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Pursuant to Rule 424(b)(3)
PROSPECTUS Registration No. 333-81387
3,000,000 Shares
[LOGO OF AGILE SOFTWARE APPEARS HERE]
COMMON STOCK
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Agile Software Corporation is offering 3,000,000 shares of its common stock.
This is our initial public offering and no public market currently exists for
our shares.
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Our common stock has been approved for quotation on the Nasdaq National Market
under the symbol "AGIL."
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Investing in the common stock involves risks. See "Risk Factors" beginning on
page 6.
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PRICE $21 A SHARE
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<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Agile
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.......................... $21.00 $1.47 $19.53
Total.............................. $63,000,000 $4,410,000 $58,590,000
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Agile has granted the underwriters the right to purchase up to an additional
450,000 shares to cover over-allotments. Morgan Stanley & Co. Incorporated
expects to deliver the shares to purchasers on August 25, 1999.
----------------
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANC ALEX. BROWN
HAMBRECHT & QUIST
August 19, 1999
<PAGE>
TABLE OF CONTENTS
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Page
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Prospectus Summary.................. 3
Risk Factors........................ 6
Use of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Selected Consolidated Financial
Data............................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................ 33
</TABLE>
<TABLE>
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Page
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Management....................... 44
Certain Transactions............. 51
Principal Stockholders........... 53
Description of Capital Stock..... 56
Shares Eligible for Future Sale.. 59
Underwriters..................... 61
Legal Matters.................... 63
Experts.......................... 63
Where to Find Additional
Information About Agile......... 63
Index to Consolidated Financial
Statements...................... F-1
</TABLE>
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in those jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of our common stock.
Until September 14, 1999, 25 days after commencement of this offering, all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This delivery
requirement is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
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PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
regarding our company and the common stock being sold in this offering and our
consolidated financial statements and notes to the consolidated financial
statements appearing elsewhere in this prospectus.
AGILE SOFTWARE CORPORATION
We develop and market product content management software, which is software
that enables companies to collaborate over the Internet by interactively
exchanging information about the manufacture and supply of products and
components. Our suite of software products is designed to improve the ability
of all members of the manufacturing supply chain to communicate and collaborate
with one another about new or changing information concerning the manufacture,
source or supply of products or components. We believe that our products are
well-suited for participants in outsourced supply chains, as well as companies
managing multi-site engineering, manufacturing, sales and distribution
operations, connected via the Internet. Since June 1996, when we shipped our
first product, we have licensed our products to approximately 300 customers in
the computers and peripherals, components, consumer electronics, data
networking and telecommunications equipment, electronics manufacturing, medical
equipment and semiconductor equipment markets.
The competitive environment for manufacturing and supply companies has
intensified dramatically and expanded globally in recent years. Many of these
companies are shifting their organizations from traditional manufacturing
approaches, where a manufacturer controls most phases of the manufacturing
process of its products from raw materials to finished goods, to a
manufacturing process where much or all of the manufacturing process is
outsourced to multiple companies as part of a supply chain. Outsourcing
production is geared toward creating supply chains that are more efficient,
dynamic and flexible than manufacturing operations that are controlled by
manufacturers. A critical aspect of managing the outsourced supply chain across
multiple suppliers is finding effective ways to store, access and share
information within the manufacturer, as well as with all participants in the
supply chain during each stage of the production process.
The Internet has created new and evolving ways for conducting commerce.
Companies that have successfully implemented strategies to communicate with
their customers over the Internet now face the challenge of utilizing the
Internet and intranets to gain the same level of increased efficiencies in
their supply chain.
The Agile solution is designed to facilitate communication and collaboration
within and among supply chain members without requiring substantial investments
in additional technology infrastructure. We believe that our solution enables
companies and their supply chain partners to increase revenue by accelerating
time-to-market, facilitate cost-effective production by increasing output,
reducing inventory and shortening the production process, and enhance return on
investment by facilitating rapid implementation.
Our growth strategy is to be the leading provider of business-to-business
collaborative supply chain applications to global organizations. We will focus
on providing superior customer satisfaction to continue to build a highly
referenceable customer base of market leaders in targeted manufacturing
industry vertical markets. We seek to capitalize on network effects that can be
created when our software is deployed across the supply chains of our
customers, enabling even non-customer participants in the supply chain to
experience first-hand some of the benefits from our solutions. We will also
seek to continue the development of our technology to extend the features and
functionality of our product content management software.
We incurred net losses of approximately $11.4 million for fiscal 1999 and as
of April 30, 1999 we had an accumulated deficit of approximately $26.5 million.
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THE OFFERING
<TABLE>
<C> <S>
Common stock offered................................ 3,000,000 shares
Common stock to be outstanding after this offering.. 19,798,939 shares
Over-allotment option............................... 450,000 shares
Use of proceeds..................................... For general corporate
purposes, including
working capital, capital
expenditures and
repayment of debt. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.............. AGIL
</TABLE>
The above information is based on 16,798,939 shares outstanding as of April
30, 1999. This information does not include 1,159,725 shares of common stock
subject to outstanding options under our 1995 Stock Option Plan as of April 30,
1999 and 98,301 shares of common stock issuable upon exercise of outstanding
warrants. Subsequent to year end through August 4, 1999, we granted options to
purchase an additional 1,125,700 shares of common stock. See "Capitalization"
on page 19 and "Management--Stock Plans" on page 48 for additional information
concerning the terms, conditions and number of outstanding shares of our
capital stock and stock options.
Unless otherwise specifically stated, the information in this prospectus:
. gives effect to the conversion of each outstanding share of preferred
stock into one share of common stock effective upon the closing of
the offering;
. assumes no exercise of the underwriters' over-allotment option;
. assumes the exercise of a warrant to purchase 60,000 shares of our
common stock which was outstanding on April 30, 1999; and
. gives effect to the sale of 665,641 shares of common stock to three
corporate investors at a price of $19.53 per share contemporaneously
with this offering.
We originally incorporated in California on March 13, 1995 and
reincorporated in Delaware on August 17, 1999. Our principal executive offices
are located at One Almaden Boulevard, San Jose, California 95113, and our
telephone number is (408) 975-3900. Our principal web site is located at
www.agilesoft.com. Information contained on our web site does not constitute a
part of this prospectus. In this prospectus, "Agile," "we," "us" and "our"
refer to Agile Software Corporation and not to the underwriters.
Agile(TM), Agile Workplace(TM), Agile Anywhere(TM), Agile eHub(TM), Agile
iCM(TM), My Agile(TM), Agile eXpress Viewer(TM), Agile ChangeCAST(TM), Agile
Product Definition Server(TM), Agile Product Change Server(TM), Agile AML
Server(TM), Agile Administrator(TM), Agile Scan(TM), Agile Import(TM), Agile
Export(TM) and the Agile logo are trademarks of Agile Software Corporation. All
other trademarks or tradenames referred to in this prospectus are the property
of their respective owners.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 13,
1995 Fiscal Year Ended April
(Inception) to 30,
April 30, --------------------------
1996 1997 1998 1999
-------------- ------- ------- --------
<S> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Total revenues..................... $ 38 $ 1,352 $ 8,003 $ 16,807
Gross profit....................... 32 1,086 5,835 10,822
Loss from operations............... (1,399) (4,906) (8,874) (11,606)
Net loss........................... (1,327) (4,836) (8,942) (11,428)
Net loss per share:
Basic and diluted................ $ (1.94) $ (3.72) $ (4.20) $ (3.87)
Weighted average shares.......... 684 1,300 2,129 2,952
Unaudited pro forma net loss per
share:
Basic and diluted................ $ (.78)
Weighted average shares.......... 14,668
</TABLE>
<TABLE>
<CAPTION>
As of April 30,
1999
-------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................... $10,003 $77,517
Working capital............................................. 4,174 72,374
Total assets................................................ 17,948 85,462
Long-term obligations, noncurrent........................... 3,224 910
Stockholders' equity........................................ 3,291 73,805
</TABLE>
Shares used in computing unaudited pro forma basic and diluted net loss per
share include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of preferred stock to common stock, as if the
conversion occurred at the date of original issuance. The as adjusted
information above reflects the application of the net proceeds from the sale of
the 3,000,000 shares of common stock that we are offering, after deducting
underwriting discounts and commissions and our estimated offering expenses. It
also gives effect to the exercise of a warrant to purchase 60,000 shares of our
common stock and the contemporaneous private placement to three corporate
investors of an aggregate of $13.0 million or 665,641 shares of common stock,
at a purchase price of $19.53 per share.
RECENT DEVELOPMENTS
We are in the process of preparing our unaudited consolidated financial
statements for the three months ended July 31, 1999. We expect to report total
revenues of approximately $5.9 million, and a net loss of approximately $4.1
million.
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RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before you decide to buy
our common stock. If any of the following risks actually occur, our business
could be harmed. If our business is harmed, the trading price of our common
stock could decline, and you could lose all or part of your investment.
Risks Related to Our Operations
Because We Have a Limited Operating History, It Is Difficult to Evaluate
Our Business and Prospects
We are still in the early stages of our development, so evaluating our
business operations and our prospects is difficult. We incorporated in 1995
and began shipping our first product in June 1996. The revenues and income
potential of our business and market are unproven. We will encounter risks and
difficulties frequently encountered by early-stage companies in new and
rapidly evolving markets. These risks include the following:
. we have only one product suite, and will need to successfully introduce
new products and enhance existing products to this suite, including Agile
Anywhere, a new version which has been available only since July 1999;
. we need to increase sales to achieve profitability, requiring us to sell
additional licenses and software products to our existing customers and
expand our customer base outside of the electronics and medical device
industries;
. we need to expand our sales and marketing, customer support and
professional services organizations, build strategic relationships and
expand our international operations in order to increase sales; and
. we need to effectively manage our anticipated growth which could lead to
management distractions and increased operating expenses, and will
require us to attract and retain key personnel.
Our business strategy may not be successful and we may not be able to
successfully address these risks. In addition, because of our limited
operating history, we have limited insight into trends that may emerge and
affect our business.
We Have a History of Losses, We Expect to Incur Losses in the Future and We
May Not Achieve or Maintain Profitability
We incurred net losses of approximately $4.8 million for fiscal 1997, $8.9
million for fiscal 1998, and $11.4 million for fiscal 1999. As of April 30,
1999, we had an accumulated deficit of approximately $26.5 million. Moreover,
we expect to continue to incur significant sales and marketing, research and
development and general and administrative expenses. We have incurred and
expect to continue to incur substantial non-cash costs relating to the
amortization of deferred compensation which will contribute to our net losses.
We expect to incur losses for the foreseeable future. We will need to generate
significant increases in revenues to achieve and maintain profitability, and
we may not be able to do so. Even if we do achieve profitability, we may not
be able to sustain or increase profitability on a quarterly or annual basis in
the future. See "Selected Consolidated Financial Data" on page 21 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 22 for more detailed information about our operating
results.
Our Quarterly Operating Results Fluctuate and Are Difficult to Predict and,
if Our Future Results Are Below the Expectations of Public Market Analysts
or Investors, the Price of Our Common Stock May Decline
Our quarterly operating results have varied significantly in the past and
are likely to vary significantly in the future, which makes it difficult for
us to predict our future operating results. This quarter-to-quarter
fluctuation is due to a number of factors, including the following:
. fluctuations in demand for Internet product content management software;
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. size and timing of sales and installations of our products;
. entry of new competitors into our market, or the announcement of new
products or product enhancements by competitors;
. our ability to successfully expand our direct sales force and our
international sales organization;
. changes in our sales force incentives;
. unexpected delays in developing or introducing new and enhanced products;
. unexpected decline in purchases by our existing customers, including
purchases of additional licenses and maintenance contracts;
. delays in our customers' orders due to their year 2000 priorities;
. variability in the mix of our license and professional service revenues;
. our ability to accurately price fixed-priced professional services
projects;
. variability in the mix of professional services that we perform versus
those performed for our customers by others; and
. our ability to establish and maintain relationships with our third-party
implementation partners.
License revenues in any quarter can be difficult to forecast because they
depend on orders shipped or installed in that quarter. Moreover, we typically
recognize a substantial percentage of revenues in the last month of each
quarter; for example, in fiscal 1999, revenues generated each quarter that was
recognized in the last month of the quarter ranged from 35% to 51%. This
increase in revenues earned in the last month of each quarter is driven
primarily by quarter-end commissions payable and the time required to
implement software installations. A high percentage of our operating expenses
are essentially fixed in the short term and we may be unable to adjust
spending to compensate for an unexpected shortfall in our revenues. In
addition, we expect our operating expenses to increase as we expand our
engineering and sales and marketing operations, broaden our customer support
capabilities, develop new distribution channels and strategic alliances, fund
increased levels of research and development and build our operational
infrastructure. As a result, if we experience delays in recognizing revenue,
or if our revenues do not grow faster than the increase in these expenses, we
could experience significant variations in operating results from quarter to
quarter.
If, in response to market pressures or other demands, we introduce new
pricing structures for our existing products, we could experience customer
dissatisfaction and loss of sales. In addition, if we introduce products that
are sold in a manner different from how we currently market our products, or
we could recognize revenue differently than under our current accounting
policies. Depending on the manner in which we sell existing or future
products, this could have the effect of extending the length of time over
which we recognize revenues. Furthermore, our quarterly revenues could be
significantly affected based on how applicable accounting standards are
amended or interpreted over time.
In addition, we have accounted for options to purchase 65,000 shares of
common stock granted to consultants subsequent to year end under variable plan
accounting, and will record an expense each quarter over the vesting period of
the options. This expense associated with these options may fluctuate
significantly from quarter to quarter through fiscal 2005 if the price of our
stock fluctuates and could cause our operating results to vary significantly
from quarter to quarter.
Due to these and other factors, we believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of our future performance. It is possible that in
some future periods our results of operations may be below the expectations of
public market analysts and investors. If this occurs, the price of our common
stock may decline.
We May Not Achieve Anticipated Revenues if the Introduction and Customer
Acceptance of Our New Release, Agile Anywhere, or Any Upgrades or
Enhancements to Our Products, Is Unsuccessful
Our future financial performance will depend on the successful introduction
and customer acceptance of Agile Anywhere and any upgrades or enhancements
that we may make to our products in the future. We have
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generated substantially all of our revenues from licenses and services related
to current and prior versions of our product suite. Agile Anywhere, the latest
version of our product suite, has only been available since July 1999. We
believe that revenues from Agile Anywhere, together with revenues from
maintenance and support contracts from Agile Anywhere and prior versions of
our suite, will account for a substantial portion of our revenues for the
foreseeable future. If we are unable to ship or implement any upgrades or
enhancements when planned, or if the introduction of upgrades or enhancements
causes customers to defer orders for our existing products, we may not achieve
anticipated revenues.
Year 2000 Considerations Among Our Customers and Potential Customers May
Reduce Our Sales
We may experience reduced sales of products as customers and potential
customers put a priority on correcting year 2000 problems and therefore defer
purchase decisions for software products until later in 2000. Accordingly,
demand for our products may be particularly volatile and unpredictable for the
remainder of 1999 and early 2000.
Implementation of Our Products By Large Customers May Be Complex and
Customers Could Become Dissatisfied if Implementation of Our Products
Proves Difficult, Costly or Time-Consuming
Our products must integrate with many existing computer systems and
software programs used by our customers. Integrating with many other computer
systems and software programs can be complex, time consuming and expensive and
cause delays in the deployment of our products. Because we are one of the
first companies to offer products designed for product content management,
many customers will be facing these integration issues for the first time in
the context of collaborating with supply chain partners. Customers could
become dissatisfied with our products if implementations prove to be
difficult, costly or time-consuming.
We Currently Perform Most of Our Implementations on a Fixed-Price Basis,
Which Could Cause Us to Incur More Costs Than We Expect
When we install our products or when we have a third party install them, we
typically charge customers a fixed fee for these services. At the time of a
product sale and prior to agreeing to an installation price, we estimate the
amount of work involved for a particular installation project. We have at
times in the past underestimated and may in the future underestimate the
amount of time or resources required to install our products. If we do not
correctly estimate the amount of time or resources required for a large number
of installations, our gross margins could decline.
If We Do Not Sell Additional Licenses or Enhanced Versions or Upgrades of
Our Products to Existing Customers, We May Not Achieve Revenue Growth
The size of a new customer's initial order is relatively small and may
include a limited number of user licenses. In later orders, customers often
add user licenses or additional products designed for specific functions, such
as the AML Server targeted at manufacturers. In order to grow revenues, we
depend on sales of additional user licenses to our existing customers as well
as sales of new licenses to new customers. Therefore, it is important that our
customers are satisfied with their initial product implementations and that
they believe that expanded use of the product they purchased will provide them
with additional benefits. Customers could choose not to purchase any new
products or expand the use of our products. If we do not increase sales to
existing customers, we may not be able to achieve revenue growth.
If We Do Not Establish and Maintain Relationships With Key Partners, We May
Encounter Difficulty in Providing Implementation and Customer Support of
Our Products
We rely heavily on our relationships with consulting and integration
partners to implement our software, provide customer support services and
endorse our products during the evaluation stage of the sales cycle.
Currently, only three companies provide implementation services for our
products in North America. We expect to increasingly rely on these types of
partners in the future. These companies are not contractually obligated to
continue to provide implementation services for us or to otherwise promote our
products. Although we seek to develop and maintain relationships with these
types of service providers, they may have similar or more
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established relationships with our competitors. If these service providers do
not increase this segment of their business, or reduce or discontinue their
relationships with us or their support of our products, our business could be
harmed. We will need to develop new third party relationships if sales of our
products increase and our current partners cannot fulfill the need for
implementation and customer support services. Without these third parties we
would have to expand our services organization to increase the consulting and
professional services that we provide to our customers and divert resources
from other areas of our business. If we are required to expand our
professional services capabilities, we may not be able to do so on a timely
basis.
To meet customer demand, we might have to outsource services to more costly
independent contractors and other third parties. In addition, if our
implementation partners do not adequately perform implementation services, our
customers could become dissatisfied with our products. In order to avoid
dissatisfaction, we may need to provide supplemental implementation services
at no additional cost to the customer. Although we could experience an
increase in services revenues if our service partners are not successful,
services revenues have lower gross margins than license revenues. We could
also experience delays in revenue recognition if customer implementation
projects fall behind schedule.
We May Experience Customer Dissatisfaction and Lost Sales if Our Products
Do Not Scale to Accommodate Substantial Increases in the Number of
Concurrent Users
Our strategy requires that our software be highly scalable, or able to
accommodate substantial increases in the number of users concurrently using
the product. To date, however, only a limited number of our customers have
deployed our software to manage the manufacturing process across their entire
organization. While we have performed product testing on the scalability of
our products, these products have not been tested in the context of a customer
implementation. If our customers cannot successfully implement large-scale
deployments, or if they determine that our products cannot accommodate large-
scale deployments, we could experience customer dissatisfaction and find it
more difficult to obtain new customers or to sell additional products to our
existing customers.
We May Not Be Able to Increase Sales of Our Products if We Do Not Expand
Our Direct Sales Organization
We sell our products primarily through our direct sales force. Our ability
to increase our sales will depend on our ability to recruit, train and retain
top quality sales people with the advanced sales skills and technical
knowledge we need. There is a shortage of the sales personnel we need, and
competition for qualified personnel is intense in our industry. In addition,
it takes time for our new sales personnel to become productive, particularly
our senior sales and services personnel, who could take up to nine months to
become fully productive. If we are unable to hire or retain qualified sales
personnel, or if newly hired personnel fail to develop the necessary skills or
reach productivity more slowly than anticipated, it would be more difficult
for us to sell our products, and we may experience a shortfall in revenues.
Our Lengthy and Variable Sales Cycle Makes it Difficult For Us to Predict
When or if Sales Will Be Made
Our products have an unpredictable sales cycle that contributes to the
uncertainty of our future operating results. Our product content management
software is a new category of products, and customers often view the purchase
of our products as a significant and strategic decision. As a result,
customers may take time to evaluate our products, resulting in a sales cycle
that has historically ranged from approximately four to seven months. The sale
of our products may be subject to delays due to the lengthy internal
budgeting, approval and evaluation processes of our customers. We may expend
significant sales and marketing expenses during this evaluation period before
the customer places an order with us. Customers may initially purchase a
smaller number of user licenses before expanding the order to allow a greater
number of users to benefit from the application. Larger customers may purchase
our products as part of multiple simultaneous purchasing decisions, which may
result in additional unplanned administrative processing and other delays in
our product sales. If sales forecasted from a specific customer for a
particular quarter are not realized, we may experience an unplanned shortfall
in revenues. As a result, we have only a limited ability to forecast the
timing and size of sales of our products.
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The Success of Our Business Depends on Our Key Personnel, Whose Knowledge
of Our Business and Technical Expertise Would Be Difficult to Replace
Our success depends largely on the continued contributions of our key
senior management, particularly Bryan D. Stolle, our Chief Executive Officer,
who is not bound by an employment agreement, as well as of our key engineering
and sales and marketing personnel. We do not have key-man life insurance on
Mr. Stolle. If one or more members of our senior management or any of our key
employees were to resign, the loss of personnel could result in delays to
product development, loss of sales, and diversion of management resources. See
"Management" for additional information on our key personnel.
Because of Competition for Additional Qualified Personnel, We May Not Be
Able to Recruit or Retain Necessary Personnel, Which Could Impact
Development or Sales of Our Products
Our success depends on our ability to attract and retain qualified,
experienced employees. There is substantial competition for experienced
engineering, sales and marketing personnel in our industry. If we are unable
to retain our existing key personnel, or attract and retain additional
qualified personnel, we may from time to time experience inadequate levels of
staffing to perform services for our customers. As a result, our growth could
be limited due to our lack of capacity to develop and market our products to
our customers, or we could experience deterioration in service levels or
decreased customer satisfaction.
Our Efforts to Expand Sales of Our Products to Other Industries May Not
Succeed
We have historically sold our products primarily to companies in the
electronics and medical device manufacturing industries. We intend to market
products to customers in additional industries. Although we have targeted
enterprises in other markets as potential customers, these potential customers
may not be as willing to purchase products like ours as have other technology-
based industries such as the electronics and medical device manufacturing
industries.
The Market For Our Products Is Newly Emerging and Customers May Not Accept
Our Products
The market for software products that allow companies to collaborate with
suppliers on product information and change is newly emerging. Companies have
not traditionally automated this product content management process throughout
the supply chain. We cannot be certain that this market will continue to
develop and grow or that companies will elect to utilize our products rather
than attempt to develop applications internally or through other sources. In
addition, the use of the Internet, as well as corporate intranets, has not
been widely adopted for sharing product information as well as for
collaboration among supply chain participants. Companies that have already
invested substantial resources in other methods of sharing product information
during the manufacturing and supply process may be reluctant to adopt a new
approach that may replace, limit or compete with their existing systems or
methods. We expect that we will continue to need to pursue intensive marketing
and sales efforts to educate prospective customers about the uses and benefits
of our products. Therefore, demand for and market acceptance of our products
will be subject to a high level of uncertainty.
Competition Among Providers of Software Enabling Collaboration in a
Manufacturing Supply Chain May Increase, Which Could Cause Us to Reduce
Prices, and Result in Reduced Gross Margins or Loss of Market Share
The market for products that enable companies to interactively manage and
share information relating to the manufacture and supply of products is new,
highly fragmented, rapidly changing and increasingly competitive. We expect
competition to intensify, which could result in price reductions for our
products, reduced gross margins and loss of market share. Competitors vary in
size and in the scope and breadth of the products and services offered. We
face potential competition from in-house development efforts by potential
customers or partners, vendors of software designed for management of
engineering information, and developers of general
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purpose groupware software addressing only limited technology components
involved in managing data generated by changes to the engineering process. We
also face potential competition from providers of enterprise software.
Many of our actual or potential competitors have a number of significant
advantages over us, including:
. longer operating histories;
. significantly greater financial, technical, marketing and other
resources;
. significantly greater name recognition and a larger installed base of
customers; and
. well-established relationships with our actual and potential customers as
well as with systems integrators and other vendors and service providers.
These competitors may also be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products,
than we can. Some of our actual or potential competitors may also bundle their
products in a manner that may discourage potential customers from purchasing
our products. Accordingly, we may not be able to maintain or expand our sales
if competition increases and we are unable to respond effectively. See
"Business--Competition" on page 41 for further discussion of the competitive
market in which we operate.
We May Experience Difficulties in Introducing New Products and Upgrades
Which Could Result in Negative Publicity, Loss of Sales, Delay in Market
Acceptance or Customer Dissatisfaction
Our future financial performance depends on our successful and timely
development, introduction and market acceptance of new and enhanced products.
The life cycles of our products are difficult to predict because the market for
our products is new and emerging, and is characterized by rapid technological
change, changing customer needs and evolving industry standards. The
introduction of products or computer systems employing new technologies and
emerging industry standards could render our existing products obsolete and
unmarketable. For example, portions of our software are written in the Java
computer programming language. If a new software language becomes standard in
our industry or is considered more robust than Java, we may need to rewrite
portions of our products in another computer language in order to remain
competitive. The introduction of enhancements to our suite of products may also
cause customers to defer orders for our existing products. We may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new or enhanced products in the future. In
addition, those products may not meet the requirements of the marketplace and
achieve market acceptance.
We expect to add new products to our supply chain applications by
acquisition or internal development and by developing enhancements to our
existing products. We have in the past experienced delays in the planned
release dates of our software products and upgrades, and we have discovered
software defects in new products after their introduction. New products or
upgrades may not be released according to schedule, or may contain defects when
released. Either situation could result in negative publicity, loss of sales,
delay in market acceptance of our products or customer claims against us.
