company paid to Reuters $10.0 million, which was accounted for
as a return of capital (Note 8).
Reuters is the preferred distributor of the Company's TIB/ActiveEnterprise
products to customers in the financial services market segment. As such, the
Company receives a product fee from Reuters, which is computed as a percentage
of sales of product licenses and maintenance, which has been recorded as
license revenue in the accompanying Financial Statements. For the nine months
ending December 31, 1999 and the years ending December 31, 2000 and 2001,
Reuters has guaranteed minimum product fees of $16.0 million, $18.0 million and
$20.0 million, respectively. These amounts will be recognized ratably over the
corresponding period. In any period where actual product fees earned exceed the
minimum guaranteed product fees, the difference between the actual product fees
and cumulative minimum product fees recognized to date will be recognized as
revenue currently.
For calendar 1997, Reuters paid the Company a one-time fee of approximately
$4.3 million for the purposes of developing middleware infrastructure software
and products. As Reuters and TFT were entitled to receive unspecified future
enhancements, if and when available, the fee was accounted for as a
subscription and taken to service revenue ratably over the period (see
"subscription agreement" in the preceding table). Beginning in January 1997,
the Company received an annual maintenance fee of approximately $0.7 million,
which is accounted for ratably over the year. Beginning in 1999, this
maintenance fee will be included in the minimum guarantee. There were various
miscellaneous consulting projects throughout fiscal 1997 and 1998 in which the
Company recognized approximately $0.8 million and $0.5 million, respectively.
Since its formation in January 1997, TFT and TIBCO Software agreed to certain
intercompany rates for the sharing of employees on various customer projects.
For the services provided by TIBCO Software personnel to TFT, TIBCO Software
recognized service revenue of approximately $4.0 million and $2.2 million in
the eleven months ended November 30, 1997 and the year ended November 30, 1998,
respectively. For the services received by TIBCO Software from TFT personnel,
TIBCO Software recorded, in cost of revenue, expenses of approximately $1.2
million and $5.8 million in the eleven months ended November 30, 1997 and the
year ended November 30, 1998, respectively, and, in research and development,
expenses of approximately $0.4 million in the eleven months ended November 30,
1997.
In 1998, TIBCO Software was reimbursed for approximately $0.9 million for the
development of certain enhancements for Reuters.
F-15
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. RELATED PARTY TRANSACTIONS--(Continued)
Intercompany Services
Since its formation in January 1997, Reuters and TFT have provided TIBCO
Software with shared functions and services such as cash management,
accounting, legal and insurance. The cost of these functions and services has
been directly charged and/or allocated to the Company using methods that the
Company management believes are reasonable. Such charges and allocations are
not necessarily indicative of the costs that would have been incurred if the
Company had been a separate entity. Neither party has a financial obligation to
the other in relation to any shared costs except as may be agreed in writing in
advance.
Administrative Services. TFT provides limited administrative services to the
Company, including certain facilities, human resources, information technology
and finance functions. The expenses related to these functions have been
charged to the Company based on actual costs incurred. Management believes that
such costs are reasonable. Such charges for these services amounted to
approximately $1.6 million and $2.7 million in the eleven months ended
November 30, 1997 and the year ended November 30, 1998, respectively and are
included in cost of sales, research and development, sales and marketing,
general and administrative expenses in the accompanying Statement of
Operations, allocated based on respective salaries.
Operating Leases and Furniture & Fixtures Rental. The Company shares its
corporate headquarters in Palo Alto, California, and certain foreign offices
with TFT (Note 7). In addition, the Company rents certain furniture and
fixtures from TFT, primarily related to its corporate headquarters. The Company
incurred rent expense of $1.4 million and $1.6 million in the eleven months
ended November 30, 1997 and the year ended November 30, 1998, respectively.
Insurance and Legal. The Company participates in an insurance purchasing
agreement with Reuters. Under the terms of this arrangement, Reuters purchases
insurance on behalf of the Company and charges the Company for this insurance
on an annual basis. Additionally, a portion of the Company's legal services was
provided to the Company until March 1998. Amounts incurred for legal and
insurance expenses were approximately $0.2 million and $0.1 million in the
eleven months ended November 30, 1997 and the year ended November 30, 1998,
respectively, and are included in general and administrative expenses in the
accompanying Statement of Operations.
Employee Benefit Programs. The Company participates in various employee
benefit programs with TFT. These programs include medical, dental, life
insurance and pension plans. The Company paid the service providers directly
for these services rendered from January 1997. The Company reimbursed TFT for
its proportionate cost of certain other benefits provided to TIBCO Software
employees during 1997 and 1998. The reimbursement was based on historical
experience and relative headcount. The Company recorded expenses related to the
reimbursement of these costs of approximately $0.1 million in the eleven months
ended November 30, 1997 and the year ended November 30, 1998. The Company
believes the allocation by TFT of the proportionate cost is reasonable and
consistent with costs that would have been incurred had the company maintained
its own benefit plans. These charges are included in cost of sales, research
and development, sales and marketing and general and administrative expenses in
the Statement of Operations, allocated based on respective salaries.
F-16
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. RELATED PARTY TRANSACTIONS--(Continued)
Intercompany Deposits. From July 1997, the Company participated in Reuters
cash management program, investing surplus funds with Reuters Group Treasury
Department. These deposits earn interest at one-month dollar London inter bank
offered rate ("LIBOR"). The Company recorded interest income on these deposits
of approximately $0.3 million and $1.1 million in the eleven months ended
November 30, 1997 and the year ended November 30, 1998, respectively.
Line of Credit. In January 1997, TIBCO Software entered into a credit
facility with Reuters. Under the line of credit, the Company may borrow up to
$10 million. The line of credit expired on December 31, 1998 and was secured by
Company assets. Interest accrued at a rate of prime plus 1% per annum. As of
November 30, 1998, the Company had no principal amounts outstanding.
6. INCOME TAXES
No provision for income taxes was recorded due to the net losses incurred to
date. The provision for income taxes was at rates other than the U.S. Federal
statutory tax rate for the following reasons:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
U.S. Federal statutory rate.......................... (34.0)% (34.0)% (34.0)%
State taxes.......................................... (5.6) (5.9) (5.4)
R&D credits.......................................... (3.4) (5.8) (3.9)
Change in valuation allowance........................ 41.7 48.1 44.1
Other................................................ 1.3 (2.4) (0.8)
------- ------- -------
Income tax provision................................. 0.0 % 0.0 % 0.0 %
======= ======= =======
</TABLE>
The components of the Company's net deferred tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Net operating loss carryforward........................... $ -- $ 3,430
Stock option compensation................................. 2,338 4,424
Reserves and accruals..................................... 1,827 1,445
Credit carryforwards...................................... 168 759
Depreciation and amortization............................. 545 694
Other..................................................... 203 (9)
------- --------
5,081 10,743
Valuation allowance....................................... (5,081) (10,743)
------- --------
Net deferred tax assets................................... $ -- $ --
======= ========
</TABLE>
Management believes that, based on a number of factors, it is more likely
than not that the deferred tax assets will not be utilized; and accordingly, a
full valuation allowance has been recorded.
At November 30, 1998, the Company had the following carryforwards available
to reduce future taxable income and income taxes (in thousands):
<TABLE>
<CAPTION>
Federal State
------- ------
<S> <C> <C>
Net operating loss carryforwards............................. $8,766 $9,279
Credit carryforwards......................................... 481 278
</TABLE>
F-17
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. INCOME TAXES--(Continued)
The federal and state net operating loss carryforwards are available through
2018 and 2005, respectively, and the research and development credits are
available through 2013. For federal and state tax purposes, the Company's net
operating loss and research and development credit carryforwards could be
subject to certain limitations on annual utilization if certain changes in
ownership were to occur, as defined by federal and state tax laws.
