<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 2000.
REGISTRATION NO. 333-92545
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
SELECTICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0432030
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3 WEST PLUMERIA DRIVE, SAN JOSE, CA 95134
(408) 570-9700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RAJEN JASWA
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
SELECTICA, INC.
3 WEST PLUMERIA DRIVE, SAN JOSE, CA 95134
(408) 570-9700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
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<S> <C>
ROBERT V. GUNDERSON, JR., ESQ. MARK A. BERTELSEN, ESQ.
BENNETT L. YEE, ESQ. JOSE F. MACIAS, ESQ.
ANDREW BAW, ESQ. BETSEY SUE, ESQ.
THEODORE G. WANG, ESQ. JON C. AVINA, ESQ.
PARKER E. HOBSON, ESQ. WILSON SONSINI GOODRICH & ROSATI
GUNDERSON DETTMER STOUGH PROFESSIONAL CORPORATION
VILLENEUVE FRANKLIN & HACHIGIAN, LLP 650 PAGE MILL ROAD
155 CONSTITUTION DRIVE PALO ALTO, CALIFORNIA 94304
MENLO PARK, CALIFORNIA 94025 (650) 493-9300
(650) 321-2400
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE. THE INFORMATION IN THIS
PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 3, 2000
4,000,000 Shares
[Selectica Logo]
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $9.00 and $11.00 per share. We have made application to list our common
stock on The Nasdaq Stock Market's National Market under the symbol "SLTC."
Selectica and a selling stockholder have granted the underwriters an option
to purchase a maximum of 600,000 additional shares to cover over-allotments of
shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS SELECTICA
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY
E*OFFERING
The date of this prospectus is , 2000.
<PAGE> 3
[DESCRIPTION OF ARTWORK
At the top of the page is the phrase: "Selectica's Internet Selling System
Solution:" The following phrase is beneath: "Managing the Sale and Lifecycle of
Complex Products and Services."
In the center of the page is a diagram with a small circle situated in the
middle of a larger ring. The small circle is darkly shaded and contains the
following text: "ACE Knowledge Base." The ring is divided into eight sections,
each of which has an arrow which points to and from the shaded circle. The outer
section of the ring contains the following text: "Proposal Preparation," "Order
Fulfillment," "Moves, Changes and Additions," "Needs Analysis," "Product/Service
Configuration," "Cross-Sell Up-Sell," "Financing/Support Configuration" and
"Pricing Quotation." The word "Internet" is between two of the arrows.
Above the ring are three screen shots of our customers' web sites. An arrow
links each screen shot to a section of the ring. Below the screen shot to the
left is the following text: "By using Selectica, BMW provides customers with its
full range of features, options and financing alternatives to configure and
price an automobile, and has had over 240 million hits to date." To the right of
the screen shot in the middle is the following text: "HP has built an advisor
using Selectica that analyzes users' needs and identifies the optimal product
match from among dozens of options." Below the screen shot to the right is the
following text: "3Com used Selectica to assist users in configuring complex
network routers in real time."
Below the ring are three screen shots out of customers' web sites. An arrow
links each screen shot to a section of the ring. Above the screen shot to the
left is the following text: "Selectica's technology is in use both in the U.S.
and internationally at companies such as Samsung where Korean resellers can
configure and buy PCs in an intuitive, guided selling environment." To the right
of the screen shot in the middle is the following text: "Aspect Communications
uses Selectica to keep its sales force current on pricing structures so that
quotes can be generated accurately and quickly." Above the screen shot to the
right is the following text: "3Com also used Selectica to build a network
advisor that is deployed on distributors' web sites."]
<PAGE> 4
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TABLE OF CONTENTS
<TABLE>
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Page
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PROSPECTUS SUMMARY.................. 3
RISK FACTORS........................ 6
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS................ 19
USE OF PROCEEDS..................... 20
DIVIDEND POLICY..................... 20
CAPITALIZATION...................... 21
DILUTION............................ 23
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 25
BUSINESS............................ 40
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
MANAGEMENT.......................... 53
RELATED PARTY TRANSACTIONS.......... 63
PRINCIPAL STOCKHOLDERS.............. 65
DESCRIPTION OF CAPITAL STOCK........ 69
SHARES ELIGIBLE FOR FUTURE SALE..... 73
UNDERWRITING........................ 75
NOTICE TO CANADIAN RESIDENTS........ 78
LEGAL MATTERS....................... 80
EXPERTS............................. 80
WHERE YOU CAN FIND MORE
INFORMATION....................... 80
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS........................ F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Selectica and the common stock being sold in this offering
in our financial statements and notes appearing elsewhere in this prospectus and
our risk factors beginning on page 6.
SELECTICA, INC.
Selectica is a leading provider of Internet selling system software and
services that enable companies to efficiently sell complex products and services
over intranets, which are networks of computers that are internal to companies
and use Internet technologies, extranets, which are intranets that outsiders,
such as suppliers and customers, are allowed to access, and the public Internet.
Our ACE suite of software products is a comprehensive Internet selling system
solution that guides a new customer through an analysis of its needs and product
or service selection and also guides an experienced customer, partner or
employee through product or service configuration, pricing and order creation
over the Internet, thereby helping convert potential buyers into customers. Our
Internet selling system solution allows companies to use the Internet platform
to deploy a selling application to many points of contact, including personal
computers, in-store kiosks and mobile devices, while offering customers,
partners and employees an interface customized to their specific needs.
The Internet is transforming the business environment by increasing
competition and enabling the development of new business models. In order to
remain competitive, companies must find innovative ways to sell, increase
efficiencies in the sales cycle and deliver greater customer satisfaction. A
growing number of companies are seeking to leverage the Internet to market and
sell their products and services. To date, many electronic commerce transactions
have been simple purchases of products such as books, compact discs, stocks and
toys. We believe, however, that growth in electronic commerce will be driven by
the ability of companies to complete complex transactions such as
business-to-business electronic commerce, which is the sale of products and
services over the Internet from businesses to other businesses, and the sale of
consumer products and services involving multiple features and options.