Our Products Might Not Be Compatible With All Major Platforms, Which Could
Inhibit Sales
We must continually modify and enhance our products to keep pace with
changes in computer hardware and software and database technology, as well as
emerging technical standards in the software industry. For example, we have
designed our products to work with databases and servers such as Oracle and
Microsoft SQL Server. Any changes to these platforms could require us to modify
our products, and could cause us to delay releasing a product until the updated
version of that platform has been released. Furthermore, third parties develop
adapters to integrate our products with other design, manufacture, finance and
supply chain systems used by our customers. We rely on these third parties to
update the adapters to reflect changes to our products as well as to the
targeted platform in order to maintain the functionality provided by our
products. As a result,
11
<PAGE>
uncertainties related to the timing and nature of new product announcements,
introductions or modifications by vendors of operating systems, back-office
applications and browsers and other Internet-related applications could hurt
our business, as customers may not be certain as to how our product will
operate with their existing systems.
In addition, although portions of our products are based upon the Java
programming language, the Java language does not offer all of the features
available in Windows. Accordingly, certain features available to products that
run on Windows may not be available in the non-Windows version of our
products, and this could result in reduced customer demand. Furthermore, some
of our products do not run on certain types of popular server computers, such
as those that utilize the UNIX operating system. If another platform becomes
more widely used, we could be required to convert, or "port," our product to
that platform. We may not succeed in these efforts, and even if we do,
potential customers may not choose our product.
If We Are Unable to Timely Expand Our International Operations, We May Not
Achieve Anticipated Revenue Growth
We believe that expansion of our international operations will be necessary
for our future success, and a key aspect to our business strategy is to expand
our sales and support organizations internationally. Therefore, we believe
that we will need to commit significant resources to expand our international
operations. We employ sales professionals in Europe and are in the early
stages of expanding into the Asia Pacific market. If we are unable to
successfully enter into and expand these international markets on a timely
basis, we may not be able to achieve anticipated revenue growth. This
expansion may be more difficult or take longer than we anticipate, and we may
not be able to successfully market, sell, deliver and support our products
internationally.
If successful in our international expansion, we will be subject to a
number of risks associated with international business activities. These risks
include:
. difficulty in providing customer support for our software in multiple
time zones;
. need to develop our software in multiple foreign languages;
. longer sales cycles associated with educating foreign customers on the
benefits of using our products;
. greater difficulty in collecting accounts receivable from customers
located abroad;
. political and economic instability, particularly in Asia;
. difficulties in enforcing agreements through foreign legal systems; and
. unexpected changes in regulatory requirements that may limit our ability
to export our software or sell into particular jurisdictions or impose
multiple conflicting tax laws and regulations.
To date, most of our revenues have been denominated in United States
dollars. If we experience an increase in the portion of our revenues
denominated in foreign currencies, we may incur greater risks in currency
fluctuations, particularly since we translate our foreign currency revenues
once at the end of each quarter. In the future, our international revenues
could be denominated in the Euro, the currency of the European Union. The Euro
is an untested currency and may be subject to economic risks that are not
currently contemplated. We currently do not engage in foreign exchange hedging
activities, and therefore our international revenues and expenses are
currently subject to the risks of foreign currency fluctuations.
We Depend on Licensed Technology and the Loss or Inability to Maintain
These Technology Licenses Could Result in Increased Cost or Delays in Sales
of Our Products
We license technology on a non-exclusive basis from several businesses for
use with our products, including licenses from RSA Data Security, Inc. for
security and encryption technology software, Actuate Corporation for reporting
capability and from Cimmetry Systems Inc. for our viewers. We anticipate that
we will continue to license technology from third parties in the future. Some
of the software we license from third parties would be
12
<PAGE>
difficult to replace. This software may not continue to be available on
commercially reasonable terms, if at all. The loss or inability to maintain
any of these technology licenses could result in delays in the licensing of
our products until equivalent technology, if available, is identified,
licensed and integrated. In addition, the effective implementation of our
products depends upon the successful operation of third-party licensed
products in conjunction with our products, and therefore any undetected errors
in these licensed products may prevent the implementation or impair the
functionality of products, delay new product introductions and/or injure our
reputation. The increased use of third-party software could require us to
enter into license agreements with third parties, which could result in higher
royalty payments and a loss of product differentiation.
Defects in Our Software Products Could Diminish Demand For Our Products
Our software products are complex and may contain errors, including year
2000 related errors, that may be detected at any point in the life of the
product. We have in the past discovered software errors in certain of our
products and as a result have experienced delays in shipment of products
during the period required to correct these errors. We cannot assure you that,
despite testing by us, our implementation partners and our current and
potential customers, errors will not be found in new products or releases
after shipment, resulting in loss of revenue, delay in market acceptance and
sales, diversion of development resources, injury to our reputation or
increased service and warranty costs.
Further, our products are generally used in systems with other vendors'
products, and as a result, our products must integrate successfully with these
existing systems. System errors, whether caused by our products or those of
another vendor, could adversely affect the market acceptance of our products,
and any necessary revisions could cause us to incur significant expenses.
If We Become Subject to Product Liability Litigation, It Could Be Time
Consuming and Costly to Defend
Since our products are used for mission critical applications in the supply
chain, errors, defects or other performance problems could result in financial
or other damages to our customers. For example, our products are designed to
communicate information relating to changes in product specifications during
the manufacturing process. If a supplier or other participant receives
inaccurate or erroneous data, it is possible that it could claim it incurred
damages based on its reliance on that data. Although our license agreements
generally contain provisions designed to limit our exposure to product
liability litigation, existing or future laws or unfavorable judicial
decisions could negate such limitation of liability provisions. Product
liability litigation, even if unsuccessful, would be time-consuming and costly
to defend and could harm our business.
In Order to Manage Our Growth and Expansion, We Will Need to Improve and
Implement New Systems, Procedures and Controls
We have recently experienced a period of rapid growth and expansion that
has placed a significant strain on our management information systems and our
administrative, operational and financial resources. For example, we have
grown from 65 employees at April 30, 1997 to 156 employees at April 30, 1999.
If we are unable to manage our growth and expansion in an efficient or timely
manner, our business will be seriously harmed. In addition, we have recently
hired a significant number of employees and plan to further increase our total
headcount. We also plan to expand the geographic scope of our operations. This
expansion has resulted and will continue to result in substantial demands on
our management resources. To accommodate continued anticipated growth and
expansion, we will be required to:
. improve existing and implement new operational and financial systems,
procedures and controls;
. hire, train, manage, retain and motivate qualified personnel; and
. enter into relationships with strategic partners.
These measures may place additional burdens on our management and our
internal resources.
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<PAGE>
If We Are Unable to Protect Our Intellectual Property We May Lose a
Valuable Asset, Experience Reduced Market Share or Incur Costly Litigation
to Protect Our Rights
Our success and ability to compete depend upon our proprietary technology,
including our brand and logo and the technology underlying our products. We
rely on trademark, trade secret and copyright laws to protect our intellectual
property. Despite our efforts to protect our intellectual property, a third
party could copy or otherwise obtain our software or other proprietary
information without authorization, or could develop software competitive to
ours. Our means of protecting our proprietary rights may not be adequate and
our competitors may independently develop similar technology, duplicate our
products or design around patents that may be issued to us or our other
intellectual property. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States, and we expect that it will become more difficult to monitor the
use of our products if we increase our international presence.
We may have to resort to litigation to enforce our intellectual property
rights, to protect our trade secrets or know-how or to determine their scope,
validity or enforceability. Enforcing or defending our proprietary technology
is expensive, could cause the diversion of our resources, and may not prove
successful. Our protective measures may prove inadequate to protect our
proprietary rights, and any failure to enforce or protect our rights could
cause us to lose a valuable asset.
We May Be Subject to Intellectual Property Infringement Claims That, With
or Without Merit, Could Be Costly to Defend or Settle
We may from time to time be subject to claims of infringement of other
parties' proprietary rights or claims that our own intellectual property
rights are invalid. There has been a substantial amount of litigation in the
software and Internet industries regarding intellectual property rights. It is
possible that, in the future, third parties may claim that we or our current
or potential future products infringe their intellectual property. We expect
that software product developers and providers of electronic commerce
solutions will increasingly be subject to infringement claims as the number of
products and competitors in our industry segment grows and the functionality
of products in industry segments overlaps. Any infringement claims made
against us, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or negative publicity. In addition,
if our products were found to infringe a third party's proprietary rights, we
could be required to enter into royalty or licensing agreements in order to
continue to be able to sell our products. Royalty or licensing agreements, if
required, may not be available on terms acceptable to us or at all.
Year 2000 Compliance Costs and Risks Are Difficult to Assess and Could
Result in Delay or Loss of Revenue, Diversion of Development Resources,
Damage to Our Reputation or Increased Service, Warranty or Litigation Costs
Our products are generally integrated into computer systems involving
sophisticated hardware and complex software products, which may not be year
2000 compliant. The failure of our customers' systems to be year 2000
compliant could impede the success of applications that we have developed for
them. Accordingly, known or unknown defects that affect the operation of our
software, including any defects or errors in applications that include our
products, could result in delay or loss of revenue, diversion of development
resources, damage to our reputation or increased service, warranty or
litigation costs, any of which could harm our business.
In addition, earlier versions of our products may not be year 2000
compliant, and we do not intend to make them year 2000 compliant. We also need
to ensure year 2000 compliance of our own internal computer and other systems,
to continue testing our software products, and to audit the year 2000
compliance status of our suppliers and business partners. We have not
completed our year 2000 investigation and overall compliance initiative, and
the total cost of our year 2000 compliance may be substantial and may harm our
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Readiness" on page 30 for a discussion of the
status of our year 2000 compliance review.
14
<PAGE>
Future Acquisitions May Be Difficult to Integrate, Disrupt Our Business,
Dilute Stockholder Value or Divert Management Attention
As part of our business strategy, we may seek to acquire or invest in
businesses, products or technologies that we feel could complement or expand
our business, augment our market coverage, enhance our technical capabilities
or that may otherwise offer growth opportunities. Acquisitions could create
risks for us, including:
. difficulties in assimilation of acquired personnel, operations,
technologies or products;
. unanticipated costs associated with the acquisition;
. diversion of management's attention from other business concerns;
. adverse effects on our existing business relationships with suppliers and
customers; and
. use of substantial portions of our available cash, including the proceeds
of this offering, to consummate the acquisition.
In addition, if we consummate acquisitions through an exchange of our
securities, our stockholders could suffer significant dilution. Any future
acquisitions, even if successfully completed, may not generate any additional
revenue or provide any benefit to our business.
Provisions Contained in Our Charter Documents May Delay or Prevent a Change
in Our Control
Provisions of our Delaware certificate of incorporation and bylaws and of
Delaware law could make it more difficult for a third party to acquire us,
even if a change in control would be beneficial to our stockholders. These
provisions also may prevent changes in our management. See "Description of
Capital Stock--Antitakeover Effects of Delaware Law and Provisions of Our
Certificate of Incorporation and Bylaws" on page 57 for further discussion of
the specific provisions in our charter documents that may delay or prevent a
change in our control.
Risks Related to the Internet on Our Business and Prospects
If Use of the Internet Does Not Continue to Develop and Reliably Support
the Demands Placed on It by Electronic Commerce, We May Experience Loss of
Sales
Our success depends upon continued growth in the use of the Internet as a
medium of commerce. Although the Internet is experiencing rapid growth in the
number of users, this growth is a recent phenomenon and may not continue.
Furthermore, despite this growth in usage, the use of the Internet for
commerce is relatively new. As a result, a sufficiently broad base of
companies and their supply chain partners may not adopt or continue to use the
Internet as a medium of exchanging product content information. Our business
would be seriously harmed if:
. use of the Internet does not continue to increase or increases more
slowly than expected;
. the infrastructure for the Internet does not effectively support
enterprises and their supply chain partners;
. the Internet does not create a viable commercial marketplace, inhibiting
the development of electronic commerce and reducing the demand for our
products; or
. concerns over the secure transmission of confidential information over
public networks inhibit the growth of the Internet as a means of
conducting commercial transactions.
Capacity Restraints May Restrict the Use of the Internet as a Commercial
Marketplace, Resulting in Decreased Demand For Our Products
The Internet infrastructure may not be able to support the demands placed
on it by increased usage or the limited capacity of networks to transmit large
amounts of data. Other risks associated with commercial use of the Internet
could slow its growth, including:
. outages and other delays resulting from the inadequate reliability of the
network infrastructure;
15
<PAGE>
. slow development of enabling technologies and complementary products; and
. limited availability of cost-effective, high-speed access.
Delays in the development or adoption of new equipment standards or
protocols required to handle increased levels of Internet activity, or
increased governmental regulation, could cause the Internet to lose its
viability as a means of communication between manufacturers and their supply
chain partners. If these or any other factors cause use of the Internet for
commerce to slow or decline, the Internet may not prove viable as a commercial
marketplace, resulting in decreased demand for our products.
Increasing Governmental Regulation of the Internet Could Limit the Market
for Our Products
As Internet commerce continues to evolve, we expect that federal, state and
foreign governments will adopt laws and regulations covering issues such as
user privacy, taxation of goods and services provided over the Internet,
pricing, content and quality of products and services. It is possible that
legislation could expose companies involved in electronic commerce to
liability, taxation or other increased costs, any of which could limit the
growth of electronic commerce generally. Legislation could dampen the growth
in Internet usage and decrease its acceptance as a communications and
commercial medium. If enacted, these laws and regulations could limit the
market for our products.
Risks Related to This Offering
Our Executive Officers, Directors and Major Stockholders Will Retain
Significant Control Over Us After This Offering, Which May Lead to
Conflicts With Other Stockholders Over Corporate Governance Matters
After this offering, executive officers, directors and holders of 5% or
more of our outstanding common stock will, in the aggregate, own approximately
53.9% of our outstanding common stock. These stockholders would be able to
significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of significant corporate
transactions. This concentration of ownership may also delay, deter or prevent
a change in our control and may make some transactions more difficult or
impossible to complete without the support of these stockholders.
Our Stock Price May Be Volatile, Which May Lead to Losses By Investors and
to Securities Litigation
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. We will negotiate and determine the initial
public offering price with the representatives of the underwriters based on
several factors. This price may vary from the market price of the common stock
after the offering. The stock market has experienced significant price and
volume fluctuations and the market prices of securities of technology
companies, particularly Internet-related companies, have been highly volatile.
Investors may not be able to resell their shares at or above the initial
public offering price.
In the past, securities class action litigation has often been instituted
against a company following periods of volatility in the company's stock
price. This type of litigation, if filed against us, could result in
substantial costs and could divert our management's attention and resources.
Our Management Will Retain Broad Discretion in the Use of Proceeds From
This Offering and May Not Obtain a Significant Return on the Use of These
Proceeds
We currently have no specific plans for a significant portion of our net
proceeds from this offering. Consequently, our management has complete
discretion as to how to spend the proceeds from this offering. They may spend
these proceeds in ways with which our stockholders may not agree. Management's
allocation of the proceeds of this offering may not benefit our business and
the investment of the proceeds may not yield a favorable return.
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<PAGE>
Substantial Future Sales of Our Common Stock Could Cause Our Stock Price to
Decline
Sales of a substantial number of shares of our common stock after this
offering could cause the market price of our common stock to decline by
potentially introducing a large number of sellers of our common stock into a
market in which our common stock price is already volatile. In addition, the
sale of these shares could impair our ability to raise capital through the
sale of additional equity securities. Based on shares outstanding as of
April 30, 1999, we will have 19,798,939 shares of our common stock
outstanding, or 20,248,939 shares if the underwriters' overallotment is
exercised in full. Our directors, executive officers and current stockholders
have executed lock-up agreements that limit their ability to sell shares of
our common stock. These stockholders have agreed, subject to limited
exceptions, not to sell or otherwise dispose of any shares of our common stock
for a period of 180 days after the date of this prospectus without the prior
written approval of Morgan Stanley & Co. Incorporated. When these lock-up
agreements expire, these shares and the shares of the common stock underlying
any options held by these individuals will become eligible for sale, in some
cases subject only to the volume, manner of sale and notice requirements of
Rule 144 of the Securities Act of 1933. See "Shares Eligible for Future Sale"
on page 59 for further discussion of the shares that will be freely tradeable
after the date of this prospectus.
Investors in This Offering Will Suffer Immediate Dilution
We expect that the initial public offering price of our common stock will
be substantially higher than the pro forma net tangible book value per share
of our outstanding common stock. Accordingly, purchasers of common stock in
this offering will experience immediate and substantial dilution of
approximately $17.27 in net tangible book value per share, or approximately
82.2% of the offering price of $21.00 per share. In contrast, our existing
stockholders paid an average price of $2.37 per share. Investors will incur
additional dilution upon the exercise of outstanding stock options and
warrants. See "Dilution" on page 20 for further discussion of the dilution
that new investors will incur.
Special Note Regarding Forward-Looking Statements
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions. Because
these forward-looking statements involve risks and uncertainties, actual
results could differ materially from those expressed or implied by these
forward-looking statements for a number of reasons, including those discussed
under "Risk Factors" and elsewhere in this prospectus.
You should read statements that contain these words carefully because they
discuss our expectations about our future performance, contain projections of
our future operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in our common stock, you
should be aware that the occurrence of any of the events described in these
risk factors and elsewhere in this prospectus could substantially harm our
business, results of operations and financial condition and that upon the
occurrence of any of these events, the trading price of our common stock could
decline and you could lose all or part of your investment.
17
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of $57.1 million from the
sale of the 3,000,000 shares of common stock in this offering, at an initial
public offering price of $21.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses of $5.9 million. If
the underwriters' over-allotment option is exercised in full, we estimate that
our net proceeds will be $65.9 million.
We intend to use the net proceeds of the offering primarily for general
corporate purposes, including working capital, capital expenditures and
repayment of approximately $3.0 million of indebtedness under our subordinated
notes payable. We may, if appropriate opportunities arise, use an undetermined
portion of the net proceeds to acquire or invest in complementary companies,
product lines, products or technologies. We do not currently have any
agreements or commitments with respect to any acquisition or investment and we
are not currently involved in any negotiations with respect to any such
transaction. Pending these uses, the net proceeds of the offering will be
invested in short-term, interest-bearing investments or accounts.
Borrowings under our subordinated notes payable, due through fiscal 2002,
bear interest at an annual rate of 11.75%.
DIVIDEND POLICY
We have never paid cash dividends on our common stock and do not anticipate
paying cash dividends in the foreseeable future. We currently intend to retain
any future earnings to develop and expand our business. Under the terms of our
line of credit facilities, we may not declare or pay any dividends without the
prior consent of the lenders under these facilities.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of April 30, 1999:
. on an actual basis;
. on a pro forma basis to reflect the assumed exercise of a warrant to
purchase 60,000 shares of preferred stock at an exercise price of $6.75
per share, based upon an indication from the warrant holder that it
intends to exercise the warrant contingent upon the closing of this
public offering, the conversion of all outstanding shares of preferred
stock, including the shares issued upon the exercise of the warrant, into
11,933,273 shares of common stock and the sale of 665,641 shares of
common stock issued to three corporate investors at $19.53 per share, for
an aggregate of $13.0 million, in a private placement that will close
contemporaneously with this offering; and
. on a pro forma as adjusted basis to reflect the application of the net
proceeds from the sale of 3,000,000 shares of common stock in this
offering, including the repayment of approximately $3.0 million of
indebtedness under our subordinated notes payable, after deducting the
underwriting discounts and commissions and estimated offering expenses.
The outstanding share information excludes 1,159,725 shares of common stock
reserved for issuance upon exercise of outstanding options granted under our
1995 Stock Option Plan with a weighted average exercise price of $2.12 per
share; 2,245,025 shares of common stock available for issuance under our 1995
Stock Option Plan; 500,000 shares of common stock reserved for issuance under
our 1999 Employee Stock Purchase Plan; and 98,301 shares of common stock
issuable upon exercise of outstanding warrants at a weighted average exercise
price of $1.22 per share, which will remain outstanding after this offering.
Of the total shares outstanding, 963,606 shares are subject to our right of
repurchase.
You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and the related notes to the consolidated
financial statements.
<TABLE>
<CAPTION>
As of April 30, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Capital lease obligations and notes payable,
less current portion.......................... $ 3,224 $ 3,224 $ 910
-------- -------- --------
Stockholders' equity:
Convertible preferred stock, $.001 par value;
21,175,556 shares authorized, 11,873,273
shares issued and outstanding actual;
10,000,000 shares authorized, no shares
issued or outstanding pro forma and pro
forma as adjusted........................... 12 -- --
Common stock, $.001 par value; 29,000,000
shares authorized, 4,200,025 shares issued
and outstanding actual; 100,000,000 shares
authorized, 16,798,939 shares issued and
outstanding pro forma; 100,000,000 shares
authorized, 19,798,939 shares issued and
outstanding pro forma as adjusted........... 4 17 20
Additional paid-in capital................... 35,503 48,907 106,013
Notes receivable from stockholders........... (748) (748) (748)
Unearned stock compensation.................. (4,947) (4,947) (4,947)
Accumulated deficit.......................... (26,533) (26,533) (26,533)
-------- -------- --------
Total stockholders' equity................. 3,291 16,696 73,805
-------- -------- --------
Total capitalization..................... $ 6,515 $ 19,920 $ 74,715
======== ======== ========
</TABLE>
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<PAGE>
DILUTION
Our pro forma net tangible book value at April 30, 1999 was approximately
$16.7 million or approximately $.99 per share. Pro forma net tangible book
value per share represents total assets less total liabilities, divided by the
number of shares outstanding as of April 30, 1999, after giving effect to the
conversion into common stock of all of our outstanding shares of preferred
stock, the exercise of a warrant to purchase 60,000 shares of preferred stock
at an exercise price of $6.75 per share and the sale of 665,641 shares of
common stock issued to three corporate investors at a purchase price of $19.53
per share in a private placement contemporaneous with this offering.
After giving effect to our sale of 3,000,000 shares of common stock in this
offering after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma net tangible book
value as of April 30, 1999 would have been approximately $73.8 million, or
$3.73 per share. This represents an immediate increase in net tangible book
value of $2.74 per share to existing stockholders and an immediate dilution in
net tangible book value of $17.27 per share to new investors purchasing shares
in this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................ $21.00
Pro forma net tangible book value per share as of April 30,
1999............................................................ $.99
Increase per share attributable to new investors................. 2.74
----
Pro forma net tangible book value per share after this offering.... 3.73
------
Dilution per share to new investors in this offering............... $17.27
======
</TABLE>
The following table assumes conversion into common stock of all of our
outstanding shares of preferred stock, the exercise of a warrant to purchase
60,000 shares of preferred stock at an exercise price of $6.75 per share and
the sale of 665,641 shares of common stock to three corporate investors at
$19.53 per share, and sets forth, on a pro forma basis as of April 30, 1999,
the difference between the existing stockholders and the purchasers of shares
in this offering with respect to the number of shares of common stock
purchased from us, the total consideration paid to us and the average price
per share paid by existing stockholders and by new investors, before deduction
of the underwriting discounts and commissions and estimated offering expenses
payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 16,798,939 84.8% $ 39,854,000 38.7% $ 2.37
New stockholders.............. 3,000,000 15.2 63,000,000 61.3 21.00
---------- ----- ------------ -----
Totals...................... 19,798,939 100.0% $102,854,000 100.0%
========== ===== ============ =====
</TABLE>
As of April 30, 1999, there were options outstanding to purchase a total of
1,159,725 shares of common stock at a weighted average exercise price of $2.12
per share under our 1995 Stock Option Plan. In addition, as of April 30, 1999,
there were 98,301 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $1.22 per share. To the
extent outstanding options or warrants are exercised, there will be further
dilution to new investors.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, our consolidated
financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The selected
consolidated statement of operations data for each of the three years in the
period ended April 30, 1999 and the selected consolidated balance sheet data
at April 30, 1998 and April 30, 1999, are derived from, and are qualified by
reference to, our consolidated financial statements included elsewhere in this
prospectus. The selected consolidated statement of operations data for the
period from inception on March 13, 1995 to April 30, 1996 and the selected
consolidated balance sheet data as of April 30, 1996 and April 30, 1997 are
derived from consolidated financial statements not included in this
prospectus. The historical results are not necessarily indicative of results
to be expected in any future period.
<TABLE>
<CAPTION>
Period from March 13, Fiscal Year Ended April 30,
1995 (Inception) to -----------------------------
April 30, 1996 1997 1998 1999
--------------------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
License................ $ 24 $ 1,143 $ 6,102 $ 10,859
Professional services.. 14 187 1,385 3,665
Maintenance............ -- 22 516 2,283
------- -------- -------- ---------
Total revenues....... 38 1,352 8,003 16,807
------- -------- -------- ---------
Cost of revenues:
License................ 2 113 543 819
Professional services.. 4 88 1,347 3,823
Maintenance............ -- 65 278 1,343
------- -------- -------- ---------
Total cost of
revenues............ 6 266 2,168 5,985
------- -------- -------- ---------
Gross profit............. 32 1,086 5,835 10,822
------- -------- -------- ---------
Operating expenses:
Sales and marketing.... 198 2,149 8,070 13,495
Research and
development........... 852 2,510 3,788 4,742
General and
administrative........ 381 1,333 1,995 1,938
Amortization of stock
compensation.......... -- -- 856 2,253
------- -------- -------- ---------
Total operating
expenses............ 1,431 5,992 14,709 22,428
------- -------- -------- ---------
Loss from operations..... (1,399) (4,906) (8,874) (11,606)
Interest income
(expense), net.......... 72 70 (68) 178
------- -------- -------- ---------
Net loss................. $(1,327) $ (4,836) $ (8,942) $ (11,428)
======= ======== ======== =========
Net loss per share:
Basic and diluted...... $ (1.94) $ (3.72) $ (4.20) $ (3.87)
======= ======== ======== =========
Weighted average
shares................ 684 1,300 2,129 2,952
======= ======== ======== =========
Unaudited pro forma net
loss per share:
Basic and diluted...... $ (.78)
=========
Weighted average
shares................ 14,668
=========
</TABLE>
<TABLE>
<CAPTION>
As of April 30,
-----------------------------
1996 1997 1998 1999
------ ------ ------ -------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments.................................... $3,829 $3,292 $2,160 $10,003
Working capital (deficit)....................... 3,747 2,617 (930) 4,174
Total assets.................................... 4,219 5,366 7,531 17,948
Long-term obligations........................... 152 626 782 3,224
Stockholders' equity............................ 3,867 3,154 177 3,291
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected
Consolidated Financial Data" and our consolidated financial statements and
related notes included elsewhere in this prospectus. In addition to historical
information, the discussion in this prospectus contains certain forward-
looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated by these forward-looking
statements due to factors, including, but not limited to, those set forth
under "Risk Factors" and elsewhere in this prospectus.