7. COMMITMENTS
The Company leases office space and equipment under non-cancelable operating
leases with various expiration dates through August 2003. The Company also
rents certain furniture and fixtures and sub-leases office space from TFT at
various locations including its corporate headquarters in Palo Alto, California
(Note 5). Rental expense was approximately $1.2 million, $1.7 million and $2.2
million for the year ended December 31, 1996, the eleven months ended November
30, 1997 and the year ended November 30, 1998, respectively. Future minimum
lease payments under non-cancelable operating leases, including lease
commitments entered into subsequent to November 30, 1998, are as follows (in
thousands):
<TABLE>
<CAPTION>
Year ending November 30,
------------------------
<S> <C>
1999................................................................ $ 407
2000................................................................ 272
2001................................................................ 203
2002................................................................ 193
2003................................................................ 83
Thereafter.......................................................... --
------
$1,158
======
</TABLE>
TIBCO Software assumed the lease of the corporate headquarters from TFT in
June 1999, which expires in June of 2006. This assumption will result in
additional aggregate lease commitments of approximately $10.0 million.
8. STOCKHOLDERS' EQUITY
As of November 30, 1998, the Company's Articles of Incorporation authorized
the Company to issue 75.0 million shares of Preferred Stock at $0.001 par value
and 100.0 million shares of Common Stock at $0.001 par value. From said
authorization of Preferred Stock, 20.0 million, 5.5 million and 3.0 million
shares were designated as Series A, Series B and Series C Preferred Stock,
respectively, at $0.001 par value.
Preferred Stock
Effective as of January 1, 1997, the Company's initial capital structure was
established by issuing 20.0 million shares of Series A Convertible Preferred
Stock ("Series A") and 19.0 million shares of Common Stock to Reuters in
exchange for $10.0 million and the transfer of certain assets and liabilities
assumed. In connection with its formation, the Company signed a perpetual, non-
exclusive license agreement for certain technology with Reuters and paid $10.0
million as consideration (Note 5). This payment was treated as a return of
capital in the accompanying Statement of Stockholders' Equity.
F-18
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. STOCKHOLDERS' EQUITY--(Continued)
In May 1997, the Company issued approximately 4.4 million shares of Series B
Convertible Preferred Stock ("Series B") at $3.60 per share for net proceeds of
approximately $15.7 million. In December 1997, the Company issued approximately
2.9 million shares of Series C Convertible Preferred Stock ("Series C") at
$3.86 per share for net proceeds of approximately $11.0 million.
The holders of the outstanding Preferred Stock have various rights and
preferences as follows:
Voting
Each share of Preferred Stock has voting rights equal to the number of shares
of Common Stock into which it is convertible and votes together as one class
with the Common Stock.
Dividends
The holders of Series A, Series B and Series C are entitled to receive non-
cumulative dividends at the per share annual rate of $0.048, $0.216 and $0.236,
respectively, when and as declared by the board of directors. The holders of
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 held on an as converted basis. No dividends on Preferred
Stock or Common Stock have been declared by the board from inception through
November 30, 1998.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's Common Stock and Preferred Stock own less than 50% of the
resulting voting power of the surviving entity, the holders of Series A, Series
B and Series C are entitled to receive an amount of $1.00, $3.60 and $3.86 per
share, respectively, plus any declared but unpaid dividends prior to and in
preference to any distribution to the holders of Common Stock. If the Company's
legally available assets are insufficient to satisfy the liquidation
preferences, then the funds will be distributed ratably among the holders of
Preferred Stock.
Conversion
Each share of Preferred Stock is convertible, at the option of the holder,
according to a conversion ratio, subject to adjustment for dilution. Each share
of Preferred Stock automatically converts into the number of shares of Common
Stock into which such shares are convertible at the then effective conversion
ratio upon: (1) the closing of a public offering of Common Stock at a per share
price of at least $4.00 per share, (2) at least 15% of the capital stock of the
Company (on a fully diluted as converted to common stock post-offering basis)
is issued and/or sold in the offering, (3) a merger, sale of substantially all
of the assets or other transactions which result in a change in control or (4)
the consent of the majority of Preferred Stock holders.
Covenants
As long as at least 21.38 million shares of Preferred Stock remain
outstanding, the Company must obtain approval from a majority of the holders of
Preferred Stock in order to alter the articles of incorporation as related to
Preferred Stock, change the authorized number of shares of Preferred
F-19
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. STOCKHOLDERS' EQUITY--(Continued)
Stock, repurchase any shares of Common Stock other than shares subject to the
right of repurchase by the Company, change the authorized number of Directors,
authorize a dividend for any class or series other than Preferred Stock, create
a new class of stock or effect a merger, consolidation or sale of assets where
the existing shareholders retain less than 50% of the voting stock of the
surviving entity.
Common Stock
The Company's Articles of Incorporation, as amended, authorize the Company to
issue 300.0 million shares of $0.001 par value Common Stock. A portion of the
shares issued are subject to a right of repurchase by the Company subject to
vesting, which is generally over a five year period from the grant date or
employee hire date, as applicable, until vesting is complete. Shares are
subject to repurchase at the original exercise price. At November 30, 1998,
there were approximately 1.8 million shares of Common Stock subject to
repurchase.
Stock Option Plans
In 1996, the Company adopted the 1996 Stock Option Plan (the "1996 Plan").
The 1996 Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the 1996 Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
may be granted only to Company employees (including officers and directors who
are also employees). Nonqualified stock options may be granted to Company
employees and consultants. In July 1998, the stockholders of the Company
amended the 1996 Plan, to permit an annual replenishment of the Company's
Common Stock reserved for grant under the 1996 Plan equal to 5% of the
Company's outstanding capital stock. Options under the 1996 Plan may be granted
for terms not to exceed ten years and at strike prices no less than the fair
value of Common Stock on the date of grant as determined by the Board of
Directors. Options are exercisable immediately upon grant and generally vest
over five years. Shares of Common Stock issued upon the exercise of options are
subject to repurchase until vested.
In February 1998, the Company adopted the 1998 Director Option Plan (the
"Director Plan") and reserved 0.5 million shares of Common Stock for issuance
under the Director Plan. The Director Plan provides for an automatic initial
grant of 50,000 shares to members of the Board who are not employees of the
Company or Reuters ("External Directors"). Any External Director with over one
year of consecutive service prior to the effective date of the Director Plan
received an initial grant of 70,000 shares. At any subsequent annual re-
election, each External Director shall be granted an option to purchase 20,000
additional shares. Options are granted at an exercise price not less than the
fair market value of the stock on the date of grant, have a term not to exceed
ten years and become exercisable over a three year period with a third of the
shares vesting annually.
In October 1998, the Company adopted the 1998 Advisory Council Option Sub-
plan (the "Advisory Plan") as a sub-plan to the 1996 Plan for the purpose of
attracting and retaining the best available personnel for service on an
information technology advisory council. The Advisory Plan provides for an
initial grant of 5,000 shares to each advisory council member (10,000 shares to
the chairman). Options are granted at an exercise price not less than fair
market value of the Common Stock on the date of grant, have a term not to
exceed ten years and become exercisable over a two year period with half of the
shares vesting annually.
F-20
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. STOCKHOLDERS' EQUITY--(Continued)
For grants under the Advisory Plan and other options granted to consultants,
the Company estimates the initial fair value of the options on the date of
grant using the Black-Scholes option pricing model. The resulting compensation
expense is amortized using the multiple option method over the vesting period.
The value of the options will be remeasured at each subsequent reporting date
until each option has vested. In the event such remeasurement results in
increases or decreases in fair value, such increases or decreases will be
recognized over the remaining term.
The activity under the 1996 Plan, the Director Plan and Advisory Plan is
summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Eleven Months
Ended Year Ended
November 30, November 30,
1997 1998
----------------- -----------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period..... -- $ -- 6,892 $0.60
Granted................................ 8,772 0.60 4,374 1.92
Exercised.............................. (1,669) 0.60 (1,833) 0.82
Canceled............................... (211) 0.60 (347) 0.82
------ ------
Outstanding at end of period........... 6,892 0.60 9,086 1.18
====== ======
Options vested at end of period........ 1,028 3,560
====== ======
</TABLE>
The following table summarizes information about stock options outstanding at
November 30, 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
Options Outstanding and
Exercisable
--------------------------------
Weighted
Average Weighted
Number of Remaining Average
Options Contractual Exercise
Range of exercise prices Outstanding Life Price
------------------------ ----------- ----------- --------
<S> <C> <C> <C>
$0.60..................................... 5,381 8.1 years $0.60
1.00..................................... 1,606 9.4 years 1.00
2.60..................................... 1,615 9.6 years 2.60
3.50..................................... 484 9.7 years 3.50
----- --------- -----
$0.60-$3.50............................... 9,086 8.7 years 1.18
===== ========= =====
</TABLE>
Unearned stock-based compensation
In connection with certain stock option grants to employees and External
Directors, the Company recognized approximately $9.4 million and $7.2 million
of unearned stock compensation for the excess of the deemed fair market value
over the exercise price at the date of grant for the eleven months ended
November 30, 1997 and for the year ended November 30, 1998, respectively. The
compensation expense is being recognized, using the multiple option method,
over the option vesting period of generally five years.