The completion of a complex sales transaction depends on a seller's ability
to identify and satisfy a buyer's needs. In traditional sales, companies rely on
trained salespeople to interact with customers to address customer needs,
explain product features and ultimately consummate the sale. To date, many
electronic commerce web sites have been static collections of non-interactive
content, and have limited ability to assist and guide a customer through a
purchase decision. Using the Internet to complete complex sales transactions,
however, requires businesses to implement a sophisticated system that performs
the traditional role of the salesperson throughout the sales lifecycle of the
products and services.
In parallel with the growth of electronic commerce, the Internet is
becoming a technology platform for business application deployment. With the
emergence of the Internet platform, which includes intranets, extranets and the
public Internet, companies are able to more broadly and cost-effectively deploy
business applications to customers, partners and employees and make the most
current applications and information immediately available on Internet-enabled
devices.
Our ACE suite of products enables businesses to easily develop and rapidly
deploy an Internet sales channel, or a means for selling products and services
over the Internet, that interactively assists their customers, partners and
employees through the selection, configuration, pricing, quoting and fulfillment
processes. ACE is a comprehensive Internet selling system that meets the needs
of companies looking to efficiently sell complex products and services. Our
product architecture has been designed specifically for the Internet, providing
our solution with scalability, which is the ability to accommodate substantial
increases in the number of users concurrently using the product, reliability and
flexibility. Additionally, our Internet selling system solution has been
developed with an open architecture that leverages data in existing enterprise
applications, such as enterprise resource planning systems, providing an
easy-to-install application that is designed to reduce deployment time.
Our current customers include 3Com, Allied Signal, Aspect Communications,
BMW, Centigram, Cisco, expenseVision, Fireman's Fund, Fujitsu, Hewlett-Packard,
LoanMarket, Redback Networks, RTS Software, Samsung, Sun Microsystems and
Watlow. We have developed strong working relationships with system integrators,
such as Andersen Consulting, Arthur Andersen, EDS, A.T. Kearny, KPMG and
PricewaterhouseCoopers, with independent software vendors, such as BroadVision,
InterWorld, Netscape/ AOL and Tibco, and with application service providers such
as Asera and Corio. Our strategic investors are the Intel 64 Fund and ITOCHU
Corporation.
Selectica was incorporated in June 1996. Our principal offices are located
at 3 West Plumeria Drive, San Jose, California 95134 and our telephone number is
(408) 570-9700. Our Internet address is www.selectica.com. The information
contained on our web site does not constitute a part of this prospectus.
3
<PAGE> 6
THE OFFERING
Common stock offered...................... 4,000,000 shares
Common stock offered in the private
placement................................. 2,400,000 shares to two investors
as follows: 1,200,000 shares to
Dell USA, L.P. and 1,200,000
shares to Samsung SDS Co., Ltd.
Common stock to be outstanding after this
offering and the private placement........ 34,556,334 shares
Use of proceeds from this offering and the
private placement......................... Working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.... SLTC
The table above is based on shares outstanding as of December 31, 1999 and
assumes the exercise of outstanding warrants to purchase 253,879 shares of
common stock that terminate upon the consummation of this offering. This table
excludes:
- 2,180,815 shares of common stock issuable upon exercise of stock options
outstanding under our stock option plans at a weighted average exercise
price of $2.97 per share at December 31, 1999;
- 1,371,077 shares of common stock available for issuance under our 1996
Stock Plan of which 1,000,000 increase to shares available under the plan
was approved subsequent to December 31, 1999;
- 820,408 shares of common stock issuable upon exercise of warrants with a
weighted average exercise price of $9.79 per share, assuming an exercise
price of $10.00 per share for one warrant to purchase 800,000 shares of
common stock;
- 2,200,000 shares of common stock available for issuance under our 1999
Equity Incentive Plan;
- 1,000,000 shares of common stock available for issuance under our 1999
Employee Stock Purchase Plan; and
- An aggregate of 1,420,050 shares of common stock issuable pursuant to
options granted between December 31, 1999 and March 2, 2000 at a weighted
average exercise price of $11 per share. In addition we intend to grant
an aggregate of 150,000 shares of common stock pursuant to options to
three executive officers at an exercise price per share equal to the
initial public offering price of our common stock.
------------------
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
- conversion of all outstanding shares of preferred stock into shares of
common stock upon the consummation of this offering;
- exercise of outstanding warrants to purchase 253,879 shares of our common
stock; and
- no exercise of the underwriters' over-allotment option.
------------------
Selectica, ACE and Selectica's logo are our trademarks and we have filed
applications to register Selectica and ACE. Trade names, service marks or
trademarks of other companies appearing in this prospectus are the property of
their respective holders.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
PERIOD FROM INCEPTION MARCH 31, DECEMBER 31,
(JUNE 6, 1996) TO ----------------- -------------------
MARCH 31, 1997 1998 1999 1998 1999
--------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenues.............................. $ 55 $ 170 $ 3,444 $ 1,980 $ 9,140
Loss from operations........................ (256) (3,188) (7,636) (4,816) (12,686)
Net loss applicable to common
stockholders.............................. (251) (3,101) (7,537) (4,721) (13,342)
Net loss per share applicable to common
stockholders:
Basic and diluted......................... $(0.15) $ (0.91) $ (1.58) $ (1.05) $ (2.53)
Weighted average shares -- basic and
diluted................................. 1,634 3,425 4,782 4,479 5,270
Pro forma net loss per share applicable to
common stockholders:
Basic and diluted......................... $ (0.44) $ (0.59)
Weighted average shares -- basic and
diluted................................. 17,282 22,455
</TABLE>
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<CAPTION>
DECEMBER 31, 1999
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $14,124 $73,256
Working capital............................................. 10,551 69,683
Total assets................................................ 27,120 86,252
Total stockholders' equity.................................. 19,347 78,479
</TABLE>
See Note 1 of notes to consolidated financial statements for a description
of the method that we used to compute our basic and diluted net loss per share
applicable to common stockholders and pro forma basic and diluted net loss per
share applicable to common stockholders.