Overview
We develop and market product content management software for the use
within and among companies in a manufacturing supply chain over the Internet.
Our suite of software products is designed to improve the ability of all
members of the supply chain to communicate and collaborate with one another
about new or changing information concerning the manufacture, source or supply
of products or components. We were founded in March 1995 and in June 1996 we
began selling our first products and delivering related services. We currently
license our products in the United States through our direct sales force, and
in Europe through our direct sales force and distributors. To date, revenues
from international sales have not been material. We have derived our revenues
principally from the licenses of our products, the delivery of professional
services and from maintenance contracts.
Customers who license our software products receive a license for our
application servers, one or more user licenses, and third-party provided
adapters to connect with the customer's other existing enterprise systems. Our
customers generally purchase a limited number of user licenses at the time of
the initial license of the software products and may purchase additional user
licenses as needed. Customers may purchase implementation services from us.
These professional services are generally provided on a fixed-price basis and
are often provided by third-party consulting organizations. We also offer fee-
based training services to our customers. As of April 30, 1999, over 98% of
our customers who licensed our products had purchased maintenance contracts,
which provide unspecified software upgrades, on a when-and-if available basis,
and technical support over a stated term, which is generally a twelve-month
period, and over 90% of our customers had renewed their maintenance contracts.
We cannot assure that we will continue to experience these rates of purchases
of maintenance agreements or renewals.
We recognize revenue under Statement of Position, or SOP, 97-2, Software
Revenue Recognition, and SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions. When contracts contain
multiple elements and vendor-specific objective evidence exists for all
undelivered elements, we account for the delivered elements in accordance with
the "Residual Method" prescribed by SOP 98-9. Software licenses sold to new
customers are recognized upon installation and acceptance by the customer.
Software licenses sold to existing customers, or add-on sales, do not include
acceptance provisions and are recognized upon shipment of the software
product. In the event we grant our customers the right to specified upgrades,
license revenue is deferred until delivery of the specified upgrade. If
vendor-specific objective evidence of fair value exists for the specified
upgrade, then an amount equal to this fair value is deferred. If vendor-
specific objective evidence of fair value does not exist, then the entire
license fee is deferred until the delivery of the specified upgrade. During
fiscal 1997, our first full year of operations, substantially all of our
license revenues were generated from new customers. In fiscal 1998, 79% and in
fiscal 1999, 66% of our license revenues were generated from new customers,
with the remaining license revenues attributable to existing customers. Our
professional services revenues consist of implementation services which are
recognized upon customer acceptance and training revenues which are recognized
as the services are performed. Our maintenance revenues are recognized ratably
over the contract period, generally twelve months.
Our cost of license revenues include royalties due to third parties for
integrated technology, the cost of manuals and product documentation,
production media used to deliver our products and packaging costs. Our cost of
professional services revenues include salaries and related expenses for the
implementation and training services organizations, costs of third parties
contracted to provide implementation services to customers and an
22
<PAGE>
allocation of our overhead expenses. Our cost of maintenance revenues include
salaries and related expenses for the customer support organization and an
allocation of our overhead expenses. The cost of professional services can
fluctuate depending upon whether more or less of the professional services are
provided to our customers by us rather than by third-party service providers.
We generally provide implementation services to our customers on a fixed-price
basis. If we have to engage independent contractors or third parties to
provide these services on our behalf, it is generally at higher cost resulting
in a lower gross margin than if we had provided the services to our customers
ourselves. Therefore, our gross margin from professional services may
fluctuate based on who performs the services and the actual cost to provide
these services. Although services revenues may increase in absolute dollars if
we increase the professional services we provide, services revenues have lower
gross margins than license revenues. Our overall gross profit can therefore
fluctuate based on the mix of license revenues compared to professional
services revenues and maintenance revenues.
Our operating expenses are classified as sales and marketing, research and
development and general and administrative. We classify all charges to these
operating expense categories based on the nature of the expenditures. Although
each category includes expenses that are unique to the category type, there
are common recurring expenditures that are typically included in all operating
expenses categories, such as salaries, employee benefits, incentive
compensation, bonuses, travel costs, telephone, communication, rent and
allocated facilities costs and professional fees. The sales and marketing
category of operating expenses includes additional expenditures specific to
the marketing group, such as public relations and advertising, trade shows,
marketing collateral materials, and customer user group meetings and
expenditures specific to the sales group, such as commissions. To date, all
software development costs in research and development have been expensed as
incurred. Also included in our operating expenses is the amortization of stock
compensation described below.
In connection with the granting of stock options to our employees, we have
recorded unearned stock compensation totaling approximately $8.1 million
through April 30, 1999, of which $4.9 million remains to be amortized. This
amount represents the difference between the exercise price and the current
estimated fair value of our common stock on the date these stock options were
granted. This amount is included as a component of stockholders' equity and is
being amortized by charges to operations over the vesting period of the
options, consistent with the method described in Financial Accounting
Standards Board, or FASB, Interpretation No. 28. We recognized amortization of
unearned stock compensation of $856,000 for fiscal 1998 and $2.3 million for
fiscal 1999. We expect to record additional unearned stock compensation with
respect to stock option grants made subsequent to April 30, 1999 of at least
$11.1 million. The amortization of the remaining unearned stock compensation
at April 30, 1999 will result in additional charges to operations through
fiscal 2005. In addition, in connection with options to purchase 65,000 shares
of common stock granted to consultants subsequent to year end, we expect to
record at least $1.1 million in expense related to the options over the
vesting period of those options. We calculated the minimum fair value of
options granted to consultants on the date of grant using the Black-Scholes
option pricing model as prescribed by SFAS No. 123 with the following
underlying assumptions: expected volatility of 50%, risk-free interest rate of
5.9% and option terms of ten years. We are accounting for these options under
variable plan accounting and therefore the expense associated with these
options may fluctuate significantly from quarter to quarter through fiscal
2005. The amortization of stock compensation is classified as a separate
component of operating expenses in our consolidated statement of operations.
Although our total revenues have increased from quarter to quarter, we have
incurred significant costs to develop our products and to recruit and train
personnel for our engineering, sales, marketing, professional services and
administration departments. As a result, we have incurred significant losses
since inception, and, as of April 30, 1999, had an accumulated deficit of
$26.5 million.
We intend to continue to incur significant sales and marketing, research
and development and general and administrative expenses. For example, we had
65 full-time employees as of April 30, 1997 compared to 103 at April 30, 1998
and 156 at April 30, 1999. We will seek to hire additional employees in the
future. We expect to continue to incur operating losses for the foreseeable
future. In order to achieve profitability, we will need to increase our
revenues significantly. Therefore, we cannot assure you that we will ever
attain or maintain profitability. Our expansion will also place significant
demands on our management and operational resources. To manage this rapid
growth and increased demands, we must improve existing and implement new
operational
23
<PAGE>
and financial systems, procedures and controls. We must also hire, train,
manage, retain and motivate qualified personnel. We expect future expansion to
continue to challenge our ability to hire, train, manage, retain and motivate
our employees.
In view of the rapidly changing nature of our market and our limited
operating history, we believe that period-to-period comparisons of our
revenues and other operating results are not necessarily meaningful and should
not be relied upon as indications of future performance. Our historic revenue
growth rates are not necessarily sustainable or indicative of our future
growth.
Results of Operations
The following table sets forth selected consolidated financial data for the
periods indicated, expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
Fiscal Year Ended
April 30,
-----------------------
1997 1998 1999
------ ------ -----
<S> <C> <C> <C>
Revenues:
License............................................ 84 % 76 % 65 %
Professional services.............................. 14 17 22
Maintenance........................................ 2 7 13
------ ------ -----
Total revenues................................... 100 100 100
------ ------ -----
Cost of revenues:
License............................................ 8 7 5
Professional services.............................. 7 17 23
Maintenance........................................ 5 3 8
------ ------ -----
Total cost of revenues........................... 20 27 36
------ ------ -----
Gross profit......................................... 80 73 64
------ ------ -----
Operating expenses:
Sales and marketing................................ 159 101 80
Research and development........................... 185 47 28
General and administrative......................... 99 25 12
Amortization of stock compensation................. -- 11 13
------ ------ -----
Total operating expenses......................... 443 184 133
------ ------ -----
Loss from operations................................. (363) (111) (69)
Interest income (expense), net....................... 5 (1) 1
------ ------ -----
Net loss............................................. (358)% (112)% (68)%
====== ====== =====
</TABLE>
Revenues
Our total revenues were $1.4 million for fiscal 1997, $8.0 million for
fiscal 1998 and $16.8 million for fiscal 1999, representing increases of $6.6
million, or 492%, from fiscal 1997 to fiscal 1998 and $8.8 million, or 110%,
from fiscal 1998 to fiscal 1999. We had no customer that accounted for more
than 10% of our total revenues in fiscal 1997, fiscal 1998 or fiscal 1999.
License Revenues. Our license revenues were $1.1 million for fiscal 1997,
$6.1 million for fiscal 1998 and $10.9 million for fiscal 1999, representing
increases of $5.0 million, or 434%, from fiscal 1997 to fiscal 1998 and $4.8
million, or 78%, from fiscal 1998 to fiscal 1999. License revenues as a
percentage of total revenues were 84% for fiscal 1997, 76% for fiscal 1998 and
65% for fiscal 1999. The increase in our license revenues from fiscal 1997 to
fiscal 1998 and from fiscal 1998 to fiscal 1999 was due to increased market
acceptance of our suite of products, including new versions of our products.
24
<PAGE>
Professional Services Revenues. Our professional services revenues were
$187,000 for fiscal 1997, $1.4 million for fiscal 1998 and $3.7 million for
fiscal 1999, representing increases of $1.2 million, or 640%, from fiscal 1997
to fiscal 1998 and $2.3 million, or 165%, from fiscal 1998 to fiscal 1999.
Professional services revenues as a percentage of total revenues were 14% for
fiscal 1997, 17% for fiscal 1998 and 22% for fiscal 1999. The increase in
professional services revenues from fiscal 1997 to fiscal 1998 and from fiscal
1998 to fiscal 1999 reflects increased license revenues. The increase in
professional services revenues as a percentage of total revenues from fiscal
1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999 was due to an
increased range of services, consisting of additional data migration and
integration services. To date, a portion of our professional services revenues
relates to our invoicing for services provided by third parties. In the
future, we anticipate that an increasing percentage of professional services
will be provided by third parties who will invoice the customer directly. As a
result, we anticipate that professional services revenues will decline as a
percentage of total revenues.
Maintenance Revenues. Our maintenance revenues were $22,000 for fiscal
1997, $516,000 for fiscal 1998 and $2.3 million for fiscal 1999, representing
increases of $494,000, or 2,245%, from fiscal 1997 to fiscal 1998 and $1.8
million, or 342%, from fiscal 1998 to fiscal 1999. Maintenance revenues as a
percentage of total revenues were 2% for fiscal 1997, 7% for fiscal 1998 and
13% for fiscal 1999. The increase in maintenance revenues and maintenance
revenues as a percentage of total revenues from fiscal 1997 to fiscal 1998 was
attributed to increased licenses of our products and from fiscal 1998 to
fiscal 1999 was due to increased licenses for our products, which accounted
for 53% of the increase, and to renewals of prior period maintenance
contracts, which accounted for 47% of the increase.
Cost of Revenues
Cost of License Revenues. Cost of license revenues were $113,000 for fiscal
1997, $543,000 for fiscal 1998 and $819,000 for fiscal 1999, representing
increases of $430,000, or 381%, from fiscal 1997 to fiscal 1998 and $276,000,
or 51%, from fiscal 1998 to fiscal 1999. Cost of license revenues as a
percentage of license revenues were 10% for fiscal 1997, 9% for fiscal 1998
and 8% for fiscal 1999. Cost of license revenues increased from fiscal 1997 to
fiscal 1998 and from fiscal 1998 to fiscal 1999 due to increased expenses
associated with the sub-licensing of third-party software used in our
products. Cost of license revenues as a percentage of total license revenues
have decreased as add-on licenses, which have a higher gross margin than
initial customer licenses, have increased as a percentage of total license
revenues.
Cost of Professional Services Revenues. Cost of professional services
revenues were $88,000 for fiscal 1997, $1.3 million for fiscal 1998 and $3.8
million for fiscal 1999, representing increases of $1.2 million, or 1,431%,
from fiscal 1997 to fiscal 1998 and $2.5 million, or 183%, from fiscal 1998 to
fiscal 1999. Cost of services revenues as a percentage of services revenues
were 47% for fiscal 1997, 97% for fiscal 1998 and 104% for fiscal 1999. The
increase in cost and as a percentage of professional services revenues from
fiscal 1997 to fiscal 1998 was due to hiring and training a consulting
organization to implement our products. The increase in cost and as a
percentage of professional services revenues from fiscal 1998 to fiscal 1999
was due to an increase in third-party professional services personnel to
support the increased customer base. In certain periods in the past, and
potentially in the future, our cost of professional services revenues exceeded
our professional services revenues. This is generally because the actual cost
of providing the services, whether provided internally or through third
parties, exceeded the fixed price payment received from some of our customers.
In addition, as we increase the size of our professional services staff, costs
are incurred for new personnel before they become fully productive.
Cost of Maintenance Revenues. Cost of maintenance revenues were $65,000 for
fiscal 1997, $278,000 for fiscal 1998 and $1.3 million for fiscal 1999,
representing increases of $213,000, or 328%, from fiscal 1997 to fiscal 1998
and $1.0 million, or 383%, from fiscal 1998 to fiscal 1999. Cost of
maintenance revenues as a percentage of maintenance revenues were 295% for
fiscal 1997, 54% for fiscal 1998 and 59% for fiscal 1999. The increase in cost
of maintenance revenues from fiscal 1997 to fiscal 1998 and from fiscal 1998
to fiscal 1999 was due to hiring and training a support organization needed in
connection with our increased customer base
25
<PAGE>
during these periods. The decrease in cost of maintenance revenues as a
percentage of maintenance revenues from fiscal 1997 to fiscal 1998 was due to
economies of scale realized as a result of increased management personnel and
experienced maintenance personnel. The increase in the cost of maintenance
revenues as a percentage of maintenance revenues from fiscal 1998 to fiscal
1999 was due to expansion of the support organization.
Operating Expenses
Sales and Marketing. Sales and marketing expenses were $2.1 million for
fiscal 1997, $8.1 million for fiscal 1998 and $13.5 million for fiscal 1999,
representing increases of $5.9 million, or 276%, from fiscal 1997 to fiscal
1998 and $5.4 million, or 67%, from fiscal 1998 to fiscal 1999. Sales and
marketing expenses as a percentage of total revenues were 159% for fiscal
1997, 101% for fiscal 1998 and 80% for fiscal 1999. The increase in sales and
marketing expenses from fiscal 1997 to fiscal 1998 and from fiscal 1998 to
fiscal 1999 reflect significant personnel-related expenses such as salaries,
benefits and commissions, recruiting fees, travel expenses and related costs
of hiring sales management, sales representatives, sales engineers and
marketing personnel. Forty-nine percent of the increase in sales and marketing
expense from fiscal 1997 to fiscal 1998 was due to additions to headcount and
personnel-related expenses. We anticipate that our sales and marketing
expenses will increase in absolute dollars for the foreseeable future as we
expand our domestic and international sales force.
Research and Development. Research and development expenses were $2.5
million for fiscal 1997, $3.8 million for fiscal 1998 and $4.7 million for
fiscal 1999, representing increases of $1.3 million, or 51%, from fiscal 1997
to fiscal 1998 and $954,000, or 25%, from fiscal 1998 to fiscal 1999. Research
and development costs as a percentage of total revenues were 185% for fiscal
1997, 47% for fiscal 1998 and 28% for fiscal 1999. The increases in research
and development expenses from fiscal 1997 to fiscal 1998 and from fiscal 1998
to fiscal 1999 were due to the increase in the number of our software
developers, quality assurance personnel and outside contractors to support our
product development, documentation and testing activities related to the
development and release of the latest versions of our products. We anticipate
that research and development expenses will continue to increase in absolute
dollars for the foreseeable future as we continue to add to our research and
development staff.
General and Administrative. General and administrative expenses were $1.3
million for fiscal 1997, $2.0 million for fiscal 1998 and $1.9 million for
fiscal 1999, representing an increase of $662,000, or 50%, from fiscal 1997 to
1998 and a decrease of $57,000, or 3%, from fiscal 1998 to 1999. General and
administrative expenses as a percentage of total revenues were 99% for fiscal
1997, 25% for fiscal 1998 and 12% for fiscal 1999. The increase in costs from
fiscal 1997 to fiscal 1998 was due to hiring additional finance, executive and
administrative personnel to support the growth of our business during that
period. We expect that general and administrative expenses will increase in
absolute dollars for the foreseeable future as we expand our operations and
incur the normal costs of a public company.
Amortization of Stock Compensation. During fiscal 1998 and fiscal 1999, we
recorded a total of approximately $8.1 million of unearned stock compensation.
We recognized amortization of stock compensation of $856,000 in fiscal 1998
and $2.3 million in fiscal 1999.
Interest Income (Expense), Net. Interest income (expense), net, was $70,000
for fiscal 1997, $(68,000) for fiscal 1998 and $178,000 for fiscal 1999. At
April 30, 1999, we had unamortized interest of $253,000 related to warrants
issued in connection with $3.0 million of subordinated notes payable which
were issued during fiscal 1999. We plan to use proceeds from our initial
public offering to prepay these subordinated notes payable in their entirety.
As a result, we will recognize the unamortized interest balance as an expense
in the period we prepay the notes payable.
Income Taxes. No provision for income taxes has been recorded since our
inception because we have incurred net losses in all periods. As of April 30,
1999, we had net operating loss carryforwards for federal income tax reporting
purposes of approximately $20.0 million that expire in various amounts
beginning in fiscal
26
<PAGE>
2016. We also had net operating loss carryforwards for state income tax
reporting purposes of approximately $18.0 million that expire in various
amounts beginning in fiscal 2004. The U.S. tax laws contain provisions that
limit the use in any future period of net operating loss and credit
carryforwards upon the occurrence of certain events, including a significant
change in ownership interests. We had deferred tax assets, including our net
operating loss carryforwards and tax credits of approximately $8.7 million as
of April 30, 1999. A valuation allowance has been recorded for the entire
deferred tax asset as a result of uncertainties regarding the realization of
the asset balance. See note 4 of notes to consolidated financial statements.
Quarterly Results of Operations
The following tables set forth our unaudited consolidated statement of
operations data for each of the eight quarters in the period ended April 30,
1999, as well as that data expressed as a percentage of our total revenues for
the quarters presented. You should read this information in conjunction with
our consolidated financial statements and related notes appearing elsewhere in
this prospectus. We have prepared this unaudited consolidated information on a
basis consistent with our audited consolidated financial statements, and, in
the opinion of our management, reflects all normal recurring adjustments that
we consider necessary for a fair presentation of our financial position and
operating results for the quarters presented. You should not draw any
conclusions about our future results from the operating results for any
quarter.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
Jul. 31, Oct. 31, Jan. 31, Apr. 30, Jul. 31, Oct. 31, Jan. 31, Apr. 30,
1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License................ $ 926 $ 1,324 $ 1,543 $ 2,309 $ 2,270 $ 2,486 $ 2,898 $ 3,205
Professional services.. 213 254 419 499 655 816 976 1,218
Maintenance............ 40 91 166 219 316 510 718 739
------- ------- ------- ------- ------- ------- ------- -------
Total revenues........ 1,179 1,669 2,128 3,027 3,241 3,812 4,592 5,162
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
License................ 79 124 119 221 165 241 211 202
Professional services.. 199 330 348 470 756 790 1,165 1,112
Maintenance............ 59 64 116 39 237 306 371 429
------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues............. 337 518 583 730 1,158 1,337 1,747 1,743
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 842 1,151 1,545 2,297 2,083 2,475 2,845 3,419
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 1,279 2,024 2,006 2,761 2,756 3,234 3,339 4,166
Research and
development........... 745 826 1,044 1,173 1,076 1,140 1,294 1,232
General and
administrative........ 428 448 481 638 431 439 492 576
Amortization of stock
compensation.......... -- 223 280 353 444 501 622 686
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 2,452 3,521 3,811 4,925 4,707 5,314 5,747 6,660
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (1,610) (2,370) (2,266) (2,628) (2,624) (2,839) (2,902) (3,241)
Interest income
(expense), net......... (2) (26) (23) (17) 52 98 64 (36)
------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,612) $(2,396) $(2,289) $(2,645) $(2,572) $(2,741) $(2,838) $(3,277)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
As a Percentage of Total Revenues
-----------------------------------------------------------------------
Jul. 31, Oct. 31, Jan. 31, Apr. 30, Jul. 31, Oct. 31, Jan. 31, Apr. 30,
1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License................ 79 % 79 % 72 % 76 % 70 % 65 % 63 % 62 %
Professional services.. 18 15 20 17 20 22 21 24
Maintenance............ 3 6 8 7 10 13 16 14
---- ---- ---- --- --- --- --- ---
Total revenues........ 100 100 100 100 100 100 100 100
---- ---- ---- --- --- --- --- ---
Cost of revenues:
License................ 7 7 6 7 5 6 5 4
Professional services.. 17 20 16 16 24 21 25 22
Maintenance............ 5 4 5 1 7 8 8 8
---- ---- ---- --- --- --- --- ---
Total cost of
revenues............. 29 31 27 24 36 35 38 34
---- ---- ---- --- --- --- --- ---
Gross profit............ 71 69 73 76 64 65 62 66
---- ---- ---- --- --- --- --- ---
Operating expenses:
Sales and marketing.... 109 121 94 91 85 85 73 80
Research and
development........... 63 50 49 39 33 30 28 24
General and
administrative........ 36 27 23 21 13 11 11 11
Amortization of stock
compensation.......... -- 13 13 12 14 13 13 14
---- ---- ---- --- --- --- --- ---
Total operating
expenses............. 208 211 179 163 145 139 125 129
---- ---- ---- --- --- --- --- ---
Loss from operations.... (137) (142) (106) (87) (81) (74) (63) (63)
Interest income
(expense), net......... -- (2) (2) -- 2 2 1 --
---- ---- ---- --- --- --- --- ---
Net loss................ (137)% (144)% (108)% (87)% (79)% (72)% (62)% (63)%
==== ==== ==== === === === === ===
</TABLE>
Revenues. Our total revenues increased in each of the eight quarterly
periods ended April 30, 1999. The increase in revenues in these periods
reflects the increase in the number of customers and increased sales following
our December 1998 release of a new version of our product suite. License
revenues in the first quarter of fiscal 1999 decreased 2% from the fourth
quarter of fiscal 1998 due to the effect of our sales commission plan
providing increased bonuses for sales in the last quarter of fiscal 1998.
Although in future periods first quarter license revenues could be lower than
the level achieved in the preceding fourth quarter due to year-end sales
efforts, we are unable to determine if this is a historical trend. During the
first quarter of fiscal 2000, we offered specified upgrade rights to certain
customers. As a result of offering these specified upgrade rights, we deferred
an incremental amount of $238,000 of license revenue.
Cost of Revenues. Cost of revenues increased in each of the eight quarterly
periods ended April 30, 1999 as a result of the growth of revenues. In the
quarters ended July 31, 1998 and January 31, 1999, cost of professional
services as a percentage of total professional services revenues significantly
increased due to lower margin third-party implementation projects and losses
on certain implementation projects.
Operating Expenses. Operating expenses increased significantly in each of
the eight quarterly periods ended April 30, 1999 as a result of increased
sales and marketing expenses associated with higher numbers of personnel, use
of independent contractors and other third parties for development of our
products, recruiting and related hiring expenses for additional senior
management in our research and development, administrative, sales and
marketing organizations and amortization of stock compensation. In addition,
sales and marketing expenses increased significantly in the fourth quarter of
fiscal 1998 and fiscal 1999 due to commissions and other compensation paid to
the direct sales force for the attainment of sales quotas.
Our quarterly operating results have varied widely in the past, and we
expect that they will continue to fluctuate in the future as a result of a
number of factors, many of which are outside our control. We believe that our
period-to-period operating results are not meaningful, and you should not rely
on them as indicative of our future performance. You should also evaluate our
prospects in light of the risks, expenses and difficulties
28
<PAGE>
commonly encountered by comparable early-stage companies in new and rapidly
emerging markets. We might not successfully address the risks and challenges
that face us. In addition, although we have experienced significant revenue
growth recently, our revenue might not continue to grow and we might not
become or remain profitable in the future. Our future operating results will
depend on many factors, including:
. size and timing of sales and installations of our products;
. entry of new competitors into our market, or the announcement of new
products or product enhancements by competitors;
. our ability to successfully expand our direct sales force and our
international sales organization;
. changes in our sales force incentives;
. unexpected delays in developing and marketing new and enhanced products;
. deferral of customer orders in anticipation of product enhancements or
new products;
. unexpected decline in purchases by our existing customers, including
purchases of additional licenses and maintenance contracts;
. delays in our customers' orders due to their year 2000 priorities;
. variability in the mix of our license and professional service revenues;
. our ability to accurately price fixed-priced professional services
projects;
. variability in the mix of professional services that we perform versus
those performed for our customers by others; and
. our ability to establish and maintain relationships with our third-party
implementation partners.
Liquidity and Capital Resources
Since our inception, we have primarily financed our operations through the
sale of convertible preferred stock, resulting in net proceeds of $26.2
million through April 30, 1999. To a lesser extent, we have financed our
operations through equipment financing and lending arrangements.