F-21
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. STOCKHOLDERS' EQUITY--(Continued)
Reserved for Future Issuance
At November 30, 1998, the Company had reserved the following shares of
authorized but unissued Common Stock for future issuance (in thousands):
<TABLE>
<S> <C>
Preferred Stock...................................................... 27,226
1996 and Advisory Plans.............................................. 9,249
Director Plan........................................................ 500
------
36,975
======
</TABLE>
Pro Forma Information
This information is required to illustrate the financial results of
operations as if the Company accounted for its grants of employee stock options
under the fair value method of SFAS No. 123. The fair value of the Company's
options granted was estimated at the date of grant using a Black-Scholes option
pricing model. The Company calculated the minimum value of each option grant on
the date of grant with the following assumptions:
<TABLE>
<CAPTION>
Eleven Months
Ended Year Ended
November 30, November 30,
1997 1998
------------- ------------
<S> <C> <C>
Risk free interest rates.......................... 4.7% 4.7%
Expected lives (in years)......................... 3.0 3.0
Dividend yield.................................... 0.0% 0.0%
Expected volatility............................... 0.0% 0.0%
</TABLE>
For purposes of pro forma disclosures, the estimated minimum value of the
options is amortized over the options' vesting period. The compensation cost
associated with the Company's stock-based compensation plans, determined using
the minimum value method prescribed by SFAS No. 123, did not result in a
material difference for the reported net loss for all periods presented.
9. OPERATIONS BY GEOGRAPHIC AREA
The Company operates primarily in one industry segment: the development and
marketing of a suite of software products that enables businesses to link
internal operations, business partners and customer channels through the real-
time distribution of information. Revenue by geographic area is as follows (in
thousands):
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
December 31, November 30, November 30,
1996 1997 1998
------------ ------------- ------------
<S> <C> <C> <C>
Domestic................................ $25,027 $28,949 $32,698
Export Revenue:
Europe................................ 3,472 4,558 13,885
Pacific Rim........................... 1,816 1,767 6,174
------- ------- -------
Total revenue....................... $30,315 $35,274 $52,757
======= ======= =======
</TABLE>
F-22
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. SUBSEQUENT EVENTS
Reverse Stock Split
In June 1999, the Company's Board of Directors approved a one for two reverse
stock split of Company's outstanding shares which became effective on July 13,
1999. All share and per share information included in these financial
statements have been retroactively adjusted to reflect this reverse stock
split.
Amendment to Stock Plans
In June 1999, the 1996 Plan was amended to increase the authorization for
issuance of the Company's Common Stock by approximately 2.5 million shares and
to increase the shares of Common Stock reserved for issuance (to be added on
the first day of each fiscal year beginning in 2000) equal to the lessor of (i)
5 million shares, (ii) 3.5% of the outstanding common shares of the Company
common stock, or (iii) a lesser amount determined by the Board of Directors.
In addition, the Board of Directors authorized the addition of an employee
stock purchase plan (the "ESP Plan") as a sub-plan to the 1996 Plan. The ESP
Plan permits eligible employees to purchase shares of the Company's Common
Stock through payroll deductions at 85% of the fair market value, as defined in
the ESP Plan.
The 1998 Plan was amended to increase the authorization for issuance of the
Company's Common Stock by 325,000 shares.
Initial Public Offering
On July 13, 1999, the Company completed an initial public offering, which
consisted of approximately 9,162,000 shares of Common Stock (including
1,095,000 shares purchased by the underwriters over-allotment option, 500,000
shares sold directly to Sun Microsystems, and 266,667 shares sold directly to
Yahoo! Inc.) at $15.00 per share. Net proceeds aggregated approximately
$123.6 million.
Acquisition of InConcert, Inc.
On November 4, 1999, the Company acquired substantially all of the assets of
InConcert, Inc., a wholly-owned subsidiary of Xerox, in a transaction to be
accounted for as a purchase business combination. The Company paid $34 million
in cash and reimbursed Xerox approximately $1.3 million for severance costs
related to said merger. The Company also anticipates incurring approximately
$0.3 million in acquisition related expenses, which consist primarily of
financial advisory, accounting, and legal fees.
F-23
<PAGE>
TIBCO SOFTWARE INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW
On November 4, 1999, TIBCO Software Inc. ("TIBCO" or the "Company") acquired
substantially all of the assets of InConcert, Inc. ("InConcert"), a wholly-
owned subsidiary of Xerox, in a transaction to be accounted for as a purchase
business combination. TIBCO paid $34 million in cash and reimbursed Xerox
approximately $1.3 million for severance costs related to said merger. The
Company also anticipates incurring approximately $0.3 million in acquisition
related expenses, which consist primarily of financial advisory, accounting and
legal fees.
The total acquisition price of $35.6 million was allocated to the assets
acquired, including tangible and intangible assets and liabilities assumed
based upon the fair value of such assets and liabilities on the date of the
acquisition. The total estimated purchase cost of the acquisition has been
allocated on a preliminary basis to assets and liabilities based on management
estimates of their fair value and a preliminary independent appraisal of
certain intangible assets with the excess costs over the net assets acquired
allocated to goodwill. This allocation is subject to change pending a final
analysis of the total purchase cost and fair value of the assets acquired and
liabilities assumed. The aggregate purchase price has been allocated as follows
(in thousands):
<TABLE>
<S> <C>
Net assets received.................................................. 1,216
In-process technology................................................ 2,800
Existing technology.................................................. 14,000
Workforce in place................................................... 3,100
Customer base........................................................ 2,900
Trademark............................................................ 1,200
Operating leases..................................................... 947
Goodwill............................................................. 9,394
-------
$35,557
=======
</TABLE>
The net tangible assets consist primarily of accounts receivable, property
and equipment, accounts payable, accrued liabilities, and deferred revenue.
InConcert's net tangible assets received as of September 30, 1999 were used for
purposes of calculating the pro forma adjustments as they approximate their
fair value as such date. Because the in-process technology had not reached the
stage of technological feasibility at the acquisition date and had no
alternative future use, the amount was immediately charged to operations. The
amount allocated to existing technology, workforce in place, customer base, and
trademark is being amortized over their estimated useful lives of five years.
The purchase price in excess of identified tangible and intangible assets is
allocated as goodwill, which is also being amortized over five years.
The accompanying unaudited pro forma combined balance sheet gives effect to
the combination of TIBCO and InConcert as if such transaction occurred on
August 31, 1999. The unaudited pro forma combined balance sheet combines the
unaudited consolidated balance sheet of TIBCO as of August 31, 1999 and the
unaudited balance sheet of InConcert as of September 30, 1999.
The accompanying unaudited pro forma combined statement of operations
presents the results of operations of TIBCO for the year ended November 30,
1998 and the nine-month period ended August 31, 1999 combined with the
statement of operations of InConcert for the year ended
F-24
<PAGE>
December 31, 1998 and the nine-month period ended September 30, 1999. The
unaudited pro forma combined statement of operations gives effect to this
acquisition as if it had occurred as of December 1, 1997.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transaction had
been consummated at the dates indicated, nor is it necessarily indicative of
future operating results or the financial position of the combined companies.