The as adjusted column in the consolidated balance sheet data table above
reflects the exercise of warrants to purchase 253,879 shares of common stock at
$4.382 that terminate upon the consummation of this offering and our sale of
4,000,000 shares of common stock in this offering and the sale of 2,400,000
shares of common stock issued in the private placement, in each case at an
assumed initial public offering price of $10.00 per share, after deducting
estimated underwriting discounts and commissions, discounts for private
placements, estimated offering expenses payable by us and the application of our
net proceeds from this offering and the private placement.
5
<PAGE> 8
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should carefully consider the following risk factors and the other
information in this prospectus before investing in our common stock.
RISKS RELATED TO OUR BUSINESS
THE UNPREDICTABILITY OF OUR QUARTERLY REVENUES AND RESULTS OF OPERATIONS MAKES
IT DIFFICULT TO PREDICT OUR FINANCIAL PERFORMANCE AND MAY CAUSE VOLATILITY OR A
DECLINE IN THE PRICE OF OUR COMMON STOCK IF WE ARE UNABLE TO SATISFY THE
EXPECTATIONS OF INVESTORS OR THE MARKET.
In the past, our quarterly operating results have varied significantly, and
we expect these fluctuations to continue. Future operating results may vary
depending on a number of factors, many of which are outside of our control.
Our quarterly revenues may fluctuate as a result of our ability to
recognize revenue in a given quarter. We enter into arrangements for the sale of
(1) licenses of our software products and related maintenance contract; (2)
bundled license, maintenance, and services; and (3) services on a time and
material basis. For each arrangement, we determine whether evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collection is probable. If any of these criteria are not met, revenue
recognition is deferred until such time as all of the criteria are met.
For those contracts that consist solely of license and maintenance we
recognize license revenues based upon the residual method after all elements
other than maintenance have been delivered and recognize maintenance revenues
over the term of the maintenance contract. For those contracts that bundle the
license with maintenance training, and/or consulting services, we assess whether
the service element of the arrangement is essential to the functionality of the
other elements of the arrangement. In those instances where we determine that
the service elements are essential to the other elements of the arrangement, we
account for the entire arrangement using contract accounting.
For those arrangements accounted for using contract accounting that do not
include contractual milestones or other acceptance criteria we utilize the
percentage of completion method based upon input measures of hours. For those
contracts that include contract milestones or acceptance criteria we recognize
revenue as such milestones are achieved or as such acceptance occurs.
In some instances the acceptance criteria in the contract requires
acceptance after all services are complete and all other elements have been
delivered. In these instances we recognize revenue based upon the completed
contract method after such acceptance has occurred.
For those arrangements for which we have concluded that the service element
is not essential to the other elements of the arrangement we determine whether
the services are available from other vendors, do not involve a significant
degree of risk or unique acceptance criteria, and whether we have sufficient
experience in providing the service to be able to separately account for the
service. When the service qualifies for separate accounting we have vendor
specific objective evidence for the service.
In those instances where licenses are bundled with other elements we have
used the residual method to account for license revenues. As such we defer the
total fair value of the undelivered elements, until such time as they are
delivered, and recognize as license revenues the difference between the total
arrangement and the amount deferred for the undelivered elements.
In addition, because we rely on a limited number of customers, the timing
of milestone achievement or customer acceptance by, the amount of services we
provide to, or the recognition of significant license revenues upon shipment to
a single customer can significantly affect our operating
6
<PAGE> 9
results. For example, our services revenues declined significantly in the
quarter ended June 30, 1999 due to completion of a services contract with BMW of
North America, one of our significant customers. Our license and service
revenues increased significantly in the quarters ended September 30, 1999 and
December 31, 1999 generally due to the addition of two new customers in each
respective quarter. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results of Operations." We
intend to significantly increase our operating expenses for the foreseeable
future. Because these expenses are relatively fixed in the near term, any
shortfall from anticipated revenues could cause our quarterly operating results
to fall below anticipated levels.
We may also experience seasonality in revenues. For example, our quarterly
results may fluctuate based upon our customers' calendar year budgeting cycles.
These seasonal variations may lead to fluctuations in our quarterly revenues and
operating results.
Based upon the foregoing, we believe that period-to-period comparisons of
our results of operations are not necessarily meaningful and that such
comparisons should not be relied upon as indications of future performance. In
some future quarter, our operating results may be below the expectations of
public market analysts and investors, which could cause volatility or a decline
in the price of our common stock.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO CONTINUE TO INCUR NET LOSSES FOR THE
FORESEEABLE FUTURE.
We have experienced operating losses in each quarterly and annual period
since inception. We incurred net losses applicable to common stockholders of
$3.1 million for the fiscal year ended March 31, 1998, $7.5 million for the
fiscal year ended March 31, 1999 and $13.3 million for the nine months ended
December 31, 1999. As of December 31, 1999, we had an accumulated deficit of
$24.7 million. We expect to significantly increase our research and development,
sales and marketing, and general and administrative expenses, and consequently
our losses will significantly increase in the future. In order to accommodate
our increase in employees, we have recently leased a larger facility, and we
will incur increased capital equipment costs. We will need to generate
significant increases in our revenues to achieve and maintain profitability. If
our revenue fails to grow or grows more slowly than we anticipate or our
operating expenses exceed our expectations, our losses will significantly
increase which would significantly harm our business and operating results.
OUR LIMITED OPERATING HISTORY AND THE FACT THAT WE OPERATE IN A NEW INDUSTRY
MAKES EVALUATING OUR BUSINESS PROSPECTS AND RESULTS OF OPERATIONS DIFFICULT.