As of April 30, 1999, we had cash and cash equivalents of $10.0 million, an
increase from $2.2 million of cash and cash equivalents held as of April 30,
1998. Our working capital at April 30, 1999 was $4.2 million, compared to a
working capital deficit of $930,000 at April 30, 1998. The increase in the
working capital is attributable to the increase in cash from the sales of our
equity securities and the increase in accounts receivable.
We have a $2.0 million senior line of credit facility with a bank that
bears interest at 8.5% and expires on August 31, 1999. We are currently in the
process of applying for an extension to the line of credit. At April 30, 1999,
no balance was outstanding under this line of credit. This line of credit is
secured by accounts receivable and certain other assets. We also have $3.0
million outstanding of subordinated notes payable which bear interest at an
annual rate of 11.75% and are payable through fiscal 2002. In addition,
capital lease obligations including both short-term and long-term portions,
were $1.6 million at April 30, 1999, and are payable through fiscal 2003. Our
senior line of credit requires us to maintain certain monthly financial
covenants, including a minimum tangible net worth and a minimum quick ratio.
We were in compliance with all of our financial covenants at April 30, 1999.
We also have noncancelable operating leases for office space and equipment
of approximately $2.4 million which are payable through fiscal 2003.
Our operating activities resulted in net cash outflows of $4.2 million for
fiscal 1997 compared to $6.4 million for fiscal 1998 and $5.1 million for
fiscal 1999.
Investing activities resulted in cash outflows of $728,000 for fiscal 1997,
provided cash of $2.6 million for fiscal 1998 and resulted in cash outflows of
$459,000 for fiscal 1999. Net cash provided by investing activities
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for fiscal 1998 consisted of proceeds from the sale of short-term investments
offset by cash used to acquire property and equipment. Net cash outflows in
fiscal 1997 and fiscal 1999 were due to the acquisition of property and
equipment.
Financing activities provided cash of $4.0 million in fiscal 1997, $5.7
million in fiscal 1998 and $13.4 million in fiscal 1999, primarily through
proceeds from the issuance of preferred stock and net proceeds from debt and
capital lease borrowings.
Purchases of property and equipment, including equipment purchased under
capital leases, were approximately $1.1 million in fiscal 1997, $1.3 million
in fiscal 1998 and $1.5 million in fiscal 1999. These expenditures were
primarily for computer hardware and software and furniture and fixtures. We
expect that capital expenditures will continue to increase to the extent we
continue to increase our headcount or expand our operations.
On August 2, 1999, we entered into separate agreements with Dell Computer
Corporation and Flextronics International Ltd. to sell directly to each of
them $5.0 million of common stock. On August 16, 1999 we entered into a
separate agreement with Marshall Industries to sell directly to them $3.0
million of common stock. The sale price to each of these three investors will
be $19.53 and will close concurrently with this public offering. We intend to
use the proceeds from this sale primarily for general corporate purposes,
including working capital and capital expenditures.
We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future as we:
. enter new markets for our products;
. increase research and development spending;
. increase our sales and marketing activities; and
. enhance our operational and financial systems.
We currently anticipate that the net proceeds from this offering, together
with our current cash, cash equivalents and available credit facilities, will
be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for at least the next 12 months. However, we may need to
raise additional funds in future periods through public or private financings,
or other sources, to fund our operations and potential acquisitions, if any,
until we achieve profitability, if ever. We may not be able to obtain adequate
or favorable financing at that time. Failure to raise capital when needed
could harm our business. If we raise additional funds through the issuance of
equity securities, the percentage of ownership of our stockholders would be
reduced. Furthermore, these equity securities might have rights, preferences
or privileges senior to our common stock.
Year 2000 Readiness
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates or have been programmed with
default dates ending in 99, the common two-digit reference for 1999. As a
result, as we transition from the 20th century to the 21st century, computer
systems and software used by many companies and organizations in a wide
variety of industries will produce erroneous results or fail unless they have
been modified or upgraded to process date information correctly. Significant
uncertainty exists in the software industry and other industries concerning
the scope and magnitude of problems associated with the year 2000 issue.
State of Readiness. We have completed our initial assessment of the
potential overall impact of the impending century change on our business.
Based on our current assessment, we believe the current versions of our
software products are year 2000 compliant. By year 2000 compliant, we mean
that our software products, when used with accurate date data and in
accordance with their associated documentation, are capable of properly
processing date data from, into and between the 20th and 21st centuries,
including the years 1999, 2000 and leap
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years, provided that all other products, e.g., hardware, software and
firmware, used with our products properly exchange date data with them.
However, our products are generally integrated into enterprise systems
involving sophisticated hardware and complex software products that we cannot
adequately evaluate for year 2000 compliance. We may face claims based on year
2000 problems in other companies' products, or issues arising from the
integration of multiple products within an overall system even if our products
are otherwise year 2000 compliant. Although we have not been a party to any
litigation or arbitration proceeding involving our products or services
related to year 2000 compliance issues, we may in the future be required to
defend our products or services in these proceedings, or to negotiate
resolutions of claims based on year 2000 issues. The costs of defending and
resolving year 2000-related disputes, regardless of the merits of these
disputes, and any liability we have for year 2000-related damages, including
consequential damages, could substantially harm our business.
In addition, we believe that the purchasing patterns of customers and
potential customers may be affected by year 2000 issues, as companies expend
significant resources to correct or upgrade their current software systems for
year 2000 compliance and as they delay purchase of new systems that may not be
year 2000 compliant. These expenditures may result in reduced funds available
to purchase software products such as those we offer. To the extent year 2000
issues cause a significant delay in, or cancellation of, decisions to purchase
our products or services, our business would be substantially harmed.
We are currently reviewing our internal management information and other
computer systems to identify any year 2000 problems, and are beginning to
communicate with the external vendors that supply us with material software
and information systems and with our significant suppliers to determine their
year 2000 readiness. We have not completed our year 2000 investigation and
overall compliance initiative.
Costs. To date, we have not incurred any material costs directly associated
with our year 2000 compliance efforts, except for compensation expenses
associated with our salaried employees who have devoted some of their time to
our year 2000 assessment and remediation efforts. We do not expect the total
cost of year 2000 problems to be material to our business. However, during the
months prior to the century change, we will continue to evaluate new versions
of our software products, new software and information systems provided to us
by third parties and any new infrastructure systems that we acquire to
determine whether they are year 2000 compliant. Despite our current
assessment, we may not identify and correct all significant year 2000 problems
on a timely basis. Year 2000 compliance efforts may involve significant time
and expense and unremediated problems could substantially harm our business.
We currently have no contingency plans to address the risks associated with
unremediated year 2000 problems.
Risks. We are not currently aware of any year 2000 readiness problems
relating to our internally-developed proprietary systems that would
substantially harm our business. We may discover year 2000 readiness problems
in these systems that will require substantial revision. In addition, third-
party software, hardware or services incorporated into our material systems
may need to be revised or replaced, all of which could be time-consuming and
expensive. Our failure to fix or replace our internally developed proprietary
software or third-party software, hardware or services on a timely basis could
result in lost revenues, increased operating costs, the loss of customers and
other business interruptions, any of which could substantially harm our
business. Moreover, our failure to adequately address year 2000 readiness
issues in our internally developed proprietary software could result in claims
of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend.
In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and others outside of our control may
not be year 2000 ready. The failure by these entities to be year 2000 ready
could result in a systemic failure beyond our control, such as a prolonged
Internet, telecommunications or electrical failure, which could also prevent
us from delivering our services to our customers, decrease the use of the
Internet or prevent users from accessing web sites.
Contingency Plan. As discussed above, we are engaged in an ongoing year
2000 assessment and have not yet developed any contingency plans. The results
of our year 2000 simulation testing and the responses received
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from third-party vendors and service providers will be taken into account in
determining the nature and extent of any contingency plans we adopt.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position, or SOP, 98-1, Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 will be
effective for our fiscal year ending April 30, 2000. SOP 98-1 provides
guidance on accounting for computer software developed or obtained for
internal use including the requirement to capitalize and amortize specified
costs. We do not expect the adoption of this standard to have a material
impact on our results of operations, financial position or cash flows.
In June 1998, the FASB issued Statement of Financial Accounting Standard,
or SFAS, 133, Accounting for Derivative Instruments and Hedging Activities.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. SFAS 133 will be effective for our
fiscal year ending April 30, 2001. The adoption of SFAS is not expected to
have a material impact on our results of operations, financial position or
cash flows in the foreseeable future.
Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and market our products in North
America, and to a lesser extent in the Europe and Asia Pacific regions. As a
result, our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign
markets. Because all of our revenues are currently denominated in U.S.
dollars, a strengthening of the dollar could make our products less
competitive in foreign markets. Our interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since the majority of
our investments are in short-term instruments. Due to the short-term nature of
our investments, we believe that there is not a material risk exposure.
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BUSINESS
The following description of Agile's business should be read in conjunction
with the information included elsewhere in this prospectus. This description
contains forward-looking statements that involve risks and uncertainties.
Agile's actual results could differ significantly from the results discussed
in the forward-looking statements as a result of the factors set forth in
"Risk Factors" and elsewhere in this prospectus.
Overview
We develop and market product content management software for use over the
Internet within and among companies in a manufacturing supply chain. Our suite
of products is designed to improve the ability of supply chain members to
communicate and collaborate with one another about new or changing product
content. We believe that our products are well-suited for participants
connected in outsourced supply chains, as well as those managing multi-site
engineering, manufacturing, sales and distribution via the Internet. Since
June 1996, when we shipped our first product, we have licensed our products to
approximately 300 customers in the computers and peripherals, components,
consumer electronics, data networking and telecommunications equipment,
electronics manufacturing, medical equipment and semiconductor equipment
markets. Our current customers in these markets include Gateway, Texas
Instruments, Philips Mobile Computing, Lucent Technologies, Solectron, GE
Marquette Medical Systems and FSI International.
Industry Background
The competitive environment for companies engaged in the manufacture and
supply of products has intensified dramatically and expanded globally in
recent years. This trend has been driven principally by productivity
improvements arising from advances in technology and growing customer
expectations for feature-rich products delivered quickly and at competitive
prices. To remain competitive, companies are adopting new strategies to
address these challenges.
Many companies are shifting from traditional manufacturing approaches,
where a manufacturer controls most phases of the manufacturing process from
raw materials to finished goods, to a manufacturing process where much or all
of the manufacturing process is outsourced to multiple companies as part of a
supply chain.
By outsourcing their production, some companies have created supply chains
that are more efficient, dynamic and flexible than manufacturing operations
that control all phases of the manufacturing process. Use of the outsourced
supply chain has afforded companies the flexibility to choose top suppliers
and partners to make each link in the supply chain more competent, innovative
and productive. As companies operate on a global basis, supply chains can span
multiple continents, tying suppliers in one part of the world with a plant in
another to serve customers in a third location. The end result is that
companies can bring their products to market more efficiently while at the
same time achieving higher levels of customer satisfaction.
Managing the Outsourced Supply Chain
A critical aspect of managing the outsourced supply chain across multiple
suppliers is finding effective ways to store, access, and share information
within the company as well as with all supply chain partners during each stage
of the production process. Different stages of the production process generate
many complex types of data that need to be shared across the supply chain.
There are many types of data and a vast number of information flows that can
occur in the production process.
Product Content. During the product design stage, the company must
communicate large amounts of data within the company as well as to supply
chain partners. The company begins by designating the content of the finished
product with a list of components known as the bill of materials. The
components on this list can be
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divided into two classes: "buy" or "make." For the "buy" components, also
called off-the-shelf components, specifications for each part must be
determined and information must be collected and analyzed to determine if the
available components meet the required specifications. Once eligible
components have been selected, the manufacturers of the parts are incorporated
into the approved manufacturers list. For customized, or "make" components,
other data are created, including:
. assembly drawings, detailing precisely how the component should be
fabricated;
. work instructions, which guide the manual assembly process;
. machine instructions, to drive automated manufacturing and assembly
equipment;
. art work, for processes such as printed circuit board fabrication;
. schematics, for describing electronic components and assemblies; and
. test instructions, which enable the suppliers and original equipment
manufacturers to test for conformity to the manufacturer's
specifications.
New Product Introduction. Prior to volume production, the data created
during the product design stage must be communicated to each relevant party in
the supply chain. One of the complexities of the outsourced supply chain model
is that supply chain members often have multiple discrete roles, including
sourcing parts, fabrication, assembling components, testing and delivery. In
addition, the manufacture of a product such as a personal computer can include
several hundred suppliers. Ensuring that accurate product information is
disseminated promptly and to the correct parties is one of the most difficult
challenges for a company employing the outsourced supply chain model. Further,
suppliers may often discover constraints and/or opportunities for improvements
during the prototyping and pilot production phases. This often prompts a
flurry of product changes that requires rapid collaboration among supply chain
partners to avoid delays and excessive start-up or inventory costs.
Volume Production and Product Changes. Product specifications frequently
change even during volume production. This can occur due to a number of
reasons, including:
. changes in design in response to customer requests or market conditions;
. changes required to address a defect in the design or to improve the
manufacturing process; and
. changes in the costs or availability of components.
The communication of information regarding product changes is a dynamic
loop in which members of the supply chain must respond to market-dictated
demands while also reacting to information being shared among supply chain
partners. Whatever the reason for the change, executing it through the
manufacturing process expeditiously and effectively, while minimizing cost, is
a complex problem. To change a design requires:
. creating an engineering change order;
. developing the specifications required by the engineering change order;
. securing the necessary approvals to effect the change; and
. communicating the change to the supply chain.
This problem is especially complex for companies operating in a market
where product specifications or volume requirements may be changing
continuously. For example, the requirements of a personal computer
manufacturer that builds products to order may change continuously during each
day as information regarding orders is received from customers or its sales
force.
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To address these challenges, many companies have implemented software
systems that govern supply chain management, electronic data interchange,
product data management and enterprise resource planning. However, many of
these products were not designed to interconnect multiple companies in an
outsourced supply chain, and therefore do not fully address the need for
supply chain collaboration. Electronic data interchange, a software system
that facilitates interconnection and exchange of data, is expensive to install
and maintain and therefore is viable only to large organizations that can
justify the cost. Other methods of communication and collaboration within the
supply chain, including phone, paper-based solutions such as courier or fax,
or e-mail or web page sources, are not linked in real-time and are slow,
incomplete and often inaccurate.
As product changes become more frequent and time to market increasingly
becomes important, the ability to manage this process effectively becomes
critical to a company's competitiveness. A company that can disseminate
information quickly and accurately to the appropriate supply chain partners
may be in a position to compete effectively. However, a company that is agile
and can effectively collaborate with its supply chain partners in real time
can have an even larger competitive advantage. For example, through
collaboration with its supply chain partners, a company may learn that a
component is not readily available due to lack of supply or that a new
component is available which might substantially reduce costs or improve
manufacturing efficiencies. Instead of continuing to rely on the originally
selected component, the company can respond by incorporating another component
in the product design and notify partners before these components are
incorporated into new products. By doing so, the company has the opportunity
to increase revenues by maintaining product availability or increase profits
by taking advantage of lower cost components more quickly.
Impact of the Internet
The Internet, as a fast growing communications network, is changing the way
businesses communicate and share information and creating new and evolving
ways for conducting commerce. The typical corporate web site is evolving from
a mere repository for information regarding products into a medium for
conducting business. According to Forrester Research, its research indicates
that business-to-business electronic commerce is expected to grow to $1.3
trillion in 2003, accounting for more than 90% of the dollar value of
electronic commerce in the United States. This market is expected to create
substantial demand for Internet and intranet-based commerce applications.
However, we cannot be certain that this projection will be met.
Companies that have successfully implemented strategies to communicate with
their customers over the Internet now face the challenge of utilizing the
Internet and intranets to gain the same level of increased efficiencies in
their supply chain. An Internet-based software solution can offer scalability,
easier implementation, compatibility across diverse information technology
platforms and reduced incremental infrastructure investments. However, many
companies are wary of major software development projects due to the cost and
complications of enterprise application development projects undertaken in
recent years. To compete effectively, companies must implement a solution
which will allow them to interactively communicate information related to
product design, development and manufacturing within the company and will
allow them to collaborate with their supply chain partners. At the same time,
companies want to be able to implement new software systems without the need
to burden already over-taxed internal information technology staffs while
avoiding costs of outside consulting and minimizing incremental
infrastructure-related expenses.
The Agile Solution
Our product content management software is designed to improve the ability
of supply chain members to communicate and collaborate with one another over
the Internet about new or changing product content. Our solution is designed
for use over the Internet, reduces dependence upon traditional methods of
interaction, and allows supply chain members to link to each other without
requiring substantial investments in additional technology infrastructure. We
have also designed our products to allow for rapid implementation by the
manufacturer with limited consulting assistance and by supply chain members
with minimal technical expertise.
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We believe that our products are well-suited for participants in outsourced
supply chains connected via the Internet, as well as those managing multi-site
engineering, manufacturing and sales and distribution. The Agile solution
delivers the following benefits to companies and their supply chain partners:
Enhanced Productivity and Response Time. With the help of our solution,
Agile Anywhere, and the Internet, companies can respond more rapidly to
changes in customer demand, availability of components, market conditions and
manufacturing capacities arising throughout the production cycle. This ability
to effect change even during volume production allows Agile Anywhere users to
adjust production strategies, enabling companies to produce what they can
sell, rather than sell what they can produce. Agile Anywhere also enables
companies to enhance their sales productivity by being first to market with
the right product.
More Cost-Effective Production. The Agile Anywhere suite of products is
designed to help companies increase output, reduce inventory and compress the
time required to complete the production cycle. Through effective
collaboration, both time to market and design effectiveness can be improved.
Companies can benefit by reducing design and production errors due to
miscommunication within the supply chain, and can decrease operating
inefficiencies incurred when obsolete parts are specified and incorrectly
built products must be scrapped.
More Rapid Return on Investment. Because Agile Anywhere is based on
existing industry standards and does not require the implementation of custom
data models, Agile Anywhere implementations can be completed in less time than
required for traditional enterprise software applications which tend to
require extensive customization.
The Agile Growth Strategy
Our objective is to be the leading provider of product content management
software, enabling business-to-business global collaboration among supply
chain partners. Key elements of our strategy include:
Provide Superior Customer Satisfaction. We expect to continue to build a
highly referenceable customer base of market leaders in various vertical
markets. We intend to continue to focus significant resources on customer
satisfaction programs. We intend to continue to anticipate customer needs by
introducing new product functionality and new technology platforms. We believe
this focus can help create high levels of customer loyalty, which can provide
follow-on sales opportunities and shorter sales cycles.
Capitalize on Network Effects to Expand Our Customer Base. As users of
Agile Anywhere deploy our software across their supply chains, additional
supply chain members will be exposed to our solution and the functionality
provided by our products. We believe that this exposure, which allows non-
customer participants in the supply chain to benefit from our solution first
hand, creates a network effect that accelerates industry recognition and
adoption of our products. As additional members of a supply chain deploy Agile
Anywhere, the quality and timeliness of available information improves, which
increases the value to each participant and helps drive greater usage.
Pursue a Vertical Market Strategy. Since inception, we have pursued a
vertical market strategy, developing product features tailored for particular
industries. To date, we have focused on various electronics market segments,
including data communications, computers and peripherals, and the medical
device market. We seek to further penetrate our current markets while
addressing new vertical markets characterized by high rates of product change,
short product cycles, and extensive supply chains.
Leverage Our Technology Platform. We intend to continue to pioneer new
Internet business applications based on emerging standards supporting
electronic commerce. For instance, we have leveraged the Java computer
programming language to deliver a robust, powerful and rapidly deployable
Internet business application to our customers. Further, we have taken the
initiative to define a protocol for supply chains, Product Definition
eXchange, or PDX, based on eXtensible Mark-up Language, or XML, and have
submitted it to
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industry standards groups for approval. We intend to lead technological
innovation in the product content management market, offering our customers
solutions designed to provide a rapid and high return on investment.
Extend Supply Chain Collaboration and Functionality. We believe our
solution provides a robust platform to enable us to extend the functionality
and application of our products to the creation and delivery of new value-
added applications. We intend to continue to develop our products to enable
increased collaboration among outsourced supply chain partners and to address
new opportunities that result from new business processes that are being
created for Internet-based collaboration and interaction among supply chain
partners.
The Agile Suite of Products
The Agile Anywhere suite of products provides a comprehensive business-to-
business solution to the problem of product change collaboration across the
manufacturing supply chain. Utilizing XML technology, Agile Anywhere will
allow supply chain partners to share and collaborate on product content and
changes in real time via the Internet. Agile Anywhere is designed to provide
the scalability, security and open standards that are required in an
electronic supply chain. At the core of the Agile Anywhere suite is the Agile
eHub, which manages product content, processes and business rules. Users
interact with the product content within the eHub via the My Agile portal.
Enterprises that manage and create the product content interact with the Agile
iCM client. Utilizing the Agile eXpress Viewer, product content can also be
published to users anywhere throughout the supply chain. To complete the
suite, Agile provides several integration products that import, export, and
publish product content from or to existing design, manufacturing, finance,
and supply chain systems. Following the initial implementation of Agile
Anywhere, licenses for additional concurrent users and application-specific
modules can be added to expand the scope of the manufacturer's
implementations.
In our latest release, available starting in July 1999, we have renamed our
product suite "Agile Anywhere." Previously known as Agile Workplace, our
latest release retains all of the core technology and functionality provided
by earlier releases, but adds significant enhancements to the number of users
that can be accommodated, and the speed and performance of our solutions.
Agile Anywhere also incorporates additional security features, and provides
enhanced capabilities for the transmission and exchange of data and
integration with other software applications, allowing for further
collaboration capabilities among supply chain partners.
As part of the enhancements, individual products in the suite have been
renamed, and Agile eXpress Viewer and a software development kit have been
included as new products in the suite. All products in the suite are available
separately or in connection with other products in the suite.
Agile eHub
The foundation of the suite is Agile eHub. The Agile eHub is comprised of
application servers that enable users to define, store, change and manage
product content information. Agile eHub incorporates new technology for high
speed performance, storage and secure data, and is designed to scale to
accommodate the needs of supply chain partners of all sizes. It is also
designed to facilitate fast, direct Internet access, and is easily
implemented. Agile eHub includes one or more of the following server modules:
Agile Product Definition Server, previously Agile Configurator, manages
parts, documents, bills of materials and drawings, in a web environment that
provides fast, easy access to product content for all members of the supply
chain.
Agile Product Change Server, previously Agile CCB, automates the electronic
routing, notification and sign-off processes that are associated with
engineering changes. This functionality can result in reduced ordering errors
and costs and improved cycle times associated with evaluating, approving and
implementing changes.
Agile AML Server, previously Agile Parts, enables companies to collaborate
with supply chain partners on approved parts and manufacturers at the time of
new product introduction as well as tracking changes throughout the
manufacturing process.
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Agile Administrator enables companies to easily and rapidly configure and
modify Agile Anywhere components without writing code. Agile Administrator,
which has not been renamed, speeds the implementation of the Agile Anywhere
suite and minimizes maintenance time.
Accessing Agile eHub
Agile customers and their supply chain partners can gain access to product
content for review or modification by the following:
Agile iCM (Internet Content Manager) is designed for individuals who have
responsibility for managing a product and its content through its entire
lifecycle. This functionality is also provided through Agile CM, a module
designed for Windows-based applications.
My Agile includes a web portal to allow secure, personalized web access to
product content that is stored in any Agile eHub. It is an intuitive, easy-to-
use portal allowing users to link to any or all of their supply-chain
information sources in a customizable interface and participate in product
content related processes via the Internet.
Agile eXpress Viewer allows supply chain partners to send and receive
information in the PDX format, a new standard for data exchange that we have
first offered with Agile Anywhere. Agile eXpress Viewer will be available for
downloading free of charge from the Agile web site, to enable supply chain
partners to share data even if they are not Agile customers.
Agile Integration Products
Product content information flows throughout the supply chain, and is
published to or from Agile Anywhere and a variety of other design,
manufacturing, finance and supply chain systems. Agile Anywhere integration
products, previously available with Agile Workplace, provide data exchange
between systems, as follows:
Agile ChangeCAST publishes released engineering change orders, approved
parts lists, approved manufacturers lists and bills of materials from Agile to
separate enterprise resource planning systems.
Agile Scan allows customers to scan drawings and documents into the Agile
eHub database.
Agile Import allows customers to import bills of materials produced in
ASCII format or in Microsoft Excel, providing a consolidated database of
product information.
Agile Export provides a quick and easy method of exporting information to
an ASCII file, allowing information in Agile Anywhere to be shared with other
business applications.
Agile Software Development Kit, newly available with Agile Anywhere, allows
customers and partners to develop complementary applications integrating Agile
Anywhere with design, manufacturing, customer service, supply chain or other
legacy systems. The Agile Software Development Kit allows users to write
applications in Java, Visual Basic and Visual C++.
Initial implementations of the Agile Anywhere suite typically include the
Agile eHub and one or more server modules such as what we now call the Product
Definition Server, Product Change Server and AML Server, together with user
licenses, and one or more of the integration products, in particular Agile
ChangeCAST, and often a third-party adapter for other existing enterprise
systems of the customer. Following the initial implementation, additional user
licenses and additional server modules may be purchased.
Customers
To date, we have licensed our products to approximately 300 customers,
predominantly within the electronics and medical device manufacturing
industries. No customer accounted for more than ten percent of our total
revenues in fiscal 1997, fiscal 1998 or fiscal 1999.