F-25
<PAGE>
TIBCO SOFTWARE INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
TIBCO InConcert
---------- -------------
As of As of Pro Forma
August 31, September 30, -------------------------
1999 1999 Adjustments Combined
---------- ------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 16,344 $ -- $ -- $ 16,344
Short term investments... 110,326 -- (34,000)(A) 76,326
Accounts receivable,
net..................... 23,203 2,776 -- 25,979
Due from related
parties................. 2,799 -- -- 2,799
Other current assets..... 2,966 134 -- 3,100
-------- -------- ------- --------
Total current assets.... 155,638 2,910 (34,000) 124,548
Property and equipment,
net...................... 9,893 457 -- 10,350
Intangible assets......... -- -- 30,594 (B) 30,594
Other assets.............. 797 -- 947 (C) 1,744
-------- -------- ------- --------
$166,328 $ 3,367 $(2,459) $167,236
======== ======== ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable......... $ 5,535 $ 308 $ -- $ 5,843
Accrued expenses and
other liabilities....... 14,157 903 1,557 (D) 16,617
Deferred revenue......... 5,972 940 -- 6,912
-------- -------- ------- --------
Total current
liabilities............ 25,664 2,151 1,557 29,372
Due to parent............ -- 6,037 (6,037)(E) --
-------- -------- ------- --------
Total liabilities....... 25,664 8,188 (4,480) 29,372
-------- -------- ------- --------
Stockholders' equity
(deficit):
Convertible Preferred
Stock................... -- 24 (24)(E) --
Common Stock............. 60 1 (1)(E) 60
Treasury Stock........... -- (76) 76 (E) --
Additional paid-in
capital................. 181,053 15,539 (15,539)(E) 181,053
Unearned stock
compensation............ (9,881) -- -- (9,881)
Accumulated other
comprehensive gain
(loss).................. (66) 11 (11)(E) (66)
Accumulated deficit...... (30,502) (20,320) 17,520 (E)(F) (33,302)
-------- -------- ------- --------
Total stockholders'
equity (deficit)....... 140,664 (4,821) 2,021 137,864
-------- -------- ------- --------
$166,328 $ 3,367 $(2,459) $167,236
======== ======== ======= ========
</TABLE>
F-26
<PAGE>
TIBCO SOFTWARE INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
TIBCO InConcert
---------- -------------
Nine Months Ended Pro Forma
------------------------ ----------------------
August 31, September 30,
1999 1999 Adjustments Combined
---------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Revenue....................... $ 63,107 $ 7,871 $ -- $ 70,978
Cost of revenue............... 25,978 2,549 -- 28,527
-------- ------- ------- --------
Gross profit.................. 37,129 5,322 -- 42,451
-------- ------- ------- --------
Operating expenses:
Sales and marketing......... 21,022 5,970 -- 26,992
Research and development.... 18,943 2,262 -- 21,205
General and administrative.. 5,291 2,773 -- 8,064
Amortization of stock
compensation............... 5,429 -- -- 5,429
Amortization of goodwill and
acquired intangibles....... -- -- 4,590 (G) 4,590
-------- ------- ------- --------
Total Operating Expenses.. 50,685 11,005 4,590 66,280
-------- ------- ------- --------
Loss from operations.......... (13,556) (5,683) (4,590) (23,829)
Interest income/(expense),
net.......................... 668 -- (2,136)(H) (1,468)
-------- ------- ------- --------
Net loss...................... $(12,888) $(5,683) $(6,726) $(25,297)
======== ======= ======= ========
Net loss per share:
Basic and diluted........... $ (0.49) $ (0.95)
======== ========
Weighted average shares..... 26,511 26,511
======== ========
</TABLE>
F-27
<PAGE>
TIBCO SOFTWARE INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
TIBCO InConcert
------------ ------------
Year Ended Pro Forma
------------------------- ----------------------
November 30, December 31,
1998 1998 Adjustments Combined
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
Revenue...................... $ 52,757 $ 8,749 $ -- $ 61,506
Cost of revenue.............. 27,682 2,301 -- 29,983
-------- ------- ------- --------
Gross profit................. 25,075 6,448 -- 31,523
-------- ------- ------- --------
Operating expenses:
Sales and marketing........ 15,242 7,013 -- 22,255
Research and development... 14,787 2,892 -- 17,679
General and
administrative............ 4,025 2,555 -- 6,580
Amortization of stock
compensation.............. 5,064 -- -- 5,064
Amortization of goodwill
and acquired intangibles.. -- -- 6,120 (G) 6,120
-------- ------- ------- --------
Total operating
expenses................ 39,118 12,460 6,120 57,698
-------- ------- ------- --------
Loss from operations......... (14,043) (6,012) (6,120) (26,175)
Interest income/(expense),
net......................... 1,092 (4) (2,848)(H) (1,760)
-------- ------- ------- --------
Net loss..................... $(12,951) $(6,016) $(8,968) $(27,935)
======== ======= ======= ========
Net loss per share:
Basic and diluted.......... $ (0.28) $ (0.59)
======== ========
Weighted average shares.... 47,002 47,002
======== ========
</TABLE>
F-28
<PAGE>
The following adjustments were applied to TIBCO's historical financial
statements and those of InConcert to arrive at the pro forma combined financial
information:
(A) To reflect cash payment of $34.0 million for the acquistion of InConcert.
(B) To record the allocation of the purchase price of InConcert as described in
the overview.
(C) To record the write-up of InConcert operating leases to fair market value.
(D) To reflect anticipated acquisition related expenses of approximately $1.6
million.
(E) To eliminate InConcert's historical equity accounts and amount due to
parent.
(F) The in-process research and development charge related to the acquisition
has been reflected in the balance sheet as if the transaction occurred on
August 31, 1999 and has been excluded from the statements of operations.
(G) To record amortization of goodwill and acquired intangibles related to the
acquisition of InConcert as if the transaction occurred on December 1,
1997. Goodwill and acquired intangibles of approximately $30.6 million are
being amortized on a straight-line basis over five years.
(H) To record the impact on interest income (expense) as if the transaction and
related $35.6 million cash payments occurred on December 1, 1997.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of InConcert, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity (deficit) and cash flows present fairly, in
all material respects, the financial position of InConcert, Inc. at December
31, 1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States. 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 auditing standards generally accepted in the
United States, 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.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
December 10, 1999
F-30
<PAGE>
INCONCERT, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
September 30, -------------------------
1999 1998 1997
------------- ------------ -----------
<S> <C> <C> <C>
ASSETS (unaudited)
Current assets:
Accounts receivable, net of allow-
ances of $937,955, $12,418 and
$182,242, respectively............ $ 2,702,450 $ 2,678,409 $ 954,206
Related party accounts receivable.. 73,708 146,257 412,570
Prepaid expenses and other current
assets............................ 134,209 121,094 134,804
------------ ------------ -----------
Total current assets.............. 2,910,367 2,945,760 1,501,580
Property and equipment, net......... 456,354 573,272 568,918
------------ ------------ -----------
$ 3,366,721 $ 3,519,032 $ 2,070,498
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Accounts payable................... $ 308,381 $ 338,323 $ 136,542
Accrued liabilities................ 902,728 1,369,768 1,786,359
Deferred revenue................... 857,376 899,322 736,237
Due to parent...................... 6,036,962 7,542,201 3,339,415
------------ ------------ -----------
Total current liabilities......... 8,105,447 10,149,614 5,998,553
Long-term deferred revenue.......... 82,206 -- --
------------ ------------ -----------
Total liabilities................. 8,187,653 10,149,614 5,998,553
------------ ------------ -----------
Commitments (Note 6)
Stockholders' equity (deficit):
Convertible Preferred Stock,
24,000,000 shares authorized,
$0.001 par value:
Series A, 16,000,000 shares
designated, issued and outstanding
(liquidation preference of
$23,500,000)...................... 16,000 16,000 16,000
Series B, 2,273,362, 2,273,362 and
0 shares designated, issued and
outstanding (liquidation
preference of $3,339,000) at
September 30, 1999 and December
31, 1998 and 1997, respectively... 2,273 2,273 --
Series C, 5,940,578, 0 and 0 shares
designated, issued and outstanding
(liquidation preference of
$7,542,000) at September 30, 1999
and December 31, 1998 and 1997,
respectively...................... 5,941 -- --
Common Stock, par value $0.001;
30,000,000 shares authorized;
225,448, 176,778, and 5,999 shares
issued and 27,432, 17,169 and
1,000 outstanding at September 30,
1999 and December 31, 1998 and
1997, respectively................ 225 177 6
Treasury Stock, at cost; 198,016,
159,609 and 4,999 shares at
September 30, 1999, and December
31, 1998 and 1997, respectively... (75,576) (60,268) (600)
Additional paid-in capital......... 15,538,766 7,998,687 4,657,833
Accumulated other comprehensive
income............................ 11,000 49,000 18,982
Accumulated deficit................ (20,319,561) (14,636,451) (8,620,276)