We were founded in June 1996 and have a limited operating history. We began
marketing our ACE suite of products in early 1997 and released ACE 4.0 in
November 1999. Our business model is still emerging, and the revenue and income
potential of our business and market are unproven. As a result of our limited
operating history, we have limited financial data that you can use to evaluate
our business. You must consider our prospects in light of the risks and
difficulties we may encounter as an early stage company in the new and rapidly
evolving market for Internet selling systems.
IF THE MARKET FOR INTERNET SELLING SYSTEM SOFTWARE DOES NOT DEVELOP AS WE
ANTICIPATE, OUR OPERATING RESULTS WILL BE SIGNIFICANTLY HARMED, WHICH COULD
CAUSE A DECLINE IN THE PRICE OF OUR COMMON STOCK.
The market for Internet selling system software, which has only recently
begun to develop, is evolving rapidly and likely will have an increased number
of competitors. Because this market is new, it is difficult to assess its
competitive environment, growth rate and potential size. The growth of the
market is dependent upon the willingness of businesses and consumers to purchase
complex goods and services over the Internet and the acceptance of the Internet
as a platform for business
7
<PAGE> 10
applications. In addition, companies that have already invested substantial
resources in other methods of Internet selling may be reluctant or slow to adopt
a new approach or application that may replace, limit or compete with their
existing systems.
The acceptance and growth of the Internet as a business platform may not
continue to develop at historical rates and a sufficiently broad base of
companies may not adopt Internet platform-based business applications, either of
which could significantly harm our business and operating results. The failure
of the market for Internet selling system software to develop, or a delay in the
development of this market, would significantly harm our business and operating
results.
WE FACE INTENSE COMPETITION, WHICH COULD REDUCE OUR SALES, PREVENT US FROM
ACHIEVING OR MAINTAINING PROFITABILITY AND INHIBIT OUR FUTURE GROWTH.
The market for software and services that enable electronic commerce is
new, intensely competitive and rapidly changing. We expect competition to
persist and intensify, which could result in price reductions, reduced gross
margins and loss of market share. Our principal competitors include Calico
Commerce, FirePond and Trilogy Software. BAAN, Oracle Corporation, SAP and
Siebel Systems offer integrated solutions for electronic commerce incorporating
some of the functionality of an Internet selling system and may intensify their
efforts in our market. In addition, other enterprise software companies may
offer competitive products in the future.
Competitors vary in size and in the scope and breadth of the products and
services offered. Many of our competitors and potential competitors have a
number of significant advantages over us, including:
- a longer operating history;
- preferred vendor status with our customers;
- more extensive name recognition and marketing power; and
- significantly greater financial, technical, marketing and other
resources, giving them the ability to respond more quickly to new or
changing opportunities, technologies and customer requirements.
Our competitors may also bundle their products in a manner that may
discourage users from purchasing our products. Current and potential competitors
may establish cooperative relationships with each other or with third parties,
or adopt aggressive pricing policies to gain market share. Competitive pressures
may require us to reduce the prices of our products and services. We may not be
able to maintain or expand our sales if competition increases and we are unable
to respond effectively.
IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGE, INCLUDING MAINTAINING
INTEROPERABILITY OF OUR PRODUCT WITH THE SOFTWARE AND HARDWARE PLATFORMS
PREDOMINANTLY USED BY OUR CUSTOMERS, OUR PRODUCT MAY BE RENDERED OBSOLETE AND
OUR BUSINESS MAY FAIL.
Our industry is characterized by rapid technological change, changes in
customer requirements, frequent new product and service introductions and
enhancements and emerging industry standards. In order to achieve broad customer
acceptance, our products must be compatible with major software and hardware
platforms used by our customers. Our products currently operate on the Microsoft
Windows NT and Sun Solaris operating systems. In addition, our products are
required to interoperate with electronic commerce applications and databases. We
must continually modify and enhance our products to keep pace with changes in
these operating systems, applications and
8
<PAGE> 11
databases. Internet selling system technology is complex and new products and
product enhancements can require long development and testing periods. If our
products were to be incompatible with a popular new operating system, electronic
commerce application or database, our business would be significantly harmed. In
addition, the development of entirely new technologies to replace existing
software could lead to new competitive products that have better performance or
lower prices than our products and could render our products obsolete and
unmarketable.
DEMAND FOR OUR PRODUCTS AND SERVICES WILL DECLINE SIGNIFICANTLY IF OUR SOFTWARE
CANNOT SUPPORT AND MANAGE A SUBSTANTIAL NUMBER OF USERS.
Our strategy requires that our products be highly scalable. To date, only a
limited number of our customers have deployed our ACE products on a large scale.
If our customers cannot successfully implement large-scale deployments, or if
they determine that we cannot accommodate large-scale deployments, our business
and operating results would be significantly harmed.
IF WE FAIL TO IMPROVE OUR ACCOUNTING AND FINANCIAL CONTROL SYSTEMS OR ACCURATELY
MANAGE THE PROGRESS OF OUR CUSTOMER CONTRACTS, OUR OPERATING RESULTS WILL BE
SIGNIFICANTLY HARMED.
In the past, we have had difficulty managing our accounting and financial
reporting systems and the volume and complexity of our customer contracts. We
need to improve our financial and accounting controls, improve our reporting and
approval procedures, expand and train key personnel within our finance and
management organizations, implement more robust information systems, and
accurately record and track our customer contracts. If we fail to improve our
financial systems, procedures and controls or if we fail to effectively manage
our customer contracts, our business and operating results would be
significantly harmed.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF CUSTOMERS
FOR A SIGNIFICANT PORTION OF OUR REVENUES, AND THE LOSS OF ANY OF THESE
CUSTOMERS COULD SIGNIFICANTLY HARM OUR BUSINESS AND OPERATING RESULTS.