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The following is a representative list of current customers in our targeted
industry markets that to date have purchased over $50,000 of Agile products
and services. These customers represented more than 26% of our total revenue
for fiscal 1999:
<TABLE>
<S> <C> <C>
Datacom/Telecom Equipment Computers and Peripherals Medical Equipment
Alcatel Schweiz Diamond Multimedia Systems EndoSonics
Aspect Telecommunications Fujitsu Computer Products GE Marquette Medical Systems
Brocade Communications Systems Gateway Guidant
Lucent Technologies Hitachi Hologic
Nortel Networks Iomega Humphrey Instruments
PairGain Packard Bell Visx
Xircom
Electronics Manufacturing Components Semiconductor Equipment
EFTC Advanced Micro Devices Credence Systems
Flextronics International Micron Technology Electro-Scientific Industries
Pemstar Reltec Communications FSI International
Solectron Texas Instruments Johnson Matthey Electronics
Xetel VLSI Technology Strasbaugh
Consumer Electronics
3Com Palm Computing
Dolby Laboratories
Philips Mobile Computing
Scientific Atlanta
WebTV Networks
</TABLE>
Product Technology and Architecture
The Agile Anywhere product suite is designed upon open systems based on
software industry standards for scalable Internet applications. The result is
a low cost, low maintenance end-user business application that eliminates the
need for complex custom or in-house development. Agile Anywhere is built on an
Internet-based architecture:
. The core of our architecture is the Agile eHub, the application server,
which currently runs on Microsoft NT. The application server is the
intermediary between the iCM and My Agile applications and the database,
providing the necessary security for validation of the data, and the web
server, which hosts the Internet access to Agile Anywhere. We use
encryption technology licensed from RSA Data Security to maintain secure
data when transported over the Internet.
. The applications are Java and HTML-based applications that can run on
versions of Microsoft Internet Explorer and Netscape Navigator. There is
also a Windows application for users who prefer a Windows user interface
rather than a web browser interface. Operating systems supported include
Windows 95, Windows 98, Windows NT and Sun Solaris. We follow the
Microsoft standards for the Windows 95 and 98 CM clients, and Internet
standards for the Java iCM application running within Microsoft Internet
Explorer and Netscape Communicator. Our products can be integrated with
more than 15 enterprise resource planning systems including, among
others, Oracle, J.D. Edwards and SAP.
. The backend includes the database server, which is either Oracle or
Microsoft SQL Server, and the Agile Internet File Server. We connect with
Microsoft SQL Server through Open Database Connectivity, and Oracle's
database through direct integration.
39
<PAGE>
We are certified in Windows Back-Office, Oracle CAI, as a Microsoft
Solution Provider, and from Sun Microsystems Inc. in "100% Pure Java." The
Agile Anywhere suite is enabled for both single-byte and double-byte
localization, and has been localized for French. We intend to provide
localization for additional languages.
We have entered into platform alliances to ensure our products are based on
industry standards and to enable us to take advantage of current and emerging
technologies, including alliances with Sun Microsystems, Oracle and Microsoft.
To promote development, definition, adoption, promotion and implementation of
open standards that can be leveraged by Agile Anywhere, we work with several
industry standards organizations such as the National Institute of Standards
and Technology, National Electronics Manufacturing Initiative, Institute for
Interconnecting and Packaging Electronic Circuits, RosettaNet, and World Wide
Web Consortium. We are involved with Solectron, Marshall Industries, and other
industry participants in an initiative to define an XML-based protocol called
Product Definition eXchange.
Product Development
Our product development objectives are to:
. be innovative in developing solutions to remove complexity from supply
chain collaboration;
. develop products that require no custom code, contain reusable components
and are easy to use, implement, maintain, and upgrade; and
. adopt industry standard technologies.
Our software development staff is divided into teams consisting of
development engineers, project managers, quality assurance engineers, and
technical writers. Working closely with our marketing department, we determine
product functionality based upon market requirements, customer feedback,
available technical support and customer engineering in addition to emerging
technologies allowing us to develop additional features.
We introduced our first product, Agile Configurator version 1.3, in June,
1996 and have subsequently released nine revisions, adding over a dozen new
modules. During this time, the product has evolved from a 2-tiered client-
server database application running on Oracle to a multi-tiered application
supporting both Windows and Java clients, and both Oracle and Microsoft SQL
Server databases. Our product development activities are focused on broadening
the scalability and functionality of Agile Anywhere, enhancing scalability,
and including application interfaces that allow customers to more easily
integrate Agile Anywhere with other systems.
Our research and development expenses were $2.5 million for fiscal 1997,
$3.8 million for fiscal 1998 and $4.7 million for fiscal 1999, and we expect
to continue to invest significantly in research and development in the future.
We cannot be sure that we will complete our existing and future development
efforts within our anticipated schedule or that our new and enhanced products
will have the features to make them successful. We may experience difficulties
that could delay or prevent the successful development, introduction or
marketing of new or enhanced products. In addition, these new and enhanced
products may not meet the requirements of the marketplace and achieve market
acceptance. Furthermore, despite testing by us, our implementation partners
and our customers, errors might be found in new products or in releases after
shipment, resulting in loss of revenue or delay in market acceptance and
sales, diversion of development resources, injury to our reputation or
increased service and warranty costs.
Sales and Marketing
Our sales and marketing organization is responsible for identifying and
developing vertical markets as well as identifying and notifying our research
and development staff of customer product requirements. We market and sell our
products primarily through our direct sales force located at our headquarters
in San Jose, California,
40
<PAGE>
and at regional and local sales offices in the United States and at one office
in France. Our direct sales force consists of Major Account Executives who
focus entirely on our major accounts, Senior Account Executives who focus on
specific geographic territories, and Emerging Technology Manufacturers Account
Executives who focus on emerging and smaller-sized companies. We also market
and sell through our direct telesales and telemarketing representatives. Sales
engineers at most regional offices provide pre-sales technical support. We
intend to expand our domestic and international direct sales force
significantly by expanding into additional geographic locations. We are also
in the early stages of complementing our direct sales force, particularly
internationally, through additional distribution channels, including non-
exclusive distributors, integrators and consulting partners.
To support our direct sales efforts and to actively promote our Agile
brand, we engage in a variety of marketing activities. These include co-
marketing strategies with our existing business partners, targeting additional
strategic relationships, managing and maintaining our web site content,
advertising in industry and other publications, conducting public relations
campaigns and establishing and maintaining relationships with recognized
industry analysts. We also actively participant in manufacturing-related trade
shows.
A critical element of our sales strategy is to establish marketing
alliances to promote sales and marketing of our products, as well as to
increase product interoperability. We also pursue services alliances with
consulting and integration firms to implement our software, provide customer
support services, create customized customer presentations and demonstrations
and endorse our products during the evaluation stage of the sales cycle. We
believe that our relationships with these service providers may shorten our
sales cycle because these service providers have generated and qualified sales
leads, made initial customer contacts and assessed needs prior to our
introduction. We currently have relationships with Siemens and Origin
Technology in Business.
Customer Service and Support
Consulting and Implementation. We offer services, primarily on a fixed-
price basis, to assist in implementation planning, product installation,
implementation assistance, legacy data loading and effectiveness audits. To
facilitate and enhance the integration of our products, we have alliances for
integration of our products with existing design, manufacturing, finance and
supply chain systems. This approach allows us to focus on our core
competencies and leverage our partners' domain knowledge, which helps reduce
time to market both for us and our customers.
Customer Support. We believe that responsive technical support is a
requirement for our continued growth. We provide technical support and
unspecified product upgrades on a when-and-if available basis through our
annual maintenance program. Our customers are not entitled to new products
under our annual maintenance program. Customers generally purchase the first
year of support at the time they initially license a product. After the
initial term, support may be renewed on an annual or multi-year basis.
Customer support is offered by telephone, email, fax and Internet-based
support that features frequently asked questions, technical alerts, product
upgrades and updates, problem reporting and analysis, and self-help through
our on-line knowledge base. In addition, our consulting and implementation
partners provide customer support and maintenance in some instances. Revenues
associated with maintenance contracts are recognized ratably over the term of
the maintenance contract, which is generally 12 months.
Training. We offer a variety of classes and related materials to train our
customers on system administration, upgrades and new releases. These classes
are also available as part of our Train the Trainer program. Training classes
are offered at our headquarters in San Jose, California, at customer sites,
and at other locations. To improve access to our explanatory materials, we
offer on-line documentation contained on the compact discs for our products
and from our web site for all our products. We also offer on-line help for the
majority of our products. Customers can purchase additional documentation via
our web site.
Competition
The market for product content management software is new, highly
fragmented, rapidly changing and increasingly competitive. We expect
competition to persist and intensify, which could result in price reductions,
41
<PAGE>
reduced gross margins and loss of market share, any one of which could
seriously harm our business. Competitors vary in size and in the scope and
breadth of the products and services offered.
We believe that our ability to compete depends on many factors both within
and beyond our control, including:
. the performance, functionality, price, reliability and speed of
implementation of our solutions;
. the timing and market acceptance of new products and product enhancements
to our Agile Anywhere suite of products;
. the quality of our customer service; and
. the effectiveness of our sales and marketing efforts.
Although we believe that we currently compete favorably as to each of these
factors, our market is relatively new and our product content management
software is a new category of products. In particular, we believe that we
offer a suite of product content management software that offers collaborative
and interactive capabilities that many of our competitors do not effectively
provide. However, we encounter competition with respect to different aspects
of our solution from a variety of vendors. We currently face three primary
sources of competition:
. in-house development efforts by potential customers or partners;
. vendors of engineering information management software, such as
Parametric Technology Corporation, Dassault Systemes S.A., Structural
Dynamics Research Corporation and Unigraphics Solutions, Inc.; and
. developers of general purpose groupware software addressing only limited
technology components of engineering change management, including
companies such as Novell, Inc. and Lotus Development Corporation.
In addition, we face potential competition from providers of enterprise
software who seek to extend the functionality of their products, such as
Oracle Corporation, SAP A.G., i2 Technologies, Inc., Aspect Development, Inc.
and Baan Company N.V.
We may not be able to maintain our competitive position against current and
potential competition, particularly competitors that have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do and therefore may be able to respond more quickly to new
or changing opportunities, technologies and customer requirements. Also, many
current and potential competitors have greater name recognition and more
extensive customer bases that could be leveraged to gain market share to our
detriment. These competitors may be able to undertake more extensive
promotional activities, adopt more aggressive pricing policies, and offer more
attractive terms to purchasers than we can. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to enhance their products. Accordingly it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. We also expect that competition may
increase as a result of industry consolidation. We may not be able to maintain
our competitive position against current and potential competitors, especially
those with significantly greater financial, marketing, service, support,
technical and other resources.
Proprietary Rights
Our success and ability to compete depend upon our proprietary technology.
We rely on patent, copyright, trade secret and trademark law to protect our
proprietary information. We also typically enter into agreements with our
employees, consultants and customers to control their access to and
distribution of our software, documentation and other proprietary information.
Nevertheless, a third party could copy or otherwise obtain our software or
other proprietary information without authorization, or could develop software
competitive to ours. Our means of protecting our proprietary rights may not be
adequate and our competitors may independently develop similar technology,
duplicate our products or design around patents that may be issued to us or
our other
42
<PAGE>
intellectual property. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States, and we expect that it will become more difficult to monitor the
use of our products if we increase our international presence.
We utilize database management software from Microsoft and Oracle for our
database servers. Our customers can purchase this software directly from
Microsoft and Oracle or from us. In addition, we integrate third-party
software into our products from RSA Data Security for security and encryption
technology, from Actuate for reporting capability and from Cimmetry Systems
for our viewers. This third-party software may not continue to be available on
commercially reasonable terms. If we cannot maintain licenses to this third-
party software at an acceptable cost, shipments of our products could be
delayed until equivalent software could be developed or licensed and
integrated into our products. We do not believe that our business could be
considered to be substantially dependent on any one of these license
agreements, and none of these licenses are responsible for a significant
amount of our revenues.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible
that, in the future, third parties may claim that we or our current or
potential future products infringe their intellectual property. We expect that
software product developers and providers of electronic commerce solutions
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and the functionality of
products in industry segments overlaps. Any claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment
delays or require us to enter into royalty or licensing agreements. If our
products were found to infringe a third party's proprietary rights, we could
be required to enter into royalty or licensing agreements in order to continue
to be able to sell our products. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us or at all, which could
seriously harm our business.
Employees
As of April 30, 1999, we had a total of 156 employees. Of this total, 37
were in engineering, 51 in sales and marketing, 46 in professional services,
including technical support and customer training, and 22 in finance and
administration. We also retain independent contractors to support activities
such as our professional services and product development. Our success depends
on our ability to attract and retain qualified, experienced employees. None of
our employees are represented by a collective bargaining unit, and we have
never experienced a work stoppage. We consider our relations with our
employees to be good.
Facilities
Our headquarters are currently located in a leased facility in San Jose,
California, consisting of approximately 43,000 square feet under a lease
expiring in 2002 with expansion and renewal options, of which approximately
12,000 square feet is currently sublet to other tenants on short-term
subleases. We also lease offices for sales and service personnel in eight
locations in the United States as well as in Paris, France. We believe our
current facilities will be adequate to meet our needs for the foreseeable
future.
Legal Proceedings
We are currently involved in litigation with Facilities Management
International, a Southern California based systems integration company that
filed a complaint against us in the Superior Court for the State of
California, County of Orange, on February 19, 1999. The complaint alleges our
interference with prospective economic advantage and unfair business practices
in connection with our quote for services to one of our customers. We have
responded by filing an answer that denies all allegations. The lawsuit seeks
unspecified compensatory and punitive damages as well as injunctive relief. We
intend to defend ourselves vigorously, and after consideration of the nature
of the claims do not believe that resolution of this matter will harm our
business. However, due to the inherently uncertain nature of litigation and
the fact that discovery has yet to take place, we cannot determine the
possible loss, if any, that we may ultimately incur either in the context of a
trial or as a result of a negotiated settlement. Our defense of this
litigation, regardless of its outcome, could result in the expenditure of
significant financial and managerial resources.
43
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of August 18, 1999
are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Bryan D. Stolle......... 41 Chairman of the Board, Chief Executive Officer, President and Director
Thomas P. Shanahan...... 53 Executive Vice President, Chief Financial Officer, Secretary and Director
D. Kenneth Coulter...... 54 Senior Vice President, Worldwide Field Operations
Mark C. Irvine.......... 42 Vice President, North American Field Operations
Gregory G. Schott....... 35 Vice President, Business Development
Carol B. Schrader....... 43 Vice President, Marketing
Dorothy O. Wise......... 38 Vice President, Development and Support
Klaus-Dieter Laidig..... 57 Director
Michael Moritz.......... 44 Director
James L. Patterson...... 61 Director
Nancy J. Schoendorf..... 44 Director
</TABLE>
Bryan D. Stolle is a co-founder of Agile and has served as our President
and Chief Executive Officer and a member of our board of directors since our
inception in March 1995. From 1987 to 1994, Mr. Stolle served as Director of
Product and Strategic Marketing at Sherpa Corporation, a developer of
enterprise product data management software. From 1983 to 1987, Mr. Stolle
served as Marketing Officer at Rexcom Systems, a software company co-founded
by Mr. Stolle. Mr. Stolle received a B.A. in Business Administration and an
M.B.A. from the University of Texas at Austin.
Thomas P. Shanahan is a co-founder of Agile and has been a member of our
board of directors since our inception in March 1995. Since November 1997, Mr.
Shanahan has served as Agile's Executive Vice President and Chief Financial
Officer. From 1994 to 1997, Mr. Shanahan served as Vice President and Chief
Financial Officer of Digital Generation Systems, Inc., a provider of digital
distribution systems to the broadcast advertising industry. From 1993 to 1994,
Mr. Shanahan served as Chief Financial Officer of Sherpa Corporation. Mr.
Shanahan received a B.A. in Economics from Stanford University and an M.B.A.
from Harvard University.
D. Kenneth Coulter has served as Agile's Senior Vice President of Worldwide
Field Operations since August 1999. From 1998 to 1999, Mr. Coulter served as
President, and as Senior Vice President, Worldwide Sales, at TriStrata, Inc.,
a provider of network security software. From 1997 to 1998, Mr. Coulter served
as Senior Vice President, Worldwide Sales, at Memco Software, a provider of
network security software. From 1988 to 1997, Mr. Coulter served in various
positions culminating in Executive Vice President, Worldwide Operations, at
Informix Software, a provider of database software.
Mark C. Irvine has served as Agile's Vice President of North American Field
Operations since May 1999. From 1996 to 1999, Mr. Irvine served as Director,
Western Field Operations, at Agile. From 1995 to 1996, Mr. Irvine served as
Vice President, Sales, at ExpertEdge Corp., a field service application
software company. From 1991 to 1995, Mr. Irvine served as District Manager at
Sybase, Inc. Mr. Irvine received a B.A. in Biology from the University of
Colorado.
Gregory G. Schott has served as Agile's Vice President of Business
Development since June 1999. From 1997 to 1999, Mr. Schott served as Vice
President of Marketing at Digital Generation Systems, Inc., a provider of
digital distribution systems to the broadcast advertising industry. From 1996
to 1997, Mr. Schott served as Vice President of Operations, from 1995 to 1996
as Director of Business Development and from 1994 to 1995 as Director of
Operations, all at Digital Generation Systems. From 1991 to 1994, Mr. Schott
served as a management consultant at The Boston Consulting Group. Mr. Schott
received a B.S. in Mechanical Engineering from North Carolina State University
and an M.B.A. from Stanford University.
Carol B. Schrader has served as Agile's Vice President of Marketing since
October 1997. In 1997, Ms. Schrader served as an independent consultant with
Killarney Group. From 1995 to 1997, Ms. Schrader
44
<PAGE>
served as Director, Industry Development at Documentum, Inc., a provider of
web content management solutions. From 1990 to 1995, Ms. Schrader served as
Director, Market Development at Sherpa Corporation. Ms. Schrader received a
B.A. in Business Management from Clarke College.
Dorothy O. Wise has served as Agile's Vice President of Development and
Support since March 1996. From 1994 to 1996, Ms. Wise served as Vice
President, Quattro Pro Business Unit, at Novell, Inc., a provider of network
services operating system software. Ms. Wise received a B.S.E. in Electrical
Engineering and Computer Science from Princeton University.
Klaus-Dieter Laidig has served as a director of Agile since 1998. Mr.
Laidig has served as a management consultant with Laidig Business Consulting
GmbH since 1998. From 1984 to 1997, Mr. Laidig served as General Manager of
Hewlett-Packard GmbH. Mr. Laidig currently serves as a director of SAP AG,
Henninger Braeu AG and several privately held companies. Mr. Laidig received
an M.B.A. from the Pforzheim University of Applied Sciences in Germany.
Michael Moritz has served as a director of Agile since 1996. Mr. Moritz has
been a general partner of Sequoia Capital, a venture capital firm, since 1986.
Mr. Moritz serves as a director of eToys, Inc., Flextronics International
Ltd., Yahoo! Inc. and several additional private companies. Mr. Moritz
received an M.A. from Christ Church, Oxford.
James L. Patterson has served as a director of Agile since 1996. Mr.
Patterson has been an independent consultant since 1989. Mr. Patterson
currently serves as a director of Latitude Communications, Inc., a provider of
integrated voice and data conferencing solutions, and several privately held
companies. Mr. Patterson received a B.S. in Electrical Engineering from the
University of Colorado.
Nancy J. Schoendorf has served as a director of Agile since 1995. Ms.
Schoendorf has been a general partner of Mohr, Davidow Ventures, a venture
capital firm, since 1994, and a Managing Partner since 1997. Prior to joining
Mohr, Davidow Ventures, Ms. Schoendorf spent 17 years in the computer industry
including management positions with Hewlett-Packard, Software Publishing
Corporation and Sun Microsystems. Ms. Schoendorf currently serves as a
director of Actuate Software Corp., a provider of enterprise reporting
software solutions and several privately held companies. Ms. Schoendorf
received a B.S. in Computer Science from Iowa State University and an M.B.A.
from Santa Clara University.
Board of Directors
Upon completion of the offering, the terms of the board of directors will
be divided into three classes: Class I, whose term will expire at the annual
meeting of stockholders to be held in 2000; Class II, whose term will expire
at the annual meeting of stockholders to be held in 2001; and Class III, whose
term will expire at the annual meeting of stockholders to be held in 2002. The
Class I directors are Mr. Moritz and Mr. Laidig, the Class II directors are
Ms. Schoendorf and Mr. Patterson, and the Class III directors are Mr. Stolle
and Mr. Shanahan. At each annual meeting of stockholders after the initial
classification, the successors to directors whose term expires will be elected
to serve a term of three years. This classification of directors may have the
effect of delaying or preventing changes in our control.
Board Committees
Audit Committee. The board of directors has established an audit committee
consisting of Mr. Laidig and Mr. Moritz. The audit committee reviews with our
independent accountants the scope and timing of their audit services and any
other services that they are asked to perform, the independent accountants'
report on our consolidated financial statements following completion of their
audit, and our policies and procedures with respect to internal accounting and
financial controls. In addition, the audit committee makes annual
recommendations to our board of directors for the appointment of independent
accountants for the ensuing year.
Compensation Committee. The board of directors has established a
compensation committee consisting of Mr. Patterson and Ms. Schoendorf. The
compensation committee makes recommendations to the board concerning salaries
and incentive compensation for our officers and employees and administers our
employee benefit plans.
45
<PAGE>
Director Compensation
Our directors do not receive any cash compensation for their services as
directors but are reimbursed for their reasonable travel expenses in attending
meetings of the board of directors. Our directors are eligible to participate
in our 1995 Stock Option Plan and employee-directors will be able to
participate in our 1999 Employee Stock Purchase Plan. Mr. Laidig received an
option to purchase 50,000 shares of common stock at an exercise price of $2.65
per share when he joined the board of directors in November, 1998.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between any member of our board of
directors or our compensation committee and any member of the board of
directors or compensation committee of any other company, and no such
relationship has existed in the past. Prior to the creation of our
compensation committee in May 1999, all compensation decisions were made by
our full board. Neither Mr. Stolle nor Mr. Shanahan participated in
discussions by our board with respect to his compensation.
Employment Contracts, Termination of Employment and Change of Control
Arrangements
None of our executive officers is employed under an employment agreement
with significant contractual severance provisions. However, if any of our
executives is terminated without cause during the eighteen months following a
change of control, then vesting of all options to purchase our common stock
held by these employees will accelerate.
Executive Compensation
The following table presents information regarding the compensation paid to
our chief executive officer and each of our other highest-paid executive
officers whose total salary and bonus exceeded $100,000 for the fiscal year
ended April 30, 1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
---------------- --------------
Securities
Underlying All Other
Name and Principal Position Salary Bonus Options/SARs(#) Compensation
- --------------------------- -------- ------- -------------- ------------
<S> <C> <C> <C> <C>
Bryan D. Stolle................. $159,997 $50,000 125,000 $4,000
Chairman and Chief Executive
Officer
Thomas P. Shanahan.............. 146,664 29,735 25,000 --
Chief Financial Officer
Mark C. Irvine.................. 87,000 264,902 18,000 3,600
Vice President, North America
Field Operations
Carol B. Schrader............... 114,000 19,000 32,000 --
Vice President, Marketing
Dorothy O. Wise................. 138,000 41,669 25,000 --
Vice President, Development and
Support
</TABLE>
Option Grants in Last Fiscal Year
The following table designates each grant of stock options during the
fiscal year ended April 30, 1999 to our chief executive officer and each of
our other highest-paid executive officers. All of these options were granted
under our 1995 Stock Option Plan. Each of these options has been exercised,
but the shares purchased under
46
<PAGE>
these options are subject to repurchase by us at the original exercise price
paid per share upon the optionee's cessation of service with us prior to
vesting of the shares. Our repurchase right lapses and the optionee vests in
20% of his or her option shares upon completion of 12 months of service from
the vesting start date and vests in the balance in a series of equal monthly
installments over the next four years of service. Vesting of the option shares
will fully accelerate upon a change in our control and involuntary termination
of the employee's services during the subsequent 18 months.
The percentages in the column entitled "Percent of Total Options Granted to
Employees in Fiscal 1999" are based on an aggregate of 978,275 options granted
to our employees under our 1995 Stock Option Plan during the fiscal year ended
April 30, 1999. The exercise price of each option is equal to the fair market
value of our common stock as determined by the board of directors on the date
of grant, taking into account the purchase price paid by investors for shares
of our preferred stock, the liquidation preferences and other rights,
privileges and preferences associated with the preferred stock and an
evaluation by the board of directors of our revenues, operating history and
prospects.
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. For purposes of these columns, we assumed
stock price appreciation of 5% and 10% as required by the Securities and
Exchange Commission. These rates of appreciation do not represent our
prediction of our stock price performance. The potential realizable values at
5% and 10% appreciation are calculated by assuming that the estimated fair
market value on the date of grant, based upon the initial public offering
price of $21.00 per share, appreciates at the indicated rate for the entire
term of the options and that the option is exercised at the exercise price and
sold on the last day of its term at the appreciated price.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
--------------------------------------------- ---------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal 1999 ($/Share) Date 5% 10%
---- ---------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bryan D. Stolle......... 33,333 3.4% $3.00 3/26/09 $1,040,216 $1,715,603
91,667 9.4 3.00 3/26/09 2,860,633 4,717,971
Thomas P. Shanahan...... 25,000 2.6 2.50 8/25/08 792,670 1,299,215
Mark C. Irvine.......... 3,000 .3 1.75 5/21/08 97,370 158,156
15,000 1.5 2.65 11/17/08 473,352 777,279
Carol B. Schrader....... 22,000 2.3 2.35 7/8/08 700,849 1,146,609
10,000 1.0 2.65 11/17/08 315,568 518,186
Dorothy O. Wise......... 25,000 2.6 2.65 11/17/08 788,920 1,295,465
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table presents for our chief executive officer and each of
our other highest-paid executive officers the number of options exercised
during the fiscal year ended April 30, 1999 and the number and value of
securities underlying unexercised options that are held by our chief executive
officer and each of our other highest-paid executive officers as of April 30,
1999. Each of the options listed in the table is immediately exercisable. The
shares purchased under the options may be repurchased by us at the original
exercise price paid per share if the optionee ceases service with us before
vesting in the shares. The heading "Vested" refers to shares no longer subject
to repurchase; the heading "Unvested" refers to shares subject to repurchase
as of April 30, 1999. The numbers in the column entitled "Value of Unexercised
In-the-Money Options at April 30,
47
<PAGE>
1999" are based on the initial public offering price of $21.00 per share and
net of the exercise price payable for these shares.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Shares Options at Options at
Acquired on April 30, 1999 April 30, 1999 ($)
Exercise Value --------------- --------------------
(#) Realized ($) Vested Unvested Vested Unvested
----------- ------------ ------ -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Bryan D. Stolle......... -- -- -- 175,000 -- $3,227,500
Thomas P. Shanahan...... -- -- -- 25,000 -- 462,500
Mark C. Irvine.......... 3,000 -- -- 15,000 -- 275,250
Carol B. Schrader....... 22,000 $51,700 -- 10,000 -- 183,500
Dorothy C. Wise......... -- -- -- 25,000 -- 458,750
</TABLE>
Stock Plans
1995 Stock Option Plan. Our 1995 stock option plan was approved by our
board of directors in May 1995 and by our stockholders in January 1996. The
plan provides for the grant of incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code, to employees, and for grants of
nonstatutory stock options and stock issuances to employees, including
officers, non-employee directors and consultants.