------------ ------------ -----------
Total stockholders' equity
(deficit)........................ (4,820,932) (6,630,582) (3,928,055)
------------ ------------ -----------
$ 3,366,721 $ 3,519,032 $ 2,070,498
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
INCONCERT, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
------------------------ ------------------------
1999 1998 1998 1997
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
License revenue:
Non-related parties....... $ 3,948,157 $ 1,524,525 $ 4,827,175 $ 5,025,801
Related parties........... 669,203 732,548 1,047,654 729,210
----------- ----------- ----------- -----------
Total license revenue.... 4,617,360 2,257,073 5,874,829 5,755,011
----------- ----------- ----------- -----------
Maintenance and service
revenue:
Non-related parties....... 3,213,039 1,892,773 2,721,255 2,186,597
Related parties........... 40,367 115,964 152,449 89,416
----------- ----------- ----------- -----------
Total maintenance and
service revenue......... 3,253,406 2,008,737 2,873,704 2,276,013
----------- ----------- ----------- -----------
Total revenue............ 7,870,766 4,265,810 8,748,533 8,031,024
----------- ----------- ----------- -----------
Cost of revenue:
License................... 245,227 295,483 528,228 441,426
Maintenance and service... 2,303,452 1,192,025 1,772,539 1,896,301
----------- ----------- ----------- -----------
Total cost of revenue.... 2,548,679 1,487,508 2,300,767 2,337,727
----------- ----------- ----------- -----------
Gross profit............... 5,322,087 2,778,302 6,447,766 5,693,297
----------- ----------- ----------- -----------
Operating expenses:
Research and development.. 2,262,000 2,136,771 2,892,020 3,223,737
Sales and marketing....... 5,969,759 4,730,723 7,012,745 6,649,527
General and
administrative........... 2,773,165 2,037,133 2,555,404 4,440,309
----------- ----------- ----------- -----------
Total operating
expenses................ 11,004,924 8,904,627 12,460,169 14,313,573
----------- ----------- ----------- -----------
Loss from operations....... (5,682,837) (6,126,325) (6,012,403) (8,620,276)
Other income (expense)..... (273) 88 (3,772) --
----------- ----------- ----------- -----------
Net loss................... $(5,683,110) $(6,126,237) $(6,016,175) $(8,620,276)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
INCONCERT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Convertible Preferred Stock
----------------------------------------------------
Treasury
Series A Series B Series C Common Stock Stock Stock Additional
------------------ ---------------- ---------------- -------------- ---------------- Subscription Paid-in
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Receivable Capital
---------- ------- --------- ------ --------- ------ ------- ------ ------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
January 1,
1997............ 16,000,000 $16,000 -- $ -- -- $ -- 1,000 $ 1 -- $ -- $(4,673,788) $ 4,657,788
Translation
adjustment...... -- -- -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss............
Transfer of
assets from
parent.......... -- -- -- -- -- -- -- -- -- -- 4,673,788 --
Stock options
exercised, net
of shares
repurchased..... -- -- -- -- -- -- 4,999 5 4,999 (600) -- 45
---------- ------- --------- ------ --------- ------ ------- ---- ------- -------- ----------- -----------
Balance at
December 31,
1997............ 16,000,000 16,000 -- -- -- -- 5,999 6 4,999 (600) -- 4,657,833
---------- ------- --------- ------ --------- ------ ------- ---- ------- -------- ----------- -----------
Translation
adjustment...... -- -- -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss............
Issuance of
Series B
Preferred
Stock........... -- -- 2,273,362 2,273 -- -- -- -- -- -- -- 3,337,142
Stock options
exercised, net
of shares
repurchased..... -- -- -- -- -- -- 170,779 171 154,610 (59,668) -- 3,712
---------- ------- --------- ------ --------- ------ ------- ---- ------- -------- ----------- -----------
Balance at
December 31,
1998............ 16,000,000 16,000 2,273,362 2,273 -- -- 176,778 177 159,609 (60,268) -- 7,998,687
---------- ------- --------- ------ --------- ------ ------- ---- ------- -------- ----------- -----------
Translation
adjustment
(unaudited)..... -- -- -- -- -- -- -- -- -- -- -- --
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss
(unaudited).....
Issuance of
Series C
Preferred Stock
(unaudited)..... -- -- -- -- 5,940,578 5,941 -- -- -- -- -- 7,536,260
Stock options
exercised, net
of shares
repurchased
(unaudited)..... -- -- -- -- -- -- 48,710 48 38,407 (15,308) -- 3,819
---------- ------- --------- ------ --------- ------ ------- ---- ------- -------- ----------- -----------
Balance at
September 30,
1999
(unaudited)..... 16,000,000 $16,000 2,273,362 $2,273 5,940,578 $5,941 225,488 $225 198,016 $(75,576) $ -- $15,538,766
========== ======= ========= ====== ========= ====== ======= ==== ======= ======== =========== ===========
<CAPTION>
Other Accumu- Total
Comprehensive lated Stockholders'
income (Loss) Deficit Equity (Deficit)
------------- ------------- ----------------
<S> <C> <C> <C>
Balance as of
January 1,
1997............ $ -- $ -- $ 1
----------------
Translation
adjustment...... 18,982 -- 18,982
Net loss........ -- (8,620,276) (8,620,276)
----------------
Comprehensive
loss............ (8,601,294)
Transfer of
assets from
parent.......... -- -- 4,673,788
Stock options
exercised, net
of shares
repurchased..... -- -- (550)
------------- ------------- ----------------
Balance at
December 31,
1997............ 18,982 (8,620,276) (3,928,055)
------------- ------------- ----------------
Translation
adjustment...... 30,018 -- 30,018
Net loss........ -- (6,016,175) (6,016,175)
----------------
Comprehensive
loss............ (5,986,157)
Issuance of
Series B
Preferred
Stock........... -- -- 3,339,415
Stock options
exercised, net
of shares
repurchased..... -- -- (55,785)
------------- ------------- ----------------
Balance at
December 31,
1998............ 49,000 (14,636,451) (6,630,582)
------------- ------------- ----------------
Translation
adjustment
(unaudited)..... (38,000) -- (38,000)
Net loss
(unaudited)..... -- (5,683,110) (5,683,110)
----------------
Comprehensive
loss
(unaudited)..... (5,721,110)
Issuance of
Series C
Preferred Stock
(unaudited)..... -- -- 7,542,201
Stock options
exercised, net
of shares
repurchased
(unaudited)..... -- -- (11,441)
------------- ------------- ----------------
Balance at
September 30,
1999
(unaudited)..... $ 11,000 $(20,319,561) $(4,820,932)
============= ============= ================
</TABLE>
F-33
<PAGE>
INCONCERT, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------------ ------------------------
1999 1998 1998 1997
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................. $(5,683,110) $(6,126,237) $(6,016,175) $(8,620,276)
Adjustment to reconcile
net loss to net cash used
for operating activities:
Depreciation and
amortization............ 249,629 281,571 359,498 498,588
Provision for bad debt... (925,537) (169,824) (169,824) (182,242)
Changes in assets and
liabilities:
Accounts receivable..... 974,045 (814,004) (1,288,066) (1,184,534)
Prepaid expenses and
other assets........... (13,115) 126,289 13,710 (134,804)
Accounts payable........ (29,942) 230,367 201,781 136,542
Accrued liabilities..... (467,040) (668,005) (416,591) 1,786,359
Deferred revenue........ 40,260 816,246 163,085 736,237
----------- ----------- ----------- -----------
Net cash used for
operating activities.. (5,854,810) (6,323,597) (7,152,582) (6,964,130)
----------- ----------- ----------- -----------
Cash flows from investing
activities--
Purchases of property and
equipment................ (132,711) (249,890) (363,852) (1,067,506)
----------- ----------- ----------- -----------
Cash flows from financing
activities:
Borrowings from parent.... 6,036,962 6,524,746 7,542,201 3,339,416
Proceeds from issuance of
Preferred Stock.......... -- -- -- 4,673,788
Proceeds from issuance of
Common Stock............. 3,867 252 3,883 50
Repurchase of Common
Stock.................... (15,308) (220) (59,668) (600)
----------- ----------- ----------- -----------
Net cash provided by
financing activities.. 6,025,521 6,524,778 7,486,416 8,012,654
----------- ----------- ----------- -----------
Effect of exchange rate
changes on cash........... (38,000) 48,709 30,018 18,982
----------- ----------- ----------- -----------
Net change in cash and cash
equivalents............... -- -- -- --
Cash and cash equivalents
at beginning of period.... -- -- -- --
----------- ----------- ----------- -----------
Cash and cash equivalents
at end of period.......... $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
InConcert, Inc. (the "Company") is a provider of enterprise-class software
systems. The Company designs, develops, markets, and supports its product,
InConcert, an object oriented client/server application software product family
designed to solve process centric mission critical business problems for large
multinational organizations.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company was first established as a product line within Xerox
Corporation's Xsoft division in 1990. On July 1, 1996, the Company incorporated
under the laws of the State of Delaware as a wholly-owned subsidiary of Xerox.