Our business and financial condition is dependent on a limited number of
customers. Our five largest customers accounted for approximately 85% and 57% of
our revenues for the fiscal year ended March 31, 1999 and the nine months ended
December 31, 1999, respectively, and our ten largest customers accounted for 96%
and 78% of our revenues for the fiscal year ended March 31, 1999 and the nine
months ended December 31, 1999, respectively. Revenues from significant clients
as a percentage of total revenues are as follows:
FISCAL YEAR ENDED MARCH 31, 1999
<TABLE>
<S> <C>
BMW of North America........................................ 60%
Olicom...................................................... 10%
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
Aspect Communications....................................... 15%
3Com Corporation............................................ 14%
Fireman's Fund Insurance.................................... 14%
</TABLE>
We expect that we will continue to depend upon a relatively small number of
customers for a substantial portion of our revenues for the foreseeable future.
Contracts with our customers can generally be terminated on short notice by the
customer. As a result, if we fail to successfully sell our products and services
to one or more customers in any particular period, or a large customer
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<PAGE> 12
purchases less of our products or services, defers or cancels orders, or
terminates its relationship with us, our business and operating results would be
harmed.
OUR FAILURE TO MEET CUSTOMER EXPECTATIONS ON DEPLOYMENT OF OUR PRODUCTS COULD
RESULT IN NEGATIVE PUBLICITY AND REDUCED SALES, BOTH OF WHICH WOULD
SIGNIFICANTLY HARM OUR BUSINESS AND OPERATING RESULTS.
In the past, our customers have experienced difficulties or delays in
completing implementation of our products. We may experience similar
difficulties or delays in the future. Our Internet selling system solution
relies on defining a knowledge base that must contain all of the information
about the products and services being configured. We have found that extracting
the information necessary to construct a knowledge base can be more time
consuming than we or our customers anticipate. If our customers do not devote
the resources necessary to create the knowledge base, the deployment of our
products can be delayed. Deploying our ACE products can also involve
time-consuming integration with our customers' legacy systems, such as existing
databases and enterprise resource planning software. Failing to meet customer
expectations on deployment of our products could result in a loss of customers
and negative publicity regarding us and our products, which could adversely
affect our ability to attract new customers. In addition, time-consuming
deployments may also increase the amount of professional services we must
allocate to each customer, thereby increasing our costs and adversely affecting
our business and operating results.
OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT FOR US TO FORECAST REVENUE AND
AGGRAVATES THE VARIABILITY OF QUARTERLY FLUCTUATIONS, WHICH COULD CAUSE OUR
STOCK PRICE TO DECLINE.
The sales cycle of our products has historically averaged between four and
six months, and may sometimes be significantly longer. We are generally required
to provide a significant level of education regarding the use and benefits of
our products, and potential customers tend to engage in extensive internal
reviews before making purchase decisions. In addition, the purchase of our
products typically involves a significant commitment by our customers of capital
and other resources, and is therefore subject to delays that are beyond our
control, such as customers' internal budgetary procedures and the testing and
acceptance of new technologies that affect key operations. In addition, because
we intend to target large companies, our sales cycle can be lengthier due to the
decision process in large organizations. As a result of our products' long sales
cycles, we face difficulty predicting the quarter in which sales to expected
customers may occur. If anticipated sales from a specific customer for a
particular quarter are not realized in that quarter, our operating results for
that quarter could fall below the expectations of financial analysts and
investors, which could cause our stock price to decline.
IF WE ARE UNABLE TO MAINTAIN AND EXPAND OUR DIRECT SALES FORCE, SALES OF OUR
PRODUCTS AND SERVICES MAY NOT MEET OUR EXPECTATIONS AND OUR BUSINESS AND
OPERATING RESULTS WILL BE SIGNIFICANTLY HARMED.
We depend on our direct sales force for all of our current sales and our
future growth depends on the ability of our direct sales force to develop
customer relationships and increase sales to a level that will allow us to reach
and maintain profitability.
There is a shortage of the sales personnel we need, such as sales
engineers, and competition for qualified personnel is intense. In addition, it
will take time for new sales personnel to achieve full productivity. If we are
unable to hire or retain qualified sales personnel, or if newly hired personnel
fail to develop the necessary skills or to reach productivity when anticipated,
we may not be able to expand our sales organization and increase sales of our
products and services.
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<PAGE> 13
IF WE ARE UNABLE TO GROW AND MANAGE OUR PROFESSIONAL SERVICES ORGANIZATION, WE
WILL BE UNABLE TO PROVIDE OUR CUSTOMERS WITH TECHNICAL SUPPORT FOR OUR PRODUCTS,
WHICH COULD SIGNIFICANTLY HARM OUR BUSINESS AND OPERATING RESULTS.
As we increase licensing of our software products, we must grow our
professional services organization to assist our customers with implementation
and maintenance of our products. Because these professional services have been
expensive to provide, we must improve the management of our professional
services organizations to improve our results of operations. Improving the
efficiency of our consulting services is dependent upon attracting and retaining
experienced project managers. Competition for these project managers is intense,
particularly in the Silicon Valley and in India where the majority of our
professional services organization is based, and we may not be able to hire
qualified individuals to fill these positions.
Although services revenues, which are primarily comprised of revenues from
consulting fees, maintenance contracts and training, are important to our
business, representing 52% and 43% of total revenues for the year ended March
31, 1999 and the nine months ended December 31, 1999, respectively services
revenues have lower gross margins than license revenues. Gross margins for
services revenues were 34% and negative 32% for the year ended March 31, 1999
and the nine months ended December 31, 1999, respectively, compared to gross
margins for license revenues of 89% and 95% for the respective periods. As a
result, a continued increase in the percentage of total net revenues represented
by services revenues or an unexpected decrease in license revenues could have a
detrimental impact on our overall gross margins and our operating results.