The plan is currently administered by the compensation committee. Subject
to the provisions of the plan, the board or its committee has the authority to
select the persons to whom options or stock issuances are granted and
determine the terms of each option or stock issuance, including:
. the number of shares of common stock covered by the option or stock
issuance;
. when the option becomes exercisable or when the stock issuance vests;
. the per share option exercise price, which in the case of incentive stock
options must be at least equal to the fair market value of a share of
common stock on the grant date or 110% of such fair market value for
incentive stock options granted to 10% stockholders, and, in the case of
nonstatutory stock options, must be at least 85% of the fair market value
of a share of common stock on the grant date; and
. the duration of the option, which for incentive stock options may not
exceed ten years, or, with respect to incentive stock options granted to
10% stockholders, five years.
Generally, options granted under the plan are immediately exercisable.
Options and stock issuances granted under the plan generally vest over five
years, although the board or its committee may specify a different vesting
schedule for a particular grant. Options granted under the plan are non-
transferable other than by will or the laws of descent and distribution;
provided, however that the board or its committee may provide that
nonstatutory stock options are transferable for estate planning purposes,
subject to applicable law. Unvested shares issued pursuant to a stock issuance
are generally non-transferrable.
In the event of a change in control of Agile, the acquiring or successor
corporation may either assume the outstanding options granted under the plan
or replace the options with a cash incentive program that is paid out in
accordance with the original vesting schedule and that preserves the spread on
the unvested shares subject to the options. If the options or stock issuances
are not assumed or replaced by the acquiring or successor corporation, then
the shares subject to each option outstanding under the plan at the time of
the change in control shall automatically vest in full, and then expire.
48
<PAGE>
corporation, then the shares subject to each option outstanding under the plan
at the time of the change in control shall automatically vest in full, and
then expire.
Currently, the maximum number of shares issuable under the plan is
5,375,000. The share reserve will automatically be increased on the first day
of each fiscal year beginning on and after May 1, 2000 by the lesser of
500,000 shares per year, 5% of the number of shares of our common stock that
was issued and outstanding on the last day of the preceding fiscal year, or a
lesser number of shares determined by the board of directors. As of April 30,
1999, 2,127,880 shares have been issued upon the exercise of options, options
to purchase a total of 1,159,725 shares at a weighted average exercise price
of $2.12 per share were outstanding and 2,245,025 shares were available for
future option grants.
1999 Employee Stock Purchase Plan. The board of directors adopted, subject
to stockholder approval, our 1999 employee stock purchase plan in June 1999.
We have reserved a total of 500,000 shares of common stock for issuance under
the 1999 employee stock purchase plan, none of which have been issued as of
the effective date of this offering. The share reserve will automatically be
increased on May 1, 2000 and on each May 1 thereafter until and including May
1, 2009, by an amount equal to the lesser of 500,000 shares per year, 2% of
our outstanding common stock on the last day of the immediately preceding
fiscal year, or such lesser number of shares as determined by the board of
directors.
The employee stock purchase plan is intended to qualify under Section 423
of the Internal Revenue Code. The plan will be administered by our
compensation committee. Employees, including officers and employee directors,
of Agile or any subsidiary designated by the board for participation in the
plan, are eligible to participate in the plan if they are customarily employed
for more than 20 hours per week and more than five months per year. Eligible
employees may begin participating at the start of any offering period.
The first offering period will run for approximately 24 months and will be
divided into four consecutive purchase periods of approximately six months.
The first offering period and the first purchase period commence on the date
of this prospectus and will terminate on the last day of August, 2001.
Subsequent offering periods will generally have a duration of approximately 6
months. Offering periods after the initial offering period will commence on
the first day of March and September of each year. The board may change the
dates or duration of one or more offering periods, but no offering may exceed
27 months.
The employee stock purchase plan permits eligible employees to purchase
common stock through payroll deductions at a price no less than 85% of the
lower of the fair market value of the common stock on (a) the first day of the
offering, or (b) the purchase date. Participants generally may not purchase
more than 1,000 shares in a six-month offering period or stock having a value
greater than $25,000 in any calendar year as measured at the beginning of the
offering period. In the event of a change in control of Agile, the board may
accelerate the purchase date of the then current offering period to a date
prior to the change in control, unless the acquiring or successor corporation
assumes or replaces the purchase rights outstanding under the employee stock
purchase plan. Our board of directors may amend or terminate the 1999 employee
stock purchase plan at any time.
401(k) Plan
Agile provides a tax-qualified employee savings and retirement plan,
commonly known as a 401(k) plan, which covers its eligible employees. Under
the 401(k) plan, employees may elect to reduce their current annual
compensation up to the lesser of 20% or the statutorily prescribed annual
limit, which is $10,000 in calendar year 1999, and have the amount of the
reduction contributed to the 401(k) plan. The 401(k) plan does not currently
permit additional matching contributions to the 401(k) plan by Agile on behalf
of the participants in the 401(k) plan. The 401(k) plan is intended to qualify
under Sections 401(a) and 401(k) of the Internal Revenue Code, so that
contributions by Agile or its employees to the 401(k) plan, and income earned
on such contributions, are not taxable to employees until withdrawn from the
401(k) plan, and so that contributions by Agile, if any, will be deductible by
Agile when made. The trustee of the 401(k) plan invests the assets of the
401(k) plan in the various investment options as directed by the participants.
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<PAGE>
Limitation of Liability and Indemnification
As permitted by the Delaware General Corporation Law, we have adopted
provisions in our certificate of incorporation and bylaws that limit or
eliminate the personal liability of our directors for a breach of their
fiduciary duty of care as a director. The duty of care generally requires
that, when acting on behalf of the corporation, directors exercise an informed
business judgment based on all material information reasonably available to
them. Consequently, a director will not be personally liable to us or our
stockholders for monetary damages or breach of fiduciary duty as a director,
except for liability for:
. any breach of the director's duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; or
. any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation allows us to indemnify our officers,
directors and other agents to the full extent permitted by Delaware law. We
intend to enter into indemnification agreements with each of our directors and
officers that are, in some cases, broader than the specific indemnification
provisions permitted by in Delaware law, and that may provide additional
procedural protection. The indemnification agreements require us, among other
things, to:
. indemnify officers and directors against certain liabilities that may
arise because of their status as officers or directors;
. advance expenses, as incurred, to officers and directors in connection
with a legal proceeding, subject to limited exceptions; or
. obtain directors' and officers' insurance.
Our bylaws also permit us to purchase insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether Delaware law would permit
indemnification, and to provide indemnification in circumstances in which
indemnification is otherwise discretionary under Delaware law.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
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CERTAIN TRANSACTIONS
Since May 1, 1996 there has been no transaction or series of transactions
to which we were a party involving $60,000 or more and in which any director,
executive officer or holder of more than 5% of our capital stock had a
material interest other than the transactions described below.
Sales of Preferred Stock to Insiders
Since inception in March 1995, we have issued shares of preferred stock, in
private placement transactions to the following persons who are executive
officers, directors or principal stockholders of Agile:
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E Series F
Preferred Preferred Preferred Preferred Preferred Preferred
Investor Stock Stock Stock Stock Stock Stock
- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Entities affiliated with
Sequoia Capital........ 150,000 -- 2,275,000 322,000 334,672 148,148
Entities affiliated with
Mohr, Davidow
Ventures............... 30,000 2,825,000 1,225,000 448,000 565,424 74,074
Entities affiliated with
Accel Partners......... 140,000 -- -- 580,000 85,893 222,222
Entities affiliated with
James L. Patterson..... -- -- 75,000 -- 14,011 14,816
Affiliates of Bryan D.
Stolle................. 185,000 -- -- -- -- --
Thomas P. Shanahan...... 85,000 -- -- -- -- --
</TABLE>
The preferred stock purchased by these directors and affiliates was
purchased on the same terms and conditions as the preferred stock purchased by
other investors. The preferred stock is convertible into common stock at the
rate of one share of common stock for each share of preferred stock.
In April, 1995, we issued a total of 1,150,000 shares of Series A preferred
stock and in May 1995 we issued 82,500 shares of Series A Preferred Stock at a
purchase price of $.10 per share. The purchasers of the Series A Preferred
Stock originally included various private individuals including Thomas P.
Shanahan, Chief Financial Officer and a director of Agile, and relatives of
Bryan Stolle, Chairman and Chief Executive Officer of Agile. Subsequently,
entities affiliated with Sequoia Capital, Mohr, Davidow Ventures and Accel
Partners purchased the shares of Series A preferred stock reflected in the
table above from some of these private individuals.
In June 1995, we issued a total of 2,937,995 shares of Series B preferred
stock at a purchase price of $.354 per share. In January 1996, we issued
3,500,000 shares of Series C preferred stock and in October 1996 we issued
75,000 shares of Series C preferred stock at a purchase price of $1.16 per
share. In February 1997, we issued 1,350,000 shares of Series D preferred
stock at a purchase price of $2.964 per share. In November 1997, we issued
1,000,000 shares of Series E preferred stock at a purchase price of $5.00 per
share. In June 1998, we issued 1,777,778 shares of Series F preferred stock at
a purchase price of $6.75 per share.
The entities affiliated with Sequoia Capital are together considered a
greater than 5% stockholder of Agile. Mr. Michael Moritz, a director of Agile,
is a general partner of Sequoia Capital. Entities affiliated with Mohr,
Davidow are together considered a greater than 5% stockholder of Agile. Ms.
Nancy Schoendorf, a director of Agile, is a general partner of Mohr, Davidow.
Entities affiliated with Accel Investors are together considered a greater
than 5% stockholder of Agile. Mr. James Patterson is a director of Agile, Mr.
Bryan Stolle is Chairman and Chief Executive Officer of Agile, and Mr. Thomas
Shanahan is Chief Financial Officer and a director of Agile.
Loans to Executive Officers and Directors
On November 17, 1997, we loaned $31,800 to Carol B. Schrader, our Vice
President, Marketing, in connection with the purchase of 53,000 shares of our
common stock for $.60 per share upon exercise of stock options. The note
accrues interest at the rate of 6.14% per year and is due on November 17,
2001. On August 4, 1998, we loaned $51,700 to Ms. Schrader, in connection with
the purchase of 22,000 shares of our common stock for $2.35 per share upon
exercise of stock options. This note accrues interest at the rate of 5.68% per
year,
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<PAGE>
and is due on August 4, 2003. On November 17, 1997, we loaned $5,475 to Eric
Schrader, an affiliate of Carol Schrader, in connection with the purchase of
9,125 shares of our common stock for $.60 per share upon exercise of stock
options. The note accrues interest at the rate of 6.14% per year and is due on
November 17, 2001. The principal amounts of each of these notes remain
outstanding. Each of these loans are full recourse and secured by a pledge of
the stock purchased upon exercise of the stock option.
On June 1, 1999, we loaned $132,500 to Klaus-Dieter Laidig, one of our
directors, in connection with the purchase of 50,000 shares of our common
stock for $2.65 per share upon exercise of stock options. The note accrues
interest at the rate of 4.84% per year, and is due on June 1, 2004. The
principal amount of the note remains outstanding. This loan is full recourse
and is secured by a pledge of the stock purchased upon exercise of the stock
option.
All loan amounts outstanding as of April 30, 1999 are reflected as a
reduction of equity in the consolidated balance sheet.
Recent Option Grants
On May 7, 1999, our board of directors granted to the following executive
officers options to purchase shares of common stock at an exercise price per
share of $5.00:
. Mr. Irvine received an option to purchase 12,000 shares;
. Mr. Schott received an option to purchase 100,000 shares;
. Ms. Schrader received an option to purchase 45,000 shares;
. Mr. Shanahan received an option to purchase 25,000 shares; and
. Ms. Wise received an option to purchase 15,000 shares.
On August 4, 1999, our board of directors granted to the following
executive officers options to purchase shares of common stock at an exercise
price per share of $10.00:
. Mr. Coulter received options to purchase 250,000 shares;
. Mr. Irvine received options to purchase 35,000 shares; and
. Ms. Schrader received an option to purchase 20,000 shares.
Indemnification
We intend to enter into indemnification agreements with each of our
directors and officers. These indemnification agreements will require us to
indemnify our directors and officers to the fullest extent permitted by
Delaware law. See "Management--Limitation of Liability and Indemnification" on
page 50 for additional information regarding these indemnification agreements
and provisions in our charter documents requiring us to indemnify our officers
and directors.
Conflict of Interest Policy
We believe that all transactions with our directors, officers and principal
stockholders described above were made on terms no less favorable to us than
could have been obtained from unaffiliated third parties. A majority of the
disinterested outside directors on our board of directors approves all
transactions between Agile and our officers, directors, principal stockholders
and their affiliates. Any similar transactions will continue to be on terms no
less favorable to us than we could have obtained from unaffiliated third
parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of April 30, 1999 and as adjusted to reflect the sale of the shares of
common stock offered hereby by:
. the chief executive officer, each of the executive officers named in the
summary compensation table and each of our directors;
. all executive officers and directors as a group; and
. each person or entity who is known by us to beneficially own more than 5%
of our outstanding common stock.
Unless otherwise indicated, the address for each of the named individuals
is c/o Agile Software Corporation, One Almaden Boulevard, San Jose, California
95113-2211. Except as otherwise indicated, and subject to applicable community
property laws, we believe that the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them.
Applicable percentage ownership in the table is based on 16,073,298 shares
of common stock outstanding as of April 30, 1999, and 19,798,939 shares
outstanding immediately following the completion of this offering, assuming
the underwriters' over-allotment option is not exercised, the exercise of a
warrant to purchase 60,000 shares of preferred stock and the conversion of all
shares of preferred stock into common stock and the issuance of 665,641 shares
of common stock to three corporate investors. Of the total shares outstanding,
963,606 shares are subject to our right of repurchase. Beneficial ownership is
determined under the rules and regulations of the Securities and Exchange
Commission. Shares of common stock subject to options or warrants that are
presently exercisable or exercisable within 60 days of April 30, 1999 are
deemed outstanding for the purpose of computing the percentage ownership of
the person or entity holding options or warrants, but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person or entity. Entries denoted by an asterisk represent an amount less than
1%.
<TABLE>
<CAPTION>
Shares Percentage
Beneficially Beneficially
Owned Owned
------------ -----------------
Prior to After
Name and Address of Beneficial Owner Number Offering Offering
- ------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
Bryan D. Stolle(1)............................... 1,020,500 6.3% 5.1%
Thomas P. Shanahan(2)............................ 435,000 2.7 2.2
Mark C. Irvine(3)................................ 150,000 * *
Carol B. Schrader(4)............................. 200,000 1.2 1.0
Dorothy O. Wise(5)............................... 243,000 1.5 1.2
Gregory G. Schott(6)............................. 100,000 * *
James L. Patterson(7)............................ 153,827 1.0 *
Nancy J. Schoendorf(8)........................... 5,280,493 32.9 26.7
c/o Mohr, Davidow Ventures
2775 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Michael Moritz(9)................................ 3,229,820 20.1 16.3
c/o Sequoia Capital
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Klaus-Dieter Laidig(10).......................... 50,000 * *
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage
Beneficially Beneficially
Owned Owned
------------ -----------------
Prior to After
Name and Address of Beneficial Owner Number Offering Offering
- ------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
Entities associated with Mohr Davidow
Ventures(11).................................. 5,280,493 32.9% 26.7%
2775 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Entities associated with Sequoia Capital(12)... 3,229,820 20.1 16.3
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Entities associated with Accel Partners(13).... 1,028,115 6.4 5.2
428 University Avenue
Palo Alto, CA 94301
All executive officers and directors
as a group (10 persons)(14).................. 11,112,640 65.9 53.9
</TABLE>
- --------
(1) Includes 18,750 shares held by Bryan D. Stolle as Custodian for Jacob N.
Stolle under UCAUTMA and 18,750 shares held by Bryan D. Stolle as
Custodian for Wilson E. Stolle under UCAUTMA. Also includes
175,000 shares subject to options that are immediately exercisable.
(2) Includes 81,563 shares subject to a right of repurchase in favor of Agile
which lapses over time. Also includes 15,000 shares held by Thomas P.
Shanahan as Custodian for Thomas A. Shanahan, 15,000 shares held by
Thomas P. Shanahan as Custodian for Kelly J. Shanahan, and 15,000 shares
held by Thomas P. Shanahan as Custodian for Patrick L. Shanahan, and
340,000 shares held by Thomas P. Shanahan and Robyn Lynn Shanahan,
Trustees of the Shanahan Family Trust u/d/t dated April 15, 1997. Also
includes 50,000 shares subject to options that are immediately
exercisable.
(3) Includes 45,373 shares subject to a right of repurchase in favor of Agile
which lapses over time and 62,000 shares subject to options that are
immediately exercisable. Also includes 6,000 shares held by Mark C.
Irvine as Custodian for Adriana E. Irvine under UCAUTMA, 5,000 shares
held by Mark C. Irvine as Custodian for Conor M. Irvine under UCAUTMA,
and 4,000 shares held by Mark C. Irvine as Custodian for Melissa E.
Irvine under UCAUTMA.
(4) Includes 55,125 shares subject to a right of repurchase in favor of Agile
which lapses over time. Also includes 75,000 shares subject to options
that are immediately exercisable and 50,000 shares held by Eric Schrader.
(5) Includes 70,000 shares subject to a right of repurchase in favor of Agile
which lapses over time. Also includes 40,000 shares subject to options
that are immediately exercisable.
(6) Includes 100,000 shares subject to options that are immediately
exercisable.
(7) Includes 73,011 shares held directly by James L. Patterson, 34,800 shares
held by The Patterson Grandchildren's Trust, of which James L. Patterson
is trustee, and 14,816 shares held by The Patterson Family Trust, of
which James L. Patterson is trustee. Also includes 2,200 shares held by
Mark R. Patterson, 2,200 shares held by Matthew S. Patterson, 2,200
shares held by Michael J. Patterson, 12,300 shares held by Steven C.
Patterson Irrevocable Trust dated October 18, 1994, Mark R. Patterson,
Trustee, and 12,300 shares held by Paul R. Patterson Irrevocable Trust
dated October 18, 1994, Mark R. Patterson, Trustee, all of which Mr.
James Patterson disclaims beneficial ownership.
(8) Ms. Schoendorf is a general partner of Mohr, Davidow and is a director of
Agile. Represents 216,284 shares held by MDV IV Entrepreneurs Network
Fund, L.P., and 5,064,209 shares held by Mohr, Davidow Ventures IV, L.P.
Ms. Schoendorf disclaims beneficial ownership of shares held by these
entities, except to the extent of her proportional pecuniary interest
arising from her partnership interest in Mohr, Davidow.
54
<PAGE>
(9) Mr. Moritz is a general partner of the general partners of the entities
affiliated with Sequoia Capital and is a director of Agile. Represents
109,880 shares held by Sequoia 1995, 2,080 shares held by Sequoia 1997,
318,074 shares held by Sequoia Capital Growth Fund, 2,631,214 shares held
by Sequoia Capital VI, 20,302 shares held by Sequoia Technology Partners
III, 144,572 shares held by Sequoia Technology Partners VI, and 3,698
shares held by SQP 1997. SC VIII Management, LLC exercises investment and
voting power over the shares held by Sequoia 1997. Mr. Moritz disclaims
beneficial ownership of shares held by these entities, except to the
extent of his proportional pecuniary interest arising from his
partnership interest in the general partner of the general partners of
the entities affiliated with Sequoia Capital. Mr. Moritz does not hold
sole voting or investment power in any of these entities.
(10) Represents shares subject to options that are immediately exercisable.
(11) Represents 216,284 shares held by MDV IV Entrepreneurs Network Fund,
L.P., and 5,064,209 shares held by Mohr, Davidow Ventures IV, L.P. Ms.
Schoendorf, a director of Agile, is a general partner of Mohr, Davidow.
(12) Represents 109,880 shares held by Sequoia 1995, 2,080 shares held by
Sequoia 1997, 318,074 shares held by Sequoia Capital Growth Fund,
2,631,214 shares held by Sequoia Capital VI, 20,302 shares held by
Sequoia Technology Partners III, 144,572 shares held by Sequoia
Technology Partners VI, and 3,698 shares held by SQP 1997. SC VIII
Management, LLC exercises investment and voting power over the shares
held by Sequoia 1997. Mr. Moritz, a director of Agile, is a general
partner of the general partners of the entities affiliated with Sequoia
Capital.
(13) Represents 828,661 shares held by Accel V L.P., 111,036 shares held by
Accel Internet/Strategic Technology Fund L.P., 49,350 shares held by
Accel Investors '96 L.P., 16,450 shares held by Accel Keiretsu V L.P. and
22,618 shares held by Ellmore C. Patterson Partners.
(14) Shares listed as held by all directors and executive officers as a group
include 802,000 shares subject to options that are immediately
exercisable.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock and 10,000,000 shares of preferred
stock.
The following is a summary of our capital stock. Our certificate of
incorporation and bylaws, to be effective after the closing of this offering,
and the provisions of applicable law provide further information about our
capital stock.
Common Stock
As of April 30, 1999, there were 4,200,025 shares of common stock
outstanding held of record by approximately 125 stockholders. Subject to
preferences that may be applicable to any preferred stock outstanding at the
time, the holders of outstanding shares of common stock are entitled to the
following rights:
. to receive dividends out of assets legally available therefor at such
times and in such amounts as the board from time to time may determine in
its sole discretion;
. one vote for each share held on all matters submitted to a vote of
stockholders; and
. upon liquidation, dissolution or winding-up of Agile, to share ratably in
all assets remaining after payment of liabilities and the liquidation of
any preferred stock.
Cumulative voting for the election of directors is not authorized by our
certificate of incorporation, which means that the holders of a majority of
the shares voted can elect all of the directors then standing for election.
The common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, upon payment, duly and validly issued, fully paid and nonassessable. The
rights, preferences and privileges of the holders of common stock are subject
to, and may be adversely affected by, the rights of the holders of any shares
of preferred stock which we may issue in the future.
Preferred Stock
Upon completion of this offering, all outstanding shares of preferred stock
will be converted on a one-to-one basis into 11,933,273 shares of common
stock. However, following this conversion, under our certificate of
incorporation, the board of directors will have the authority, without further
action by the stockholders, to designate and issue up to 10,000,000 shares of
preferred stock in one or more series. The board of directors can fix the
rights, preferences and privileges of the shares of each series and any
qualifications, limitations or restrictions on these shares.
The board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes could, under certain circumstances, have the effect of
delaying, deferring or preventing a change in control of Agile. We have no
current plans to issue any shares of preferred stock.
Warrants
In September 1995, Agile issued a warrant to Comdisco, Inc. to purchase an
aggregate of 41,111 shares of Series B preferred stock at an exercise price of
$.354 per share. The warrant may be exercised at any time within seven years
after issuance.
In March 1996, Agile issued a warrant to Comdisco, Inc. to purchase an
aggregate of 35,313 shares of Series C preferred stock at an exercise price of
$1.16 per share. The warrant may be exercised at any time within seven years
after issuance.
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<PAGE>
In February 1997, Agile issued a warrant to Comdisco, Inc. to purchase an
aggregate of 17,828 shares of Series D preferred stock at an exercise price of
$2.964 per share. The warrant may be exercised at any time within seven years
after issuance.
In November 1997, Agile issued a warrant to Comdisco, Inc. to purchase an
aggregate of 4,049 shares of Series D preferred stock at an exercise price of
$2.964 per share. The warrant may be exercised at any time within seven years
after issuance.
In February 1999, Agile issued a warrant to Comdisco, Inc. to purchase an
aggregate of 60,000 shares of Series F preferred stock at an exercise price of
$6.75 per share. The holder has indicated that it intends to exercise this
warrant contingent upon the closing of this offering.
Registration Rights of Some of Our Stockholders
Following this offering, the holders of approximately 11,933,273 shares of
preferred stock convertible into 11,933,273 shares of common stock and 98,301
shares of stock issuable upon exercise of warrants will have certain rights to
register those shares under the Securities Act and an amended and restated
rights agreement. Subject to certain limitations in the registration rights
agreement, the holders of at least 30% of these shares, or a lesser percent if
the anticipated aggregate offering price, net of underwriting discounts and
commissions, would exceed $10,000,000, may require, on two occasions, that
Agile use its best efforts to register those shares for public resale. If
Agile registers any of its common stock for its own account or for the account
of other security holders, the holders of those shares are entitled to include
their shares of common stock in the registration, subject to the ability of
the underwriters to limit the number of shares included in the offering. Any
holder or holders of those shares may also require Agile to register all or a
portion of their registrable securities in a registration statement on Form S-
3 when Agile is eligible to use that form, provided, among other limitations,
that the proposed aggregate price to the public is at least $500,000 and that
Agile has not effected two of these registrations in any 12-month period.
Agile will pay all fees, costs and expenses of these registrations, other than
underwriting discounts and commissions. These rights terminate on the earlier
of the date three years following the consummation of this public offering,
and the date when all shares of a holder can be sold by the holder under Rule
144 of the Securities Act during any 90 day period.
Dell, Flextronics and Marshall Industries will have the right to include
the 665,641 shares to be purchased by them concurrently with this offering in
subsequent registrations by Agile of its common stock for its own account or
for the account other securities holders.