See Note 4.
On September 30, 1999, the Company entered into an Asset Purchase Agreement
to sell substantially all of the net assets of the Company to TIBCO Software
Inc. for $34 million in cash. The Company expects to close the transaction
during the fourth quarter of fiscal 1999. The transaction will be accounted for
as a purchase acquisition; however, the financial statements presented in this
report do not reflect purchase accounting.
Unaudited Interim Results
The accompanying interim financial statements as of September 30, 1999, and
for the nine months ended September 30, 1999 and 1998, are unaudited. The
unaudited interim financial statements have been prepared on the same basis as
the annual financial statements and, in the opinion of management, reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position, results of operations and cash
flows as of September 30, 1999 and for the nine months ended September 30, 1999
and 1998. The financial information disclosed in these notes to financial
statements related to these periods are unaudited. The results for the nine
months ended September 30, 1999 are not necessarily indicative of the results
to be expected for the year ending December 31, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the report period. Actual
results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of accounts receivable. The Company's accounts
receivable is derived from revenue earned from customers located primarily in
the United States and Europe. The Company performs ongoing credit evaluations
of its customers' financial condition and generally requires no collateral from
its customers. The Company maintains an allowance for doubtful accounts
receivable based upon the
F-35
<PAGE>
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(Continued)
expected collectibility of accounts receivable. The following table summarized
revenue from customers in excess of 10% of the total revenue:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended Year Ended
-------------- December 31, December 31,
1999 1998 1998 1997
------ ------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
WorldCom................................ 18% N/A N/A 17%
Bell South.............................. 10% N/A 15% N/A
Toshiba................................. N/A N/A 12% N/A
</TABLE>
Capitalized Software Development Costs
Research and development costs for internally developed software products and
enhancements to existing software products are expensed when incurred until
technological feasibility is established. Thereafter, software costs are
capitalized until the product is available for general released to customer. To
date, the period between achieving technological feasibility and the general
availability of such software has been short, and software development costs
qualifying for capitalization have been insignificant. Accordingly, no costs
have been capitalized.
Property and Equipment
Property and equipment are stated at cost. Depreciation is generally computed
using the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Furniture and
fixtures..... 10-15 years
Equipment..... 3-5 years
Leasehold
improvements.. Shorter of the lease term or the estimated useful life
</TABLE>
Revenue Recognition
Software license revenue is recognized when all of the following criteria
have been met: there is an executed license agreement, software has been
shipped to the customer, no significant vendor obligations remain, the license
fee is fixed and payable within twelve months and collection is deemed
probable. Maintenance revenue is recognized ratably over the term of the
maintenance contract, typically twelve months. Service revenues, generally
training and consulting, are recognized as services are performed.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock issued to Employees," ("APB No. 25") and complies with
the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
Comprehensive Income
Effective December 31, 1997, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." 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. Foreign currency translation is
currently the only item in comprehensive income.
F-36
<PAGE>
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Recent Accounting Pronouncements
In June 1988, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000 and establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
The Company does not expect that the adoption of SFAS No. 133 will have a
material impact on its financial statements.
3. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------
1999 1998 1997
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Accounts receivable:
Accounts receivable.................. $ 1,471,705 $ 2,152,527 $ 832,679
Unbilled receivables................. 2,168,700 538,300 303,769
----------- ----------- -----------
3,640,405 2,690,827 1,136,448
Less: Allowance for doubtful accounts
and returns.......................... (937,955) (12,418) (182,242)
----------- ----------- -----------
$ 2,702,450 $ 2,678,409 $ 954,206
=========== =========== ===========
Property and equipment, net:
Equipment............................ $ 2,458,157 $ 2,325,988 $ 2,468,535
Furniture and fixtures............... 71,168 57,105 47,569
Leasehold improvements............... 48,046 48,046 29,739
Construction in progress............. 1,830 15,166 6,766
----------- ----------- -----------
2,579,201 2,446,305 2,552,609
Less: accumulated depreciation and
amortization......................... (2,122,847) (1,873,033) (1,983,691)
----------- ----------- -----------
$ 456,354 $ 573,272 $ 568,918
=========== =========== ===========
Accrued liabilities:
Compensation and employee related.... 308,743 677,213 943,206
Other operating expenses............. 593,985 692,555 843,153
----------- ----------- -----------
$ 902,728 $ 1,369,768 $ 1,786,359
=========== =========== ===========
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Company has significant transactions with Xerox Corporation, including
licensing arrangements, development contracts and shared functions and
services. Related party revenue is related to the Company licensing its
software product to Xerox Corporation for sub-licensing to Xerox's end-users.
The cost of revenue to related parties has not been separately stated because
it is impracticable to do so. The following is a summary of the transactions
for the periods indicated:
Service Agreement
The Company and Xerox Corporation had a service agreement under which Xerox
provided certain administrative services, human resource and employee benefits
administration, expenditure
F-37
<PAGE>
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. RELATED PARTY TRANSACTIONS--(Continued)
processing, and treasury functions. Xerox Corporation charged the Company for
these services on a basis that reflected the Company's share of such costs,
including a fixed fee that was negotiated annually. Management believed this
allocation method was reasonable based upon the Company's use of such services.
The service fee included in general and administrative expenses on the
Statement of Operations was $180,000, $117,000, $157,480 and $212,000 for the
nine months ended September 30, 1999 and 1998 and for the year ended December
31, 1998 and 1997, respectively.
Secured Lending Agreement
The Company and Xerox Corporation entered into a secured lending agreement
where Xerox Corporation extended short-term loans to the Company. This was
administered through maintaining a "sweep" bank account. Xerox Corporation
advanced money or deducted excess funds directly out of the Company's bank
account. In effect, the Company maintained a "zero balance" bank account. No
interest was charged or paid on the balance of the outstanding loans or net
credit. The parties could have agreed to convert all or part of the outstanding
loans to equity or another form of lending. Net amount loaned to the Company
for the nine months ended September 30, 1999 and the years ended December 31,
1998 and 1997 were $6,036,962, $7,542,201 and $3,339,415, respectively. During
the nine months ended September 30, 1999 and for the year ended December 31,
1998, the Company converted $7,542,201 and $3,339,415, respectively, into
Series B and C preferred stock.
5. INCOME TAXES
Xerox files a consolidated tax return which includes the results of the
Company. Under the terms of the Tax Sharing Agreement, the Company will pay to
Xerox amounts determined as if the Company paid taxes as a separate entity.
During 1999, 1998 and 1997, the Company incurred an operating loss for both
financial and tax reporting purposes. Under the Company's agreement with Xerox,
the Company would be reimbursed for its previous tax net operating losses
utilized by Xerox in its consolidated return, in future periods when the
Company generated taxable income. The Company has not generated taxable income
through the date of the acquisition, therefore no deferred tax asset has been
recorded. There are no other significant deferred tax assets or liabilities.
See Note 8.
6. COMMITMENTS
The Company leases office space under a non-cancelable operating lease with
an expiration date of June 2003. Rental expense was approximately $349,000,
$318,000, $435,000 and $344,000 for the nine months ended September 30, 1999
and 1998 and for the years ended December 31, 1998 and 1997, respectively.
Future minimum lease payments under the non-cancelable operating lease, as of
December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 465,140
2000.............................................................. 465,140
2001.............................................................. 465,140
2002.............................................................. 465,140
2003.............................................................. 116,285
----------
$1,976,845
==========
</TABLE>
F-38
<PAGE>
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. STOCKHOLDERS' EQUITY
As of November 27, 1996, the Company's Articles of Incorporation authorized
the Company to issue 24,000,000 shares of Preferred Stock at $0.001 par value
and 30,000,000 shares of Common Stock at $0.001 par value.