We anticipate that customers will increasingly utilize third-party
consultants to install and deploy our products. Additionally, in the future we
intend to charge for our professional services on a time and materials rather
than a fixed-fee basis. To the extent that customers are unwilling to utilize
third-party consultants or require us to provide professional services on a
fixed fee basis, our cost of services revenues could increase and could cause us
to recognize a loss on a specific contract, either of which would adversely
affect our operating results. In addition, if we are unable to provide these
resources, we may lose sales or incur customer dissatisfaction and our business
and operating results could be significantly harmed.
FAILURE TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH SYSTEMS INTEGRATORS AND
CONSULTING FIRMS, WHICH ASSIST US WITH THE SALE AND INSTALLATION OF OUR
PRODUCTS, WOULD IMPEDE ACCEPTANCE OF OUR PRODUCTS AND THE GROWTH OF OUR
REVENUES.
We rely in part upon systems integrators and consulting firms to recommend
our products to their customers and to install and deploy our products. To
increase our revenues and implementation capabilities, we must develop and
expand our relationships with these systems integrators and consulting firms. If
systems integrators and consulting firms develop, market or recommend
competitive Internet selling systems, our revenues may decline. In addition, if
these systems integrators and consulting firms are unwilling to install and
deploy our products, we may not have the resources to provide adequate
implementation services to our customers and our business and operating results
could be significantly harmed.
OUR OPERATING RESULTS ARE SIGNIFICANTLY DEPENDENT UPON THE SALE OF OUR ACE SUITE
OF PRODUCTS, INCLUDING THE NEW VERSION OF OUR PRODUCT RELEASED IN NOVEMBER 1999.
We expect that we will continue to depend on revenue from new and enhanced
versions of ACE for the foreseeable future, and if companies do not adopt or
expand their use of ACE, our business and operating results would be
significantly harmed. ACE 4.0 was introduced in November 1999.
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<PAGE> 14
Since ACE 4.0 has only recently been introduced, customers may discover errors
or other problems with the product, which may adversely affect its acceptance.
IF NEW VERSIONS AND RELEASES OF OUR PRODUCTS CONTAIN ERRORS OR DEFECTS, WE COULD
SUFFER LOSSES AND NEGATIVE PUBLICITY, WHICH WOULD ADVERSELY AFFECT OUR BUSINESS
AND OPERATING RESULTS.
Complex software products such as ours often contain errors or defects,
including errors relating to security, particularly when first introduced or
when new versions or enhancements are released. In the past, we have discovered
defects in our products and provided product updates to our customers to address
such defects. ACE and other future products may contain defects or errors, which
could result in lost revenues, a delay in market acceptance or negative
publicity, which would significantly harm our business and operating results.
MANY OF OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE RELATIVELY NEW AND MUST BE
INTEGRATED INTO OUR ORGANIZATION.
Many of our executive officers and key personnel have recently joined
Selectica, including our Vice President of Marketing and our Chief Financial
Officer, each of whom have joined Selectica since June 1999. Our future
performance will depend, in part, on our ability to successfully integrate our
newly hired executive officers and key personnel into our management team, and
our ability to develop an effective working relationship among management.
OUR RAPID GROWTH PLACES A SIGNIFICANT STRAIN ON OUR MANAGEMENT SYSTEMS AND
RESOURCES, AND IF WE FAIL TO MANAGE THIS GROWTH, OUR BUSINESS WILL BE HARMED.
We have recently experienced a period of rapid growth and expansion, which
places significant demands on our managerial, administrative, operational,
financial and other resources. From December 31, 1998 to December 31, 1999, we
expanded from 68 to 269 employees. We have also significantly expanded our
operations in the U.S. and internationally and we plan to continue to expand the
geographic scope of our operations.
To accommodate continued anticipated growth and expansion, we will be
required to improve existing and implement new operational and financial
systems, procedures and controls. In particular, we will be required to improve
our accounting and financial reporting systems and to successfully manage an
increasing number of relationships with customers, suppliers and employees, and
an increasing number of complex contracts. These demands will require the
addition of new management personnel, and we are currently in the process of
recruiting individuals to fill important management positions. If we are not
able to install adequate systems, procedures and controls to support our future
operations in an efficient and timely manner, or if we are unable to otherwise
manage growth effectively, our business would be harmed.
THE LOSS OF ANY OF OUR KEY PERSONNEL WOULD HARM OUR COMPETITIVENESS BECAUSE OF
THE TIME AND EFFORT THAT WE WOULD HAVE TO EXPEND TO REPLACE SUCH PERSONNEL.
We believe that our success will depend on the continued employment of our
senior management team and key technical personnel, none of whom, except Rajen
Jaswa, our President and Chief Executive Officer, and Dr. Sanjay Mittal, our
Chief Technical Officer and Vice President of Engineering, has an employment
agreement with us. If one or more members of our senior management team or key
technical personnel were unable or unwilling to continue in their present
positions, these individuals would be difficult to replace. Consequently, our
ability to manage day-to-day operations, including our operations in Pune,
India, develop and deliver new technologies, attract
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<PAGE> 15
and retain customers, attract and retain other employees and generate revenues
would be significantly harmed.
A SUBSTANTIAL PORTION OF OUR OPERATIONS ARE CONDUCTED BY INDIA-BASED PERSONNEL,
AND ANY CHANGE IN THE POLITICAL AND ECONOMIC CONDITIONS OF INDIA OR IN
IMMIGRATION POLICIES, WHICH WOULD ADVERSELY AFFECT OUR ABILITY TO CONDUCT OUR
OPERATIONS IN INDIA, COULD SIGNIFICANTLY HARM OUR BUSINESS.
We conduct quality assurance and professional services operations in India.