All of the registration rights described above are subject to conditions
and limitations, among them the right of the underwriters in any underwritten
offering to limit the number of shares of common stock to be included in a
registration. Registrations of any shares of common stock held by holders with
registration rights would result in these shares being freely tradeable
without restriction under the Securities Act upon the effective date of the
registration.
Antitakeover Effects of Delaware Law and Provisions of Our Certificate of
Incorporation and Bylaws
Delaware Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law. This
provision generally prohibits any Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three
years following the date the stockholder became an interested stockholder,
unless:
. prior to that date the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
. upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock outstanding at the time the transaction
began; or
57
<PAGE>
. on or following that date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines a business combination to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Certificate of Incorporation and Bylaws
Upon filing after the closing of this offering, our certificate of
incorporation will provide that all stockholder actions must be effected at a
duly called meeting and not by a consent in writing. The bylaws provide that,
except as otherwise required by law or by our certificate of incorporation,
special meetings of the stockholders can only be called by a resolution
adopted by a majority of the board of directors, or by the president or at the
request of stockholders holding at least 10% of our capital stock. Our
certificate of incorporation and bylaws also provide that our board of
directors will be divided into three classes, with each class serving
staggered three-year terms. The classification system of electing directors
may tend to discourage a third party from making a tender offer or otherwise
attempting to obtain control of us and may maintain the incumbency of our
board of directors, as the classification of the board of directors generally
increases the difficulty of replacing a majority of the directors. Our
certificate of incorporation authorizes undesignated preferred stock, which
makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could discourage potential
acquisition proposals and could delay or prevent a change in our control or
management. The amendment of any of these provisions would require approval by
holders of at least two-thirds of the outstanding common stock.
These provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal, and to enhance the likelihood of continuity and
stability in the composition of our board of directors. These provisions are
also designed to discourage tactics that may be used in proxy fights. However,
these provisions could have the effect of discouraging others from making
tender offers for our shares and, as a consequence, they may also inhibit
fluctuations in the market price of our shares that could result from rumored
or actual takeover attempts.
Transfer Agent and Registrar
The transfer agent and registrar for Agile's common stock is Boston
EquiServe.
Listing
Our common stock has been approved for listing on the Nasdaq National
Market under the trading symbol "AGIL."
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market, or the possibility of these sales, could cause the trading price of
our common stock to decline.
Upon completion of this offering, we will have outstanding 19,798,939
shares of common stock, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options to purchase common
stock after April 30, 1999. Of these shares, the 3,000,000 shares sold in this
offering through the underwriters will be freely tradeable without restriction
or further registration under the Securities Act, except for any shares
purchased by our "affiliates," as defined in Rule 144 under the Securities
Act, which would be subject to the limitations and restrictions described
below. Shares purchased by affiliates will also be restricted from sale until
180 days after the date of this prospectus pursuant to lock-up agreements
between these affiliates and the underwriters.
The remaining 16,798,939 shares of common stock outstanding upon completion
of this offering will be "restricted securities" as defined in Rule 144. These
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144 or 701 under the
Securities Act, which are summarized below. Sales of these restricted
securities in the public market, or the availability of these shares for sale,
could cause the trading price of our common stock to decline.
The amounts of restricted securities that will be available for sale in the
public market, subject in some cases to the volume limitations and other
restrictions of Rule 144, will be as follows:
<TABLE>
<CAPTION>
Days after Date of Approximate Shares
this Prospectus Eligible for Future Sale Comment
---------------------- ------------------------ -------------------------------------------------------------
<S> <C> <C>
On Effectiveness........ 3,000,000 Freely tradeable shares sold in offering
180 Days................ 15,218,362 180 day lock-up expires; shares salable under Rule 144 or 701
More than 180 Days...... 1,580,577 Restricted securities held for one year or less
</TABLE>
The 665,641 shares to be sold to Dell Computer Corporation, Flextronics
International Ltd. and Marshall Industries will be "restricted securities" and
the one year holding period for these shares will expire on August 25, 2000.
Shares issued upon exercise of options granted by us prior to the date of
this prospectus will be available for sale in the public market under Rule 701
of the Securities Act. Rule 701 permits resales of these shares in reliance
upon Rule 144 but without compliance with various restrictions, including the
holding period requirement, imposed under Rule 144. In general, under Rule
144, beginning 90 days after the date of this prospectus, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year would be entitled to sell within any three-month period
a number of shares not to exceed the greater of (1) one percent of the then
outstanding shares of common stock or (2) the average weekly trading volume of
our common stock during the four calendar weeks preceding the filing of a Form
144 with respect to the sale. Sales under Rule 144 are also subject to manner
of sale and notice requirements, as well as to the availability of current
public information about us. Under Rule 144(k), a person who is not deemed to
have been an affiliate at any time during the 90 days preceding a sale and who
has beneficially owned the shares proposed to be sold for at least two years
is entitled to sell the shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
We have reserved an aggregate of 5,375,000 shares of common stock for
issuance pursuant to our 1995 Stock Option Plan. As of April 30, 1999, options
to purchase an aggregate of 1,159,725 shares of common stock were outstanding
and 2,245,025 shares remained available for grant under our 1995 Stock Option
Plan. We intend to file registration statements on Form S-8 under the
Securities Act approximately 90 days after the date
59
<PAGE>
of this prospectus to register all of the shares of common stock issued or
reserved for issuance under our 1995 Stock Option Plan and 1999 Employee Stock
Purchase Plan. Shares of common stock issued under these plans, after the
filing of related registration statements, will be freely tradable in the
public market, subject in the case of the holders to the Rule 144 limitations
applicable to our affiliates, lock-up agreements with the underwriters and
vesting restrictions imposed by us.
Our officers, directors and substantially all other stockholders have
agreed with Morgan Stanley & Co. Incorporated not to sell or otherwise dispose
of any of their shares for a period of 180 days after the date of the offering
without the consent of Morgan Stanley & Co. Incorporated.
60
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Deutsche Bank Securities Inc. and
Hambrecht & Quist LLC are acting as representatives, have severally agreed to
purchase, and we have agreed to sell to them, severally, the respective number
of shares of common stock set forth opposite the names of the underwriters
below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated............................... 1,200,000
Deutsche Bank Securities Inc. .................................. 600,000
Hambrecht & Quist LLC........................................... 600,000
BancBoston Robertson Stephens Inc............................... 80,000
Credit Suisse First Boston Corporation.......................... 80,000
Donaldson, Lufkin & Jenrette Securities Corporation............. 80,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.............. 80,000
Needham & Company, Inc.......................................... 80,000
U.S. Bancorp Piper Jaffray Inc.................................. 80,000
Adams, Harkness & Hill, Inc..................................... 40,000
First Albany Corporation........................................ 40,000
SoundView Technology Group, Inc................................. 40,000
---------
Total......................................................... 3,000,000
=========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept
delivery of the shares of common stock offered hereby are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered hereby, other than those covered by the over-
allotment option described below, if any such shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $.89 a share under the public offering price. Any
underwriters may allow, and such dealers may reallow, a concession not in
excess of $.10 a share to other underwriters or to certain other dealers.
After the initial offering of the shares of common stock, the offering price
and other selling terms may from time to time be varied by the representatives
of the underwriters.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 450,000
additional shares of common stock at the public offering price set forth on
the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose
of covering over-allotments, if any, made in connection with the offering of
the shares of common stock offered by the prospectus. To the extent this
option is exercised, each underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of
additional shares of common stock as the number set forth next to each
underwriters name in the preceding table bears to the total number of shares
of common stock set forth next to the names of all underwriters in the
preceding table.
At our request, the underwriters have reserved up to 297,500 shares of
common stock to be sold in the offering and offered hereby for sale, at the
public offering price, to various business associates and persons related to
us. The number of shares of commons stock available for sale to the general
public will be reduced to the extent these individuals purchase these reserved
shares. Any reserved shares which are not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares
offered by this prospectus.
61
<PAGE>
Agile and our officers, directors and substantially all of our stockholders
has agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, or otherwise during the period
ending 180 days after the date of this prospectus, it will not:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise dispose of, directly or
indirectly, any shares of common stock or any securities convertible into
or exercisable or exchangeable for common stock;
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock; or
. whether any transaction described above is to be settled by delivery of
common stock or such other securities, in cash or by alternative payment.
The restrictions described in the previous paragraph do not apply to:
. the sale of shares to the underwriters;
. the issuance by Agile of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus which is described in the prospectus;
. transactions by any person other than Agile relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares; or
. the grant of options to purchase shares of common stock pursuant to our
existing employee benefit plans.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "AGIL."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering if the syndicate repurchases
previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
On June 4, 1998, we sold shares of our Series F Preferred Stock in a
private placement. In this private placement, entities associated with
Hambrecht & Quist LLC, one of the underwriters in this offering, purchased
148,148 shares of Series F Preferred Stock, which are convertible into 148,148
shares of common stock, for an aggregate of $999,999, or $6.75 per share.
These entities purchased these shares on the same terms as the other investors
in the private placement.
Concurrent with the sale of the shares in this offering, Agile will sell
directly to Dell Computer Corporation, Flextronics International Ltd. and
Marshall Industries an aggregate of 665,641 shares of common stock for a total
of $13.0 million in a private placement. The sale price will be the public
offering price less anticipated underwriting discounts and commissions. Dell,
Flextronics and Marshall Industries have each agreed to execute lockup
agreements with Morgan Stanley & Co. Incorporated in the same form as other
stockholders.
62
<PAGE>
Pricing of the Offering
Prior to this offering, there has been no public market for the shares of
our common stock. Consequently, the public offering price for the shares of
common stock was determined by negotiations between Agile and the
representatives of the underwriters. Among the factors considered in
determining the public offering price were:
. our record of operations, our current financial position and future
prospects;
. the experience of our management;
. sales, earnings and other financial and operating information in recent
periods; and
. the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to ours.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Agile by Gray Cary Ware & Freidenrich LLP, Palo Alto, California.
Certain legal matters in connection with the offering will be passed upon for
the underwriters by Fenwick & West LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements of Agile Software Corporation as of
April 30, 1998 and 1999 and for each of the three years in the period ended
April 30, 1999 included in this Prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
WHERE TO FIND ADDITIONAL INFORMATION ABOUT AGILE
Agile has filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement and the exhibits and schedules filed with it. For
further information with respect to Agile and the common stock, reference is
made to the registration statement and the exhibits and schedules filed with
it. With respect to statements contained in this prospectus regarding the
contents of any agreement or any other document, in each instance, reference
is made to the copy of such agreement or other document filed as an exhibit to
the registration statement. Each statement is qualified in all respects by the
exhibits and schedules.
For further information with respect to Agile and the common stock,
reference is made to the registration statement and its exhibits and
schedules. You may read and copy any document Agile files at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. Agile's SEC filings are also available to the public from the
SEC's web site at http://www.sec.gov.
Upon completion of this offering, Agile will become subject to the
information and periodic reporting requirements of the Exchange Act, and will
file periodic reports, proxy statements and other information with the SEC.
These periodic reports, proxy statements and other information will be
available for inspection and copying at the SEC's public reference rooms and
the SEC's web site, which is described above.
63
<PAGE>
AGILE SOFTWARE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... F-2
Consolidated Balance Sheet.................................................. F-3
Consolidated Statement of Operations........................................ F-4
Consolidated Statement of Stockholders' Equity.............................. F-5
Consolidated Statement of Cash Flows........................................ F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Agile Software Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Agile Software Corporation and its subsidiary (the "Company") at April 30,
1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended April 30, 1999 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
May 28, 1999, except for Note 8,
which is as of August 16, 1999
F-2
<PAGE>
AGILE SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
April 30,
------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 2,160 $ 10,003
Accounts receivable, net of allowance for doubtful
accounts of $379 and $495, respectively................. 3,384 4,980
Other current assets..................................... 98 624
-------- --------
Total current assets....................................... 5,642 15,607
Property and equipment, net................................ 1,694 1,973
Other assets............................................... 195 368
-------- --------
$ 7,531 $ 17,948
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit borrowings........................... $ 1,000 $ --
Accounts payable......................................... 698 1,287
Accrued expenses and other liabilities................... 1,227 3,618
Deferred revenue......................................... 3,146 5,107
Current portion of capital lease obligations............. 501 735
Current portion of notes payable......................... -- 686
-------- --------
Total current liabilities.................................. 6,572 11,433
Capital lease obligations, noncurrent...................... 743 871
Notes payable, noncurrent.................................. 39 2,353
-------- --------
7,354 14,657
-------- --------
Commitments and contingencies (Note 7)
Stockholders' equity:
Convertible Preferred Stock, $.001 par value; 31,176
shares authorized; 10,096 and 11,874 shares issued and
outstanding............................................. 10 12
Common Stock, $.001 par value; 100,000 shares authorized;
3,998 and 4,200 shares issued and outstanding........... 4 4
Additional paid-in capital............................... 17,868 35,503
Notes receivable from stockholders....................... (363) (748)
Unearned stock compensation (Note 6)..................... (2,237) (4,947)
Accumulated deficit...................................... (15,105) (26,533)
-------- --------
Total stockholders' equity................................. 177 3,291
-------- --------
$ 7,531 $ 17,948
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
AGILE SOFTWARE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Revenues:
License.......................................... $ 1,143 $ 6,102 $ 10,859
Professional services............................ 187 1,385 3,665
Maintenance...................................... 22 516 2,283
------- ------- --------
Total revenues................................. 1,352 8,003 16,807
------- ------- --------
Cost of revenues:
License.......................................... 113 543 819
Professional services............................ 88 1,347 3,823
Maintenance...................................... 65 278 1,343
------- ------- --------
Total cost of revenues......................... 266 2,168 5,985
------- ------- --------
Gross profit....................................... 1,086 5,835 10,822
------- ------- --------
Operating expenses:
Sales and marketing.............................. 2,149 8,070 13,495
Research and development......................... 2,510 3,788 4,742
General and administrative....................... 1,333 1,995 1,938
Amortization of stock compensation (Note 6)...... -- 856 2,253
------- ------- --------
Total operating expenses....................... 5,992 14,709 22,428
------- ------- --------
Loss from operations............................... (4,906) (8,874) (11,606)
Interest and other income.......................... 134 95 447
Interest expense................................... (64) (163) (269)
------- ------- --------
Net loss........................................... $(4,836) $(8,942) $(11,428)
======= ======= ========
Net loss per share:
Basic and diluted................................ $ (3.72) $ (4.20) $ (3.87)
======= ======= ========
Weighted average shares.......................... 1,300 2,129 2,952
======= ======= ========
Unaudited pro forma net loss per share:
Basic and diluted................................ $ (.78)
========
Weighted average shares.......................... 14,668
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AGILE SOFTWARE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Convertible
Preferred Notes
Stock Common Stock Additional Receivable Unearned
------------- -------------- Paid-In From Stock Accumulated
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Total
------ ------ ------ ------ ---------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30,
1996................... 7,671 $ 8 2,215 $ 2 $ 5,214 $ (40) $ -- $ (1,327) $ 3,857
Issuance of Common Stock
for cash............... -- -- 52 -- 3 -- -- -- 3
Issuance of Common Stock
on exercise of
options................ -- -- 564 1 64 -- -- -- 65
Issuance of Common Stock
in exchange for
services............... -- -- 12 -- 2 -- -- -- 2
Issuance of Series C
Convertible Preferred
Stock at $1.16 per
share, net of issuance
costs.................. 75 -- -- -- 83 -- -- -- 83
Issuance of Series D
Convertible Preferred
Stock at $2.964 per
share, net of issuance
costs.................. 1,350 1 -- -- 3,979 -- -- -- 3,980
Net loss................ -- -- -- -- -- -- -- (4,836) (4,836)
------ --- ----- --- ------- ----- ------- -------- --------
Balance at April 30,
1997................... 9,096 9 2,843 3 9,345 (40) -- (6,163) 3,154
Repurchase of unvested
Common Stock........... -- -- (48) -- (18) 15 -- -- (3)
Issuance of Common Stock
on exercise of
options................ -- -- 255 -- 71 -- -- -- 71
Issuance of Common Stock
in exchange for notes
receivable on exercise
of options............. -- -- 772 1 293 (294) -- -- --
Issuance of restricted
Common Stock in
exchange for notes
receivable............. -- -- 176 -- 106 (106) -- -- --
Repayment of notes
receivable............. -- -- -- -- -- 62 -- -- 62
Issuance of Series E
Convertible Preferred
Stock at $5.00 per
share, net of issuance
costs.................. 1,000 1 -- -- 4,978 -- -- -- 4,979
Unearned stock
compensation (Note 6).. -- -- -- -- 3,093 -- (3,093) -- --
Amortization of unearned
compensation (Note 6).. -- -- -- -- -- -- 856 -- 856
Net loss................ -- -- -- -- -- -- -- (8,942) (8,942)
------ --- ----- --- ------- ----- ------- -------- --------
Balance at April 30,
1998................... 10,096 10 3,998 4 17,868 (363) (2,237) (15,105) 177
Repurchase of unvested
Common Stock........... -- -- (120) -- (38) 32 -- -- (6)
Issuance of Common Stock
on exercise of
options................ -- -- 56 -- 28 -- -- -- 28
Issuance of Common Stock
in exchange for notes
receivable on exercise
of options............. -- -- 259 -- 419 (419) -- -- --
Issuance of restricted
Common Stock in
exchange for notes
receivable............. -- -- 7 -- 19 (19) -- -- --
Repayment of notes
receivable............. -- -- -- -- -- 21 -- -- 21
Issuance of Series F
Convertible Preferred
Stock at $6.75 per
share, net of issuance
costs.................. 1,778 2 -- -- 11,970 -- -- -- 11,972
Issuance of warrants.... -- -- -- -- 274 -- -- -- 274
Unearned stock
compensation (Note 6).. -- -- -- -- 4,963 -- (4,963) -- --
Amortization of unearned
compensation (Note 6).. -- -- -- -- -- -- 2,253 -- 2,253
Net loss................ -- -- -- -- -- -- -- (11,428) (11,428)
------ --- ----- --- ------- ----- ------- -------- --------
Balance at April 30,
1999................... 11,874 $12 4,200 $ 4 $35,503 $(748) $(4,947) $(26,533) $ 3,291
====== === ===== === ======= ===== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
AGILE SOFTWARE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(4,836) $(8,942) $(11,428)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts................ 100 277 155
Depreciation................................... 220 673 1,180
Amortization of stock compensation (Note 6).... -- 856 2,253
Warrant expense................................ -- -- 21
Changes in assets and liabilities:
Accounts receivable.......................... (838) (2,900) (1,751)
Other assets, current and non-current........ (90) (89) (446)
Accounts payable............................. 370 313 589
Accrued expenses and other liabilities....... 270 912 2,391
Deferred revenue............................. 607 2,485 1,961
------- ------- --------
Net cash used in operating activities...... (4,197) (6,415) (5,075)
------- ------- --------
Cash flows from investing activities:
Purchase of short-term investments............... (387) -- --
Proceeds from sale of short-term investments..... -- 3,023 --
Acquisition of property and equipment............ (341) (420) (459)
------- ------- --------
Net cash provided by (used in) investing
activities................................ (728) 2,603 (459)
------- ------- --------
Cash flows from financing activities:
Proceeds from bank line of credit................ -- 2,230 1,900
Repayment of bank line of credit................. -- (1,230) (2,900)
Repayment of capital lease obligations........... (145) (382) (638)
Proceeds from notes payable...................... 39 -- 3,000
Repayment of notes payable....................... (24) (24) --
Proceeds from issuance of Common Stock, net of
repurchase...................................... 68 68 22
Repayment of notes receivable from stockholders.. -- 62 21
Proceeds from issuance of Convertible Preferred
Stock, net...................................... 4,063 4,979 11,972
------- ------- --------
Net cash provided by financing activities.. 4,001 5,703 13,377
------- ------- --------
Net increase (decrease) in cash and cash
equivalents....................................... (924) 1,891 7,843
Cash and cash equivalents at beginning of period... 1,193 269 2,160
------- ------- --------
Cash and cash equivalents at end of period......... $ 269 $ 2,160 $ 10,003
======= ======= ========
Supplemental disclosure:
Cash paid during the year for interest........... $ 48 $ 138 $ 168
======= ======= ========
Noncash investing and financing activities:
Common Stock issued in exchange for notes
receivable...................................... $ -- $ 400 $ 438
======= ======= ========
Property and equipment acquired under capital
lease........................................... $ 743 $ 838 $ 1,000
======= ======= ========
Issuance of warrants............................. $ -- $ -- $ 274
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--The Company And Summary Of Significant Accounting Policies:
The Company
Agile Software Corporation (the "Company") was incorporated in California
on March 13, 1995 and is headquartered in San Jose, California. The Company is
a leading supplier of product content management software for use within and
among companies in a manufacturing supply chain over the Internet. The
Company's suite of software products is designed to improve the ability of all
members of the supply chain to communicate and collaborate with one another
about new or changing information concerning the manufacture, source or supply
of products or components.
Reincorporation
In June 1999, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. As a result of the
reincorporation, the Company is authorized to issue 100,000,000 shares of
$.001 par value Common Stock and 31,175,556 shares of $.001 par value
Preferred Stock. The Board of Directors has the authority to issue the
undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof. The par value of the
Preferred Stock and shares of Common Stock and Preferred Stock authorized in
the consolidated balance sheet at April 30, 1998 and 1999 and in consolidated
statement of stockholders' equity for the each of the three years in the
period ended April 30, 1999 have been retroactively adjusted to reflect the
reincorporation.
Principles of consolidation and basis of presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Agile Software International Corporation. All
significant intercompany balances and transactions have been eliminated in
consolidation.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The majority of the
Company's cash equivalents consist of money market funds.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents, short-term investments and accounts receivable. Cash and cash
equivalents are deposited with financial institutions that management believes
are credit worthy.
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 on the
expected collectibility of accounts receivable. To date, the Company has not
experienced any material losses with respect to its accounts receivable.
F-7
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair value of financial instruments
The Company's financial instruments, including cash, cash equivalents,
short-term investments, accounts receivable, accounts payable, notes payable
and capital lease obligations are carried at cost, which approximates their
fair value because of the short-term maturity of these instruments.
Property and equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based upon the useful lives of the assets, which
range from two to five years, or the lease term of the respective assets.
Software development costs
Software development costs are included in research and development and are
expensed as incurred. 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 in 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 the beta testing commences, and the general availability
of such software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs.
Revenue recognition
The Company derives revenues from the license of software products under
software license agreements and from the delivery of professional services and
maintenance services. When contracts contain multiple elements, and 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. License revenues are
recognized when persuasive evidence of an arrangement exists, the fee is fixed
or determinable, collectibility is probable, and delivery and customer
acceptance, if required under the terms of the contract, of the software
products have occurred. In the event the Company grants its customers the
right to specified upgrades, license revenue is deferred until delivery of the
specified upgrade. If vendor-specific objective evidence of fair value exists
for the specified upgrade, then an amount equal to this fair value is
deferred. If vendor-specific objective evidence of fair value does not exist,
then the entire license fee is deferred until the delivery of the specified
upgrade. A provision for the estimated losses on fixed-price contracts is
recognized in the period in which the loss becomes known. Allowances for
estimated returns are provided upon product delivery. In instances where
vendor obligations remain, revenues are deferred until the obligation has been
satisfied. Revenues from professional services consist of implementation and
training services. Training revenues are recognized as the services are
performed. Implementation services are typically performed under fixed-price
contracts and accordingly, revenues are recognized upon customer acceptance.
Maintenance contracts include the right to unspecified upgrades on a when-and-
if available basis, and ongoing support. Maintenance revenues are recognized
ratably over the term of the maintenance contract, which is generally twelve
months.
During 1999, the Company has recognized revenues in accordance with
Statement of Position No. 97-2, "Software Revenue Recognition," and SOP 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, with Respect to
Certain Transactions."
Income taxes
The Company accounts for income taxes under the asset and liability
approach which recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the tax basis of
assets and liabilities and their financial statement reported amounts. The
Company records a valuation allowance against deferred tax assets when it is
more likely than not that such assets will not be realized.
F-8
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive income
Effective May 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("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. To date, the Company has not had any significant transactions that
are required to be reported in comprehensive income.
Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98, basic and diluted net loss per
share is computed by dividing the net loss available to holders of Common
Stock for the period by the weighted average number of shares of Common Stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential Common Stock if their effect is antidilutive. Potential
Common Stock consists of unvested restricted Common Stock, incremental common
shares issuable upon the exercise of stock options and warrants and shares
issuable upon conversion of the Series A, Series B, Series C, Series D, Series
E and Series F Convertible Preferred Stock.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Numerator:
Net loss..................................... $(4,836) $(8,942) $(11,428)
======= ======= ========
Denominator:
Weighted average shares...................... 2,414 3,467 4,140
Weighted average unvested shares of Common
Stock subject to repurchase................. (1,114) (1,338) (1,188)
------- ------- --------
Denominator for basic and diluted
calculation................................. 1,300 2,129 2,952
======= ======= ========
Net loss per share:
Basic and diluted............................ $ (3.72) $ (4.20) $ (3.87)
======= ======= ========
</TABLE>
The following table sets forth potential shares of Common Stock that are
not included in the diluted net loss per share calculation above because to do
so would be anti-dilutive as of the dates indicated (in thousands):
<TABLE>
<CAPTION>
April 30,
--------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Series A Preferred Stock................................ 1,233 1,233 1,233
Series B Preferred Stock................................ 2,938 2,938 2,938
Series C Preferred Stock................................ 3,575 3,575 3,575
Series D Preferred Stock................................ 1,350 1,350 1,350
Series E Preferred Stock................................ -- 1,000 1,000
Series F Preferred Stock................................ -- -- 1,778
Preferred Stock warrants................................ 94 98 158
Unvested Common Stock subject to repurchase............. 1,251 1,361 964
Common Stock options.................................... 732 527 1,160
------ ------ ------
11,173 12,082 14,156
====== ====== ======
</TABLE>
F-9
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended April 30, 1999 is computed
using the weighted average number of shares of Common Stock outstanding,
including the pro forma effects of the automatic conversion of the Company's
Series A, Series B, Series C, Series D, Series E and Series F Convertible
Preferred Stock and Series F Preferred Stock warrants into shares of the
Company's Common Stock effective upon the closing of the Company's initial
public offering as if such conversion occurred on May 1, 1998, 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 net loss per
share of 11,716,000 for the year ended April 30, 1999. The calculation of
diluted net loss per share excludes potential shares of Common Stock as their
effect would be antidilutive. Pro forma potential Common Stock consist of
unvested Common Stock subject to repurchase rights and incremental shares of
Common Stock issuable upon the exercise of stock options and warrants.