Preferred Stock
Effective as of January 1, 1997, the Company's initial capital structure was
established by issuing 16.0 million shares of Series A Convertible Preferred
Stock ("Series A") and 1,000 shares of Common Stock to Xerox.
In April 1998, the Company issued 2,273,362 shares of Series B Convertible
Preferred Stock ("Series B") at $1.46875 per share for net proceeds of
$3,339,000. In May 1999, the Company issued 5,940,578 share of Series C
Convertible Preferred Stock ("Series C") at $1.2696 per share for net proceeds
of $7,542,000.
The holders of the outstanding Preferred Stock have various rights and
preferences as follows:
Voting Rights. The holders of Series A, Series B and Series C have the right
to one vote for each share of Common Stock into which such shares of Preferred
Stock could be converted.
Dividend Rights. The holders of Series A, Series B and Series C are entitled
to receive noncumulative dividends at the per share annual rate of $0.1175
payable when and if declared by the board of directors. The holders of
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 held on an as-converted basis. No dividends on Preferred
Stock or Common Stock have been declared by the board from inception through
September 30, 1999.
Liquidation Preference. In the event of any liquidation, dissolution, or
winding-up of the Company, including a merger, acquisition or sale of assets
where the beneficial owners of the Company's Common Stock and Preferred Stock
own less than 50% of the resulting voting power of the surviving entity, the
holders of Series A, Series B and Series C are entitled to receive an amount of
$1.46875, $1.46875 and $1.2696 per share, respectively, plus any declared but
unpaid dividends prior to and in preference to any distribution to the holders
of Common Stock.
If the assets and funds distributed to the holders of Preferred Stock are
insufficient to permit the payment to the holders of the full preferential
amount mentioned above, then the entire assets of the Company legally available
for distribution shall be distributed ratably among the holders of Preferred
Stock.
Any assets remaining after the payment of all preferential amounts to the
holders of Preferred Stock, will be shared ratably by the holders of the
Preferred Stock and common stockholders.
Conversion. Each share of Preferred Stock is convertible, at the option of
the holder, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the applicable original issue price for such
series of Preferred Stock. The initial Conversion Price per share for shares of
Preferred Stock is the Original Issue Price. The Conversion Prices for the
Preferred Stock is subject to adjustment.
F-39
<PAGE>
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. STOCKHOLDERS' EQUITY--(Continued)
Each share of Preferred Stock will automatically be converted into shares of
Common Stock at the applicable Conversion Price at the time in effect for such
series of Preferred Stock immediately upon the earlier of the following two
events: (a) upon the consummation of the sale of the Company's Common Stock in
a bona fide, firm commitment underwriting pursuant to a registration statement
under the Securities Act of 1933, the public offering price of which is not
less than $5.00 per share with aggregate gross proceeds to the Corporation in
excess of $10.0 million, or (b) the date upon such conversion is approved by
holders of a majority of the shares of Preferred Stock.
Common Stock
Voting Rights. The holders of each shares of Common Stock has the right to
one vote, and is entitled to notice of any stockholders' meeting in accordance
with the Bylaws of the Company, and is entitled to vote upon such matters and
in such manner as may be provided by law.
Dividend Rights. Subject to the prior rights of holders of all classes of
stock at the time outstanding having prior rights as to dividends, the holders
of the Common Stock shall be entitled to receive, when and as declared by the
Board, out of any assets of the Company legally available therefore, such
dividends as may be declared from time to time by the Board.
Liquidation Rights. Upon liquidation, dissolution, or winding-up of the
Company, the assets of the Company are distributed as described above for
Preferred Stock liquidation rights.
Stock Option Plan
During 1996, the Company adopted the 1996 Stock Option Plan (the "Plan"). The
purpose of the Plan is to enable the Company to obtain and retain the services
of the types of employees, consultants, officers and directors who will
contribute to the Company's long range success and to provide incentives which
are linked directly to increases in share value which will inure to the benefit
of all shareholders of the Company. The total number of shares which may be
issued under the Plan is 4,568,340 shares. The Plan is administered by the
Board of Directors or the Committee. The administrator is responsible for
determining the term of each option, the option exercise price, the medium of
payment, the number of shares for which each option is granted and the vesting
rate at which each option is exercisable. To date, options awarded generally
vest ratably over five years and expire upon the earlier of ten years from the
date of grant or 90 days from employee termination.
F-40
<PAGE>
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. STOCKHOLDERS' EQUITY--(Continued)
The activity under the 1996 Plan, is summarized as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year...... 2,125,306 $0.04 274,700 $0.01
Granted............................... 682,500 0.26 2,036,505 0.04
Exercised............................. (170,779) 0.02 (4,999) 0.01
Canceled.............................. (438,859) 0.04 (180,900) 0.08
--------- ---------
Outstanding at end of year............ 2,198,168 0.11 2,125,306 0.04
========= =========
Options vested at end of year......... 1,170,946 669,302
========= =========
Weighted average fair value of options
granted during the year.............. $ 0.17 $ 0.03
========= =========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
--------------------------------------------
Weighted
Average Weighted
Number of Remaining Average
Options Contractual Exercise Options
Range of exercise prices Outstanding Life Price Exercisable
------------------------ ----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
$0.01......................... 1,136,169 8.3 years $0.01 757,446
0.12......................... 709,499 8.6 years 0.12 354,750
0.39......................... 352,500 9.5 years 0.39 58,750
--------- --------- ----- ---------
$0.01-$0.39................... 2,198,168 8.8 years $0.11 1,170,946
========= ========= ===== =========
</TABLE>
F-41
<PAGE>
INCONCERT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. STOCKHOLDERS' EQUITY--(Continued)
Pro Forma Information
This information is required to illustrate the financial results of
operations as if the Company accounted for its grants to employee stock options
under the fair value method of SFAS No. 123. The fair value of the Company's
options granted was estimated at the date of grant using a Black-Scholes option
pricing model. The Company calculated the value of each option grant on the
date of grant with the following assumptions:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended Year Ended
-------------- December 31, December 31,
1999 1998 1998 1997
------ ------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Risk free interest rates........... 5.4% 5.5% 5.5% 6.3%
Expected lives (in years).......... 6.0 6.0 6.0 6.0
Dividend yield..................... 0.0% 0.0% 0.0% 0.0%
Expected volatility................ 70.0% 70.0% 70.0% 70.0%
</TABLE>
For purposes of pro forma disclosures, the estimated value of the option is
amortized over the options' vesting period. The compensation cost associated
with the Company's stock-based compensation plans, as if the fair value based
method described in SFAS No. 123 had been adopted, would have resulted in a pro
forma loss of $5,789,049, $6,149,930, $6,047,766 and $8,627,173 for the nine
months ended September 30, 1999 and 1998 and for the years ended December 31,
1998 and 1997, respectively.
F-42
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<CAPTION>
Amount To
Be Paid
---------
<S> <C>
SEC registration fee............................................... $62,511
Legal fees and expenses............................................ 25,000
Accounting fees and expenses....................................... 5,000
-------
Total............................................................ $92,511
=======
</TABLE>
Item 14. Indemnification of Directors and Officers
Article Nine of the registrant's Certificate of Incorporation (Exhibit 3.1
hereto) and Article VI of the Registrant's Bylaws (Exhibit 3.2 hereto) provide
for mandatory indemnification of its directors and officers, and permissible
indemnification of employees and other agents, to the maximum extent permitted
by the Delaware General Corporation Law. In addition, the registrant has
entered into Indemnification Agreements (Exhibit 10.1 hereto) with its
officers and directors.
Item 15. Recent Sales of Unregistered Securities
From the registrant's inception through July 1, 1999, the registrant has had
issued and sold the following securities:
(a) On December 31, 1996, we issued and sold 19,000,000 shares of our
common stock and 20,000,000 shares of our Series A preferred stock to
Reuters Nederland B.V. in connection with the establishment by Reuters
of TIBCO Software Inc. as a separate entity from TIBCO Inc. The
consideration for the issuance of the shares consisted of $10,000,000
plus the book value of the assets transferred to us less the book value
of the assumed liabilities.