As of December 31, 1999, there were 101 persons employed in India. We are
dependent on our India-based operations for these aspects of our business and we
intend to grow our operations in India. As a result, we are directly influenced
by the political and economic conditions affecting India. Operating expenses
incurred by our operations in India are denominated in Indian currency and
accordingly, we are exposed to adverse movements in currency exchange rates.
This, as well as any other political or economic problems or changes in India,
could have a negative impact on our India-based operations, resulting in
significant harm to our business and operating results. Furthermore, the
intellectual property laws of India may not adequately protect our proprietary
rights. We believe that it is particularly difficult to find quality management
personnel in India, and we may not be able to timely replace our current
India-based management team if any of them were to leave our company.
Our training program for some of our India-based employees includes an
internship at our San Jose, California headquarters. Additionally, we provide
services to some of our customers internationally with India-based employees. We
presently rely on a number of visa programs to enable these India-based
employees to travel and work internationally. Any change in the immigration
policies of India or the countries to which these employees travel and work
could cause disruption or force the termination of these programs, which would
harm our business.
BECAUSE COMPETITION FOR QUALIFIED PERSONNEL IS INTENSE IN OUR INDUSTRY AND IN
OUR GEOGRAPHIC REGION, WE MAY NOT BE ABLE TO RECRUIT OR RETAIN PERSONNEL, WHICH
COULD IMPACT THE DEVELOPMENT OR SALES OF OUR PRODUCTS.
Our success depends on our ability to attract and retain qualified
management, engineering, sales and marketing and professional services
personnel. Competition for these types of personnel is intense, especially in
the Silicon Valley. We do not have employment agreements with most of our key
personnel. If we are unable to retain our existing key personnel, or attract and
train additional qualified personnel, our growth may be limited due to our lack
of capacity to develop and market our products.
OUR RESULTS OF OPERATIONS WILL BE HARMED BY CHARGES ASSOCIATED WITH OUR PAYMENT
OF STOCK-BASED COMPENSATION AND CHARGES ASSOCIATED WITH OTHER SECURITIES
ISSUANCES BY US.
We expect to incur a significant amount of amortization of charges related
to securities issuances in future periods, which will negatively affect our
operating results. We have deferred compensation charges of $6.0 million for
stock-based compensation as of December 31, 1999 and have related amortization
of $590,000 for the nine months ended December 31, 1999. We expect to amortize
approximately $1.7 million of stock-based compensation for the fiscal year
ending March 31, 2001 and we may incur additional charges in the future in
connection with grants of stock-based compensation at less than fair value. We
also expect to amortize approximately $3.3 million in connection with a
development agreement entered into in September 1999 with an investor who
received shares of Series E Preferred Stock and a warrant to purchase 57,000
shares of common stock at less than the deemed fair value. In January 2000 in
connection with a license and maintenance agreement we issued a warrant to
purchase 800,000 shares of common stock for
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<PAGE> 16
$800,000. The fair value of the warrant at the date of issuance was $3.7
million. The related discount of $2.9 million will be netted against the related
license and maintenance revenues as certain rights of refund in the agreement
lapse. These stock-based charges will adversely affect our earnings per share
for at least the next 22 months. See Note 10 of the Notes to Consolidated
Financial Statements.
IF WE BECOME SUBJECT TO PRODUCT LIABILITY LITIGATION, IT COULD BE COSTLY AND
TIME CONSUMING TO DEFEND AND COULD DISTRACT US FROM FOCUSING ON OUR BUSINESS AND
OPERATIONS.
Since our products are company-wide, mission-critical computer applications
with a potentially strong impact on our customers' sales, errors, defects or
other performance problems could result in financial or other damages to our
customers. Although our license agreements generally contain provisions designed
to limit our exposure to product liability claims, existing or future laws or
unfavorable judicial decisions could negate such limitation of liability
provisions. Product liability litigation, even if it were unsuccessful, would be
time consuming and costly to defend.
OUR FUTURE SUCCESS DEPENDS ON OUR PROPRIETARY INTELLECTUAL PROPERTY, AND IF WE
ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY FROM POTENTIAL COMPETITORS OUR
BUSINESS MAY BE SIGNIFICANTLY HARMED.
We rely on a combination of trademark, trade secret and copyright law and
contractual restrictions to protect the proprietary aspects of our technology.
These legal protections afford only limited protection for our technology. We
currently have three pending U.S. patent applications and two pending U.S.
trademark applications. We do not have any foreign patents or patent
applications. Our trademark and patent applications might not result in the
issuance of any trademarks or patents. If any patent or trademark is issued, it
might be invalidated or circumvented or otherwise fail to provide us any
meaningful protection. We seek to protect source code for our software,
documentation and other written materials under trade secret and copyright laws.
We license our software pursuant to signed license agreements, which impose
certain restrictions on the licensee's ability to utilize the software. We also
seek to avoid disclosure of our intellectual property by requiring employees and
consultants with access to our proprietary information to execute
confidentiality agreements. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. In addition, the laws
of many countries do not protect our proprietary rights to as great an extent as
do the laws of the United States. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets and to
determine the validity and scope of the proprietary rights of others. Our
failure to adequately protect our intellectual property could significantly harm
our business and operating results.
IF WE ARE SUBJECT TO INTELLECTUAL PROPERTY LITIGATION, WE MAY INCUR SUBSTANTIAL
COSTS, WHICH WOULD HARM OUR OPERATING RESULTS.
Our success and ability to compete are dependent on our ability to operate
without infringing upon the proprietary rights of others. Any intellectual
property litigation could result in substantial costs and diversion of resources
and could significantly harm our business and operating results. In the past, we
received correspondence from two patent holders recommending that we license
their respective patents. After review of these patents, we informed these
patent holders that in our opinion, it would not be necessary to license these
patents. However, we may be required to license either or both patents or incur
legal fees to defend our position that such licenses are not necessary. We
cannot assure you that if required to do so, we would be able to obtain a
license to use either patent on commercially reasonable terms, or at all. In
January 2000 we received correspondence from Celestica, Inc. alleging that our
use of the mark SELECTICA infringes upon their registered mark of
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<PAGE> 17
CELESTICA. We are currently evaluating the validity of their claim. We may be
required to incur legal fees and enter into litigation with respect to defending
our mark.