Stock compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to Employees" and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, unearned compensation is based on the
difference, if any, on the date of the grant, between the fair value of the
Company's stock and the exercise price. Unearned compensation is amortized and
expensed in accordance with Financial Accounting Standards Board ("FASB")
Interpretation No. 28. The Company accounts for stock issued to non-employees
in accordance with the provisions of SFAS No. 123 and Emerging Issues Task
Force No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."
Foreign currency translation
The Company uses the U.S. dollar as its functional currency in all foreign
locations expect for France. The balance sheet accounts are translated into
United States dollars at the end-of-period exchange rates except for fixed
assets, which are translated at historical exchange rates. Revenue and
expenses are translated at average exchange rates in effect during each
period. Gains and losses resulting from translation are accumulated as a
component of stockholders' equity. Net gains or losses resulting from foreign
currency exchange transactions are included in the consolidated statement of
operations and were not significant during any of the periods presented.
Segment information
Effective May 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. During each of the three
years in the period ended April 30, 1999, the Company operated in a single
business segment, primarily in the United States. Through April 30, 1999,
foreign operations have not been significant in either revenue or investment
in long-lived assets.
Recent accounting pronouncements
In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." SOP No. 98-1 will
be effective for the Company's fiscal year ending April 30, 2000. SOP No. 98-1
provides guidance on accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company does not expect the adoption of SOP
No. 98-1 to have a material effect on the Company's results of operations,
financial position or cash flows.
F-10
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 will be
effective for the Company's fiscal year ending April 30, 2001. The adoption of
SFAS No. 133 is not expected to have a material effect on the Company's
results of operations, financial position or cash flows.
Reclassifications
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.
Note 2--Balance Sheet Components (in thousands):
Property and equipment comprise the following:
<TABLE>
<CAPTION>
April 30,
---------------
1998 1999
------ -------
<S> <C> <C>
Computer hardware and software.............................. $2,087 $ 3,214
Furniture and equipment..................................... 508 828
Leasehold improvements...................................... 34 46
------ -------
2,629 4,088
Less: accumulated depreciation.............................. (935) (2,115)
------ -------
$1,694 $ 1,973
====== =======
</TABLE>
Accrued expenses and other liabilities comprise the following:
<TABLE>
<CAPTION>
April 30,
--------------
1998 1999
------ -------
<S> <C> <C>
Accrued employee costs....................................... $ 661 $ 1,770
Sales taxes payable.......................................... 151 172
Accrued professional fees.................................... 125 400
Other........................................................ 290 1,276
------ -------
$1,227 $ 3,618
====== =======
</TABLE>
Note 3--Borrowings:
Notes payable
Notes payable consist of amounts payable to equipment financing companies
and are collateralized by the underlying assets as follows (in thousands):
<TABLE>
<CAPTION>
April 30,
-----------
1998 1999
---- ------
<S> <C> <C>
11.75% note; interest payable monthly; principal payable
monthly commencing September 1999; matures February 2002...... -- $1,000
11.75% note; interest payable monthly; principal payable
monthly commencing November 1999; matures March 2002.......... -- 1,000
11.75% note; interest payable monthly; principal payable
monthly commencing December 1999; matures April 2002.......... -- 1,000
Non-interest bearing note; principal payable upon maturity in
July 2002..................................................... $39 $ 39
--- ------
39 3,039
Less: current portion of notes payable......................... -- (686)
--- ------
Notes payable, non-current..................................... $39 $2,353
=== ======
</TABLE>
F-11
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum principal payments under the notes at April 30, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ending April 30,
---------------------
<S> <C>
2000.................................................................. $ 686
2001.................................................................. 1,181
2002.................................................................. 1,133
2003.................................................................. 39
------
Total payments........................................................ $3,039
======
</TABLE>
Bank line-of-credit
As of April 30, 1999, the Company had a $2,000,000 line-of-credit agreement
with a bank that provides for borrowings of up to $2,000,000, including
$250,000 available for the issuance of letters of credit and foreign currency
exchange activity. Borrowings under the credit agreement bear interest at an
annual rate of 8.5%, subject to adjustment by the bank. The interest rate was
8.5% at April 30, 1999. Borrowings under the line of credit are secured by the
assets of the Company. As of April 30, 1998 and 1999, $1,000,000 and no
amount, respectively, were outstanding under the line. The credit agreement
expires in August 1999. In connection with this line-of-credit, the Company is
required to meet certain monthly financial tests, including a minimum tangible
net worth and a minimum quick ratio. At April 30, 1999, the Company was in
compliance with all financial covenants.
Note 4--Income Taxes:
The Company's operating losses are generated domestically, and amounts
attributable to its foreign operations have been insignificant for all periods
presented. For each of the three years in the period ended April 30, 1999, the
Company incurred net operating losses and accordingly no provision for income
taxes has been recorded. In addition, no benefit for income taxes has been
recorded due to the uncertainty of the realization of any tax assets. At April
30, 1999, the Company had approximately $20,000,000 of federal and $18,000,000
of state net operating loss carryforwards available to offset future taxable
income which expire in varying amounts beginning in 2016 and 2004,
respectively. Under the Tax Reform Act of 1986, the amounts of and benefits
from net operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amounts of net operating
losses that the Company may utilize in any one year include, but are not
limited to, a cumulative ownership change of more than 50%, as defined, over a
three year period.
Deferred taxes comprise the following (in thousands):
<TABLE>
<CAPTION>
April 30,
----------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Depreciation............................................. $ 66 $ 67
Other accruals and liabilities........................... 123 398
Net operating loss and credit carryforwards.............. 5,235 8,197
------- -------
Total deferred tax assets................................ 5,424 8,662
Less: Valuation allowance................................ (5,424) (8,662)
------- -------
Net deferred tax assets.................................... $ -- $ --
======= =======
</TABLE>
For financial reporting purposes, the Company has incurred a loss in each
period since its inception. Based on the available objective evidence,
including the Company's history of losses, management believes it is more
likely than not that the net deferred tax assets will not be fully realizable.
Accordingly, the Company provided for a full valuation allowance against its
net deferred tax assets at April 30, 1998 and 1999.
F-12
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation between the amount of income tax benefit determined by
applying the applicable U.S. statutory income tax rate to pre-tax loss is as
follows:
<TABLE>
<CAPTION>
Year Ended
April 30,
------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate................................. (35)% (35)% (35)%
State tax, net of federal impact....................... (6)% (6)% (6)%
Provision for valuation allowance on deferred tax
assets................................................ 41% 41% 41%
--- --- ---
--% --% --%
=== === ===
</TABLE>
Note 5--Stockholders' Equity:
Preferred stock
Convertible Preferred Stock at April 30, 1999 comprise the following (in
thousands):
<TABLE>
<CAPTION>
Shares Liquidation Proceeds, Net
---------------------- Preference of Issuance
Authorized Outstanding Amount Costs
---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Series A.................... 1,500 1,233 $ 123 $ 115
Series B.................... 3,000 2,938 1,040 1,024
Series C.................... 4,000 3,575 4,147 4,124
Series C1................... 4,000 -- -- --
Series D.................... 1,500 1,350 4,001 3,980
Series D1................... 1,500 -- -- --
Series E.................... 1,000 1,000 5,000 4,979
Series E1................... 1,000 -- -- --
Series F.................... 1,838 1,778 12,002 11,972
Series F1................... 1,838 -- -- --
Undesignated................ 10,000 -- -- --
------ ------ ------- -------
31,176 11,874 $26,313 $26,194
====== ====== ======= =======
</TABLE>
Each share of Series A, Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock is convertible
into one share of Common Stock, at the option of the holder. The conversion
ratio of the Series C Preferred Stock is subject to adjustment for dilution.
Holders of at least 100,000 shares of Preferred Stock have a right of first
offer in connection with any subsequent issuances of Preferred Stock. These
provisions will terminate upon the Company's initial public offering. In the
event that such holders of Series C or Series D Preferred Stock elect not to
participate in certain subsequent financings, their existing shares of Series
C and Series D Preferred Stock will automatically convert into shares of
Series C1 and Series D1 Preferred Stock, respectively.
Each share of Series A, Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock automatically
converts into Common Stock upon the closing of an underwritten public offering
with an offering price of at least $8.78 per share and aggregate proceeds of
at least $20,000,000 or upon the consent of the holders of a majority of the
outstanding shares of Series A, Series B, Series C, Series C1, Series D,
Series D1, Series E and Series E1 Preferred Stock (voting together as a single
class and not as separate series, on an as-converted basis). Each share of
Series F and Series F1 will automatically convert into Common Stock upon the
consent of a majority of the outstanding Series F and Series F1 shares.
F-13
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Each share of Series A, Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock has voting rights
equal to the number of shares of Common Stock into which it is convertible. As
long as at least 50% or more of the original issued shares of each respective
class remain outstanding, holders of Series A, Series B and Series C and C1
(Series C and C1 voting as a class) are entitled to elect one director at each
annual election of members of the Board of Directors. Holders of all shares of
Common Stock and Preferred Stock, on an as-converted basis, are entitled to
vote to elect the remaining directors of the Company.
As long as at least 50% of the original Preferred Stock issued remains
outstanding, the Company may not, without prior approval of at least the
majority of the then outstanding shares of Preferred Stock, (a) sell, merge or
consolidate the Company, (b) effect any transaction or series of transactions
which would result in the dissolution of more than 50% of the voting power of
the Company, (c) change the rights, preferences and privileges of the
Preferred Stock or (d) authorize or issue any equity security or any security
convertible into or exercisable for any equity security having a preference
over or equal to those of the existing Preferred Stock with respect to voting,
dividends or liquidation.
Holders of Series A, Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock are entitled to
receive, when and as declared by the Board of Directors, noncumulative annual
dividends of $.01 per share. No dividends on the Preferred Stock or Common
Stock have been declared by the Board of Directors from the Company's
inception through April 30, 1999.
In the event of a liquidation, dissolution or winding up of the Company,
the holders of Series A, Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock shall be entitled
to receive $.10, $.354, $1.16, $1.16, $2.964, $2.964, $5.00, $5.00, $6.75 and
$6.75 per share, respectively, plus any declared but unpaid dividends.
Thereafter, the remaining assets of the Company will be distributed pro rata
among the holders of Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock and Common Stock
until the holders of Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock have received an
aggregate of $.708, $2.32, $2.32, $5.928, $5.928, $10.00, $10.00, $13.50 and
$13.50 per share, respectively. Thereafter, the holders of Common Stock will
receive all of the remaining assets of the Company.
Preferred Stock warrants
In conjunction with certain capital leases and notes payable, the Company
issued warrants to purchase shares of the Company's Preferred Stock as
follows:
<TABLE>
<CAPTION>
Fiscal
Exercise Year of
Date of Grant Shares Price Expiration Value
-------------- ------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Series B Preferred Stock
warrants...................... September 1995 41,111 $.354 2003 de minimus
Series C Preferred Stock
warrants...................... March 1996 35,313 1.160 2003 de minimus
Series D Preferred Stock
warrants...................... February 1997 17,828 2.964 2004 de minimus
Series D Preferred Stock
warrants...................... November 1997 4,049 2.964 2005 de minimus
Series F Preferred Stock
warrants...................... February 1999 60,000 6.750 2010 $ 274,000
</TABLE>
The Company calculated the minimum fair value of all warrants on the date
of grant using the Black-Scholes option pricing model as prescribed by SFAS
No. 123 with the following underlying assumptions: expected volatility of 50%,
risk free interest rates ranging from 4.7% to 6.3% and terms ranging from 7 to
10.5 years.
F-14
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Series B, Series C and Series D Preferred Stock warrants are
exercisable for the period stated above or three years from the effective date
of the Company's initial public offering, whichever is longer. The Series F
Preferred Stock warrants are exercisable for the shorter of the period stated
above or immediately prior to the Company's initial public offering. Upon
completion of the Company's initial public offering, the Series F Preferred
Stock warrants expire. If the Company's initial public offering yields
proceeds of not less than $14.00 per share, then the warrant shall be
exercisable for no more than 45,000 shares of Series F Preferred Stock or the
Common Stock issuable upon conversion thereof. The Company records the expense
related to the warrants over the life of the associated financing instrument
as interest expense. At April 30, 1999, the Company had unamortized interest
of $253,000 related to warrants issued in connection with $3.0 million of
subordinated notes payable which were issued during fiscal 1999. The Company
plans to use proceeds from its initial public offering to prepay these
subordinated notes payable in their entirety. As a result, the Company will
recognize the unamortized interest balance as an expense in the period it
prepays the notes payable in entirety.
Common Stock
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 100,000,000 shares of $.001 par value Common Stock.
The Company has granted stock to certain founders and granted stock to
certain employees under a restricted stock plan. Through April 30, 1999, the
Company had sold 2,269,775 shares of Common Stock to such founders and
employees that were subject to certain repurchase rights by the Company. The
Company has a right of first offer in connection with any proposed sale or
transfer of these shares and has the right to repurchase these shares at the
original issue price. The Company's right to repurchase such shares declines
on a percentage basis, usually over four years, based on the length of the
employees' continual employment with the Company. At April 30, 1999, no shares
of founders restricted stock and 173,371 shares granted under the Company's
restricted stock plan were subject to repurchase at a weighted-average
exercise price of $.69 per share and 76,500 shares were reserved for issuance
as restricted Common Stock in the future. This plan was terminated in June
1999.
Certain of these and other shares were issued in exchange for notes
receivable, which are full recourse and additionally collateralized by the
underlying shares of Common Stock. These notes receivable are payable on
various dates through March 2004 and bear interest at rates ranging from 4.52%
to 7.34%. These notes receivable have been included in stockholders' equity.
At April 30, 1999, the Company had reserved shares of Common Stock for
future issuance as follows (in thousands):
<TABLE>
<CAPTION>
April 30, 1999
--------------
<S> <C>
Conversion of Series A Preferred Stock........................ 1,500
Conversion of Series B Preferred Stock........................ 3,000
Conversion of Series C and Series C1 Preferred Stock.......... 8,000
Conversion of Series D and Series D1 Preferred Stock.......... 3,000
Conversion of Series E and Series E1 Preferred Stock.......... 2,000
Conversion of Series F and Series F1 Preferred Stock.......... 3,556
Exercise of Preferred Stock warrants.......................... 158
Exercise of Common Stock options.............................. 1,405
Issuance of restricted Common Stock........................... 77
</TABLE>
F-15
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6--Employee Benefit Plans:
401(k) plan
Employees of the Company may elect to participate in the Company's 401(k)
plan. The Company does not make contributions to the 401(k) plan.
Stock option plan
In May 1995, the Company adopted the 1995 Stock Option Plan (the "Plan")
which, as amended, provides for the issuance of incentive and nonqualified
stock options to employees, directors and consultants of the Company. Under
the Plan, 3,375,000 shares have been authorized for issuance. Options granted
under the Plan are for periods not to exceed ten years and options must be
issued at prices not less than 100% and 85%, for incentive and nonqualified
stock options, respectively, of the estimated fair value of the stock on the
date of grant as determined by the Board of Directors. Options granted to
shareholders who own greater than 10% of the outstanding stock are for periods
not to exceed five years, and must be issued at prices not less than 110% of
the estimated fair value of the stock on the date of grant. Options are
exercisable upon grant and generally vest 25% or 20% at the end of the first
year and at a rate of 1/36 or 1/48 per month thereafter such that they vest
over four or five years, respectively.
The following table summarizes activity under the Plan (shares in
thousands):
<TABLE>
<CAPTION>
Weighted
Shares Average
Available Number Exercise
for Grant Outstanding Price
--------- ----------- --------
<S> <C> <C> <C>
Balance at April 30, 1996........................ 372 406 $ .10
Options authorized............................. 575 -- --
Options granted................................ (933) 933 .24
Options exercised.............................. -- (564) .12
Options canceled............................... 43 (43) .18
----- ------
Balance at April 30, 1997........................ 57 732 .26
Options authorized............................. 800 -- --
Options granted................................ (857) 857 .63
Options exercised.............................. -- (1,027) .31
Options canceled............................... 35 (35) .56
Unvested shares repurchased.................... 43 -- --
----- ------
Balance at April 30, 1998........................ 78 527 .84
Options authorized............................. 1,000 -- --
Options granted................................ (978) 978 2.57
Options exercised.............................. -- (315) 1.42
Options canceled............................... 30 (30) 1.70
Unvested shares repurchased.................... 115 -- --
----- ------
Balance at April 30, 1999........................ 245 1,160 2.12
===== ======
</TABLE>
At April 30, 1999, 790,235 outstanding shares of Common Stock purchased
under the Plan were subject to repurchase. Upon termination of employment,
unvested shares previously purchased under the Plan are subject to repurchase
by the Company at a price equal to the exercise price.
F-16
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the information about stock options
outstanding and exercisable as of April 30, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Options Vested
Options Outstanding and Exercisable
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
------------ ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.015 - .45 83 7.97 $ .36 38 $ .35
.50 - 1.25 154 8.54 .91 52 .86
1.45 - 2.50 454 9.20 2.19 18 1.91
2.65 - 3.00 469 9.71 2.77 -- --
----- ---
1,160 9.23 2.12 108 .86
===== ===
</TABLE>
Fair value disclosures
The Company calculated the minimum fair value of each option grant under
the Plan on the date of grant using the Black-Scholes option pricing model as
prescribed by SFAS No. 123 with the followings underlying assumptions:
<TABLE>
<CAPTION>
Year Ended
April 30,
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Dividend yield........................................... -- -- --
Expected volatility...................................... -- -- --
Average risk free interest rate.......................... 6.3% 6.0% 5.7%
Expected life (in years)................................. 5 5 5
Weighted average fair value of options granted........... $.07 $.17 $.64
</TABLE>
Had compensation cost for options granted under the Plan been determined
based on the fair value at the grant dates for the awards under a method
prescribed by SFAS No. 123, the Company's net loss would have been increased
to the pro forma amounts below for the fiscal years ended April 30, 1997, 1998
and 1999, respectively (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net loss as reported.......................... $(4,836) $(8,942) $(11,428)
Pro forma net loss............................ (4,843) (8,973) (11,529)
Net loss per share as reported................ (3.72) (4.20) (3.87)
Pro forma net loss per share.................. (3.73) (4.21) (3.91)
</TABLE>
Because the determination of the fair value of all options granted after
the Company becomes a public entity will include an expected volatility factor
in addition to the factors described above and because additional option
grants are expected to be made each year, the compensation expense for options
granted during each of the three years in the period ended April 30, 1999 are
not representative of the pro forma effects of option grants on reported net
income (loss) for future years.
F-17
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unearned stock compensation
In connection with certain stock option grants during the years ended April
30, 1998 and 1999, the Company recorded unearned stock compensation cost
totaling $3,093,000 and $4,963,000, respectively, which is being recognized
over the vesting period of the related options of five years. Amortization of
unearned stock compensation totaled $856,000 and $2,253,000 for the years
ended April 30, 1998 and 1999, respectively.
Note 7--Commitments And Contingencies:
Leases
The Company has entered into noncancelable operating leases for office
space and equipment and capital leases for equipment with original terms
ranging from 12 to 60 months. The terms of certain operating leases provide
for rental payments on a graduated scale. The Company recognizes expense on a
straight-line basis over the lease period and has accrued for rent expense
incurred but not paid. The future minimum lease payments under these leases at
April 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Year Ending April 30, Leases Leases
--------------------- --------- -------
<S> <C> <C>
2000...................................................... $1,061 $ 843
2001...................................................... 967 598
2002...................................................... 339 292
2003...................................................... 56 58
------ ------
Total minimum lease payments.............................. $2,423 1,791
======
Less: Amount representing interest........................ (185)
------
Present value of capital lease obligations................ 1,606
Less: Current portion..................................... (735)
------
Capital lease obligations, noncurrent..................... $ 871
======
</TABLE>
Property and equipment under capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
April 30,
---------------
1998 1999
------ -------
<S> <C> <C>
Computer hardware and software.............................. $1,519 $ 2,338
Furniture and equipment..................................... 289 470
------ -------
1,808 2,808
Less: Accumulated depreciation.............................. (710) (1,558)
------ -------
$1,098 $ 1,250
====== =======
</TABLE>
Rent expense under noncancelable operating leases was approximately
$160,000, net of sublease rental income of $28,000, for the year ended April
30, 1997, $396,000 for the year ended April 30, 1998 and $568,000, net of
sublease rental income of $208,000, for the year ended April 30, 1999.
Contingencies
As of April 30, 1999, the Company was involved in litigation with
Facilities Management International. The complaint against the Company, filed
in the Orange County Superior Court, alleges interference with prospective
economic advantage and unfair business practices in connection with the
Company's quote for
F-18
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
services to a customer. The lawsuit seeks unspecified compensatory and
punitive damages as well as injunctive relief. The Company intends to
vigorously defend itself against the claim. The Company believes that the
ultimate outcome of this matter will not have a material adverse affect on its
financial condition, results of operations or cash flows.
Note 8--Subsequent Events:
Initial public offering
In June 1999, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its Common Stock to the public.
On August 2, 1999, the Company entered into agreements to sell shares of
Common Stock in a private placement with two separate corporate investors for
$5.0 million each. On August 16, 1999, the Company entered into an agreement
to sell shares of Common Stock in a private placement with one corporate
investor for $3.0 million. The sale of Common Stock to each of these three
investors will occur contemporaneous with the Company's initial public
offering and the number of shares issued to the corporate investors will be
calculated by dividing the amount invested by the offering price per share
less an amount equal to the underwriter's commissions and discounts per share.
Stock option plan
Subsequent to April 30, 1999, the Board adopted an increase in the number
of shares reserved for issuance under the Company's 1995 Stock Option Plan by
an additional 2,000,000 shares. This reserve will be automatically increased
on the first day of each fiscal year beginning on and after May 1, 2001 by the
lesser of 500,000 shares per year, 5% of the number of shares of the Company's
Common Stock which were issued and outstanding on the last day of the
preceding fiscal year or a number of shares determined by the Company's board
of directors.
Employee stock purchase plan
In June 1999, the Board adopted the 1999 Employee Stock Purchase Plan (the
"Purchase Plan") which will become effective on the date of the Company's
initial public offering, and reserved 500,000 shares of Common Stock for
issuance thereunder. This reserve will be automatically increased on May 1,
2000 and on each May 1 thereafter until and including May 1, 2009, by an
amount equal to the lesser of 500,000 shares per year, 2% of the number of
shares of Common Stock which are issued and outstanding on the last day of the
preceding fiscal year or a number of shares determined by the Company's board
of directors. Employees generally will be eligible to participate in the
Purchase Plan if they are customarily employed by the Company for more than 20
hours per week and more than five months in a fiscal year end. The first
Offering Period is expected to begin on the first business day on which price
quotations for the Company's Common Stock are available. Depending on the
effective date, the first Offering Period may be more or less than 24 months
long. Offering Periods and Purchase Periods thereafter will begin on the first
day of May and September of each year. In general, the price at which the
Common Stock is purchased under the Purchase Plan is 85% of the lesser of the
fair market value of the Company's Common Stock on the first day of the
applicable Offering Period or on the purchase date. Employees generally may
not purchase more than 1,000 shares in a six-month period or stock having a
value greater than $25,000 in any calendar year as measured at the beginning
of the offering period.
Stock option grants
During the period May 1, 1999 through August 4, 1999, the Company granted
options to purchase an aggregate of 1,125,700 shares of Common Stock at
exercise prices ranging from $5.00 to $10.00 per share. The Company expects to
record additional unearned stock compensation with respect to stock option
grants to
F-19
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
employees made subsequent to April 30, 1999 of at least $9.9 million. Included
within the 1,125,700 options granted subsequent to year end, are 65,000
options granted to consultants. The Company will account for these options
under variable plan accounting and has calculated the minimum fair value of
these options on the date of grant of at least $980,000 using the Black-
Scholes option pricing model as prescribed by SFAS No. 123 with the following
underlying assumptions: expected volatility of 50%, risk-free interest rate of
5.9% and option terms of ten years. The Company will record an expense each
quarter relating to these options over the vesting period of the options.
Note 9--Unaudited Quarterly Consolidated Financial Data:
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------
Jul. Apr.
31, Oct. 31, Jan. 31, 30, Fiscal
1998 1998 1999 1999 1999
------- -------- -------- ------- --------
1999: (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total revenues................. $ 3,241 $ 3,812 $ 4,592 $ 5,162 $ 16,807
Gross profit................... 2,083 2,475 2,845 3,419 10,822
Loss from operations........... (2,624) (2,839) (2,902) (3,241) (11,606)
Net loss....................... (2,572) (2,741) (2,838) (3,277) (11,428)
Net loss per share--basic and
diluted....................... (.94) (.96) (.94) (1.02) (3.87)
<CAPTION>
Quarter Ended
------------------------------------
Jul. Apr.
31, Oct. 31, Jan. 31, 30, Fiscal
1997 1997 1998 1998 1998
------- -------- -------- ------- --------
1998: (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total revenues................. $ 1,179 $ 1,669 $ 2,128 $ 3,027 $ 8,003
Gross profit................... 842 1,151 1,545 2,297 5,835
Loss from operations........... (1,610) (2,370) (2,266) (2,628) (8,874)
Net loss....................... (1,612) (2,396) (2,289) (2,645) (8,942)
Net loss per share--basic and
diluted....................... (.89) (1.20) (1.02) (1.07) (4.20)
</TABLE>
F-20
<PAGE>
[LOGO OF AGILE SOFTWARE APPEARS HERE]