(b) On May 9, 1997, we issued and sold 4,365,000 shares of our Series B
preferred stock to Cisco Systems, Inc. for a purchase price of
approximately $15,714,000.
(c) On December 31, 1997, we issued and sold 2,861,316 shares of Series C
preferred stock to entities affiliated with Mayfield Fund LLP for a
purchase price of approximately $11,045,000.
(d) As of March 31, 1999, an aggregate of 4,016,191 shares of common stock
had been issued upon exercise of options under our Stock Option Plan.
(e) On June 1, 1999, we granted to Reuters an option purchase 150,000
shares of our common stock under our Director Stock Option Plan. This
option vested immediately upon grant, has an exercise price of $6.00
per share and may be transferred by Reuters to the Reuters-nominated
directors.
II-1
<PAGE>
The issuances of the securities described in (a), (b) and (c) above were
deemed to be exempt from registration under the Securities Act of 1933, as
amended, in reliance on Section 4(2) of the Securities Act as transactions by
an issuer not involving any public offering. The issuances of the securities
described in (d) and (e) above were deemed to be exempt from registration
under the Securities Act in reliance on Rule 701 under the Securities Act as
transactions by an issuer in compensatory circumstances. All of the securities
were acquired by the recipients for investment and with no view toward the
resale or distribution thereof. In each instance, the recipients were
sophisticated investors or employees of ours, the offer and sales were made
without any public solicitation and the stock certificates bear restrictive
legends. No underwriter was involved in the transactions and no commissions
were paid. All recipients had adequate access, through their relationships
with the registrant, to information about the registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1(a)* Certificate of Incorporation of Registrant.
3.1(b)* Form of Certificate of Incorporation of Registrant filed with the
Secretary of State of Delaware on July 13, 1999.
3.1(c)* Form of Certificate of Incorporation of Registrant to be effective
after the offering.
3.2(a)* Bylaws of Registrant.
3.2(b)* Form of Bylaws of Registrant to be effective after the offering.
4.1* Form of Registrant's Common Stock certificate.
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding legality of the securities being issued.
10.1* Form of Indemnification Agreement.
10.2* First Amended and Restated License, Maintenance and Distribution
Agreement dated May 28, 1999, among Reuters Limited, TIBCO Finance
Technology, Inc. and Registrant.
10.3* Draft Form of Third Amended and Restated Stockholders Agreement,
among Reuters Nederland B.V., Reuters Limited, Cisco Systems, Inc.,
Mayfield IX, Mayfield Associates Fund III, Vivek Ranadive and
Registrant.
10.4* 1996 Stock Option Plan.
10.5* 1998 Director Option Plan.
10.6* Form of Assignment and Assumption of Lease Agreement, between TIBCO
Finance Technology, Inc. and Registrant.
10.7* Form of Employment Agreement between Registrant and Vivek Y.
Ranadive.
10.8* Form of Employment Agreement between Registrant and Robert P.
Stefanski.
10.9* Form of Employment Agreement between Registrant and Paul G. Hansen.
10.10* Form of Employment Agreement between Registrant and Richard M. Tavan.
10.11* Form of Master Services Agreement among Registrant, TIBCO Finance
Technology, Inc. and Reuters.
10.12* Software License and Development Agreement dated May 11, 1999 between
Cedel Global Services, societe anonyme and Registrant.
10.13* Industrial Lease Agreement dated December 14, 1995 between Porter
Drive Associates LLC and TIBCO Finance Technology, Inc. (formerly
known as Teknekron Software Systems (Delaware), Inc.)
21.1* List of subsidiaries.
23.1** Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1** Power of Attorney.
27.1 Financial Data Schedule
</TABLE>
- --------
* These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Registration Statement File No. 333-78195.
** Previously filed.
II-2
<PAGE>
(b) Financial Statement Schedules
Included in Notes to Financial Statements.
Item 17. Undertakings
The undersigned registrant hereby undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering price
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration be means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant, the registrant has had been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered hereunder, the registrant will, unless in the opinion of its
counsel the matter has had 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has had duly caused this Amended Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in Palo
Alto, California on this 29th day of December, 1999.
TIBCO SOFTWARE INC.
/s/ Paul G. Hansen
By: ___________________________________
Paul G. Hansen
Executive Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive December 29, 1999
_________________________________ Officer and Chairman of the
Vivek Y. Ranadive Board (Principal Executive
Officer)
/s/ Paul G. Hansen Executive Vice President, December 29, 1999
____________________________________ Finance and Chief Financial
Paul G. Hansen Officer (Principal
Financial Officer)
* Corporate Controller and December 29, 1999
____________________________________ Chief Accounting Officer
Ginger M. Kelly (Principal Accounting
Officer)
* Director December 29, 1999
____________________________________
Douglas M. Atkin
* Director December 29, 1999
____________________________________
Yogen K. Dalal
* Director December 29, 1999
____________________________________
Edward R. Kozel
* Director December 29, 1999
____________________________________
Donald J. Listwin
* Director December 29, 1999
____________________________________
Larry W. Sonsini
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director December 29, 1999
____________________________________
John G. Taysom
* Director December 29, 1999
____________________________________
Phillip E. White
* Director December 29, 1999
____________________________________
Philip K. Wood
</TABLE>
*By: /s/ Paul G. Hansen
___________________________
Attorney-in-fact
II-5
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1(a)* Certificate of Incorporation of Registrant.
3.1(b)* Form of Certificate of Incorporation of Registrant filed with the
Secretary of State of Delaware on July 13, 1999.
3.1(c)* Form of Certificate of Incorporation of Registrant to be effective
after the offering.
3.2(a)* Bylaws of Registrant.
3.2(b)* Form of Bylaws of Registrant to be effective after the offering.
4.1* Form of Registrant's Common Stock certificate.
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding legality of the securities being issued.
10.1* Form of Indemnification Agreement.
10.2* First Amended and Restated License, Maintenance and Distribution
Agreement dated May 28, 1999, among Reuters Limited, TIBCO Finance
Technology, Inc. and Registrant.
10.3* Draft Form of Third Amended and Restated Stockholders Agreement,
among Reuters Nederland B.V., Reuters Limited, Cisco Systems, Inc.,
Mayfield IX, Mayfield Associates Fund III, Vivek Ranadive and
Registrant.
10.4* 1996 Stock Option Plan.
10.5* 1998 Director Option Plan.
10.6* Form of Assignment and Assumption of Lease Agreement, between TIBCO
Finance Technology, Inc. and Registrant.
10.7* Form of Employment Agreement between Registrant and Vivek Y.
Ranadive.
10.8* Form of Employment Agreement between Registrant and Robert P.
Stefanski.
10.9* Form of Employment Agreement between Registrant and Paul G. Hansen.
10.10* Form of Employment Agreement between Registrant and Richard M. Tavan.
10.11* Form of Master Services Agreement among Registrant, TIBCO Finance
Technology, Inc. and Reuters.
10.12* Software License and Development Agreement dated May 11, 1999 between
Cedel Global Services, societe anonyme and Registrant.
10.13* Industrial Lease Agreement dated December 14, 1995 between Porter
Drive Associates LLC and TIBCO Finance Technology, Inc. (formerly
known as Teknekron Software Systems (Delaware), Inc.)
21.1* List of subsidiaries.
23.1** Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1** Power of Attorney.
27.1 Financial Data Schedule
</TABLE>
- --------
* These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Registration Statement File No. 333-78195.
** Previously filed.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1(No.
333-83491) of our reports dated April 23, 1999 (except for Note 10, which is
as of November 4, 1999), relating to the financial statements of TIBCO
Software Inc. and December 10, 1999, relating to the financial statements of
InConcert, Inc., which appear in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
December 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 16,344
<SECURITIES> 110,326
<RECEIVABLES> 23,426
<ALLOWANCES> 1,858
<INVENTORY> 0
<CURRENT-ASSETS> 2,743
<PP&E> 9,893
<DEPRECIATION> 0
<TOTAL-ASSETS> 166,328
<CURRENT-LIABILITIES> 25,664
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 181,053
<TOTAL-LIABILITY-AND-EQUITY> 166,328
<SALES> 63,107
<TOTAL-REVENUES> 63,107
<CGS> 25,978
<TOTAL-COSTS> 25,978
<OTHER-EXPENSES> 50,685
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,888)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,888)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,888)
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.49
</TABLE>