Any threat of intellectual property litigation could force us to do one or
more of the following:
- cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant intellectual property, which license
may not be available on reasonable terms;
- redesign those products or services that incorporate such intellectual
property; or
- pay money damages to the holder of the infringed intellectual property
right.
In the event of a successful claim of infringement against us and our
failure or inability to license the infringed intellectual property on
reasonable terms or license a substitute intellectual property or redesign our
product to avoid infringement, our business and operating results would be
significantly harmed. If we are forced to abandon use of our trademark, we may
be forced to change our name and incur substantial expenses to build a new
brand, which would significantly harm our business and operating results.
RESTRICTIONS ON EXPORT OF ENCRYPTED TECHNOLOGY COULD CAUSE US TO INCUR DELAYS IN
INTERNATIONAL PRODUCT SALES, WHICH WOULD ADVERSELY IMPACT THE EXPANSION AND
GROWTH OF OUR BUSINESS.
Our software utilizes encryption technology, the export of which is
regulated by the United States government. If our export authority is revoked or
modified, if our software is unlawfully exported or if the United States adopts
new legislation restricting export of software and encryption technology, we may
experience delay or reduction in shipment of our products internationally.
Current or future export regulations could limit our ability to distribute our
products outside of the United States. While we take precautions against
unlawful exportation of our software, we cannot effectively control the
unauthorized distribution of software across the Internet.
IF WE ARE UNABLE TO EXPAND OUR OPERATIONS INTERNATIONALLY OR ARE UNABLE TO
MANAGE THE GREATER COLLECTIONS, MANAGEMENT, HIRING, LEGAL, REGULATORY AND
CURRENCY RISKS FROM THESE INTERNATIONAL OPERATIONS, OUR BUSINESS AND OPERATING
RESULTS WILL BE HARMED.
We intend to expand our operations internationally. This expansion may be
more difficult or take longer than we anticipate, and we may not be able to
successfully market, sell or deliver our products internationally. If successful
in our international expansion, we will be subject to a number of risks
associated with international operations, including:
- longer accounts receivable collection cycles;
- expenses associated with localizing products for foreign markets;
- difficulties in managing operations across disparate geographic areas;
- difficulties in hiring qualified local personnel;
- difficulties associated with enforcing agreements and collecting
receivables through foreign legal systems;
- unexpected changes in regulatory requirements that impose multiple
conflicting tax laws and regulations; and
- fluctuations in foreign exchange rates and the possible lack of financial
stability in foreign countries that prevent overseas sales growth.
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<PAGE> 18
YEAR 2000 ISSUES COULD FORCE US TO INCUR SIGNIFICANT COSTS OR CAUSE OUR
CUSTOMERS TO DELAY THE LICENSING OF OUR PRODUCTS.
Most of our license agreements with our customers represent and warrant
that our products are Year 2000 compliant. If our products do not operate
properly with date calculations involving the Year 2000 and subsequent dates, we
could incur unanticipated expenses to remedy any problems, which could
significantly harm our business and operating results. 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 a delay or
loss of revenue, diversion of development resources, damage to our reputation or
increased service or warranty costs and litigation costs, which could harm our
business and operating results. We may also experience reduced licensing of our
software and services as current or potential customers place a priority on
correcting Year 2000 problems and defer purchase decisions for software
products.
RISKS RELATED TO THE INDUSTRY
IF USE OF THE INTERNET DOES NOT CONTINUE TO DEVELOP AND RELIABLY SUPPORT THE
DEMANDS PLACED ON IT BY ELECTRONIC COMMERCE, THE MARKET FOR OUR PRODUCTS AND
SERVICES MAY BE ADVERSELY AFFECTED, AND WE MAY NOT ACHIEVE ANTICIPATED SALES
GROWTH.
Growth in sales of our products and services depends upon the continued and
increased use of the Internet as a medium for commerce and communication. Growth
in the use of the Internet is a recent phenomenon and may not continue. In
addition, the Internet infrastructure may not be able to support the demands
placed on it by increased usage and bandwidth requirements. There have also been
recent well-publicized security breaches involving "denial of service" attacks
on major web sites. Concerns over these and other security breaches may slow the
adoption of electronic commerce by businesses, while privacy concerns over
inadequate security of information distributed over the Internet may also slow
the adoption of electronic commerce by individual consumers. Other risks
associated with commercial use of the Internet could slow its growth, including:
- inadequate reliability of the network infrastructure;
- slow development of enabling technologies and complementary products; and
- limited accessibility and ability to deliver quality service.
In addition, the recent growth in the use of the Internet has caused
frequent periods of poor or slow performance, requiring components of the
Internet infrastructure to be upgraded. Delays in the development or adoption of
new equipment and standards or protocols required to handle increased levels of
Internet activity, or increased government regulation, could cause the Internet
to lose its viability as a commercial medium. If the Internet infrastructure
does not develop sufficiently to address these concerns, it may not develop as a
commercial marketplace, which is necessary for us to increase sales.
INCREASING GOVERNMENT REGULATION OF THE INTERNET COULD LIMIT THE MARKET FOR OUR
PRODUCTS AND SERVICES, OR IMPOSE GREATER TAX BURDENS ON US OR LIABILITY FOR
TRANSMISSION OF PROTECTED DATA.
As electronic commerce and the Internet continue to evolve, federal, state
and foreign governments may adopt laws and regulations covering issues such as
user privacy, taxation of goods
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<PAGE> 19
and services provided over the Internet, pricing, content and quality of
products and services. If enacted, these laws and regulations could limit the
market for electronic commerce, and therefore the market for our products and
services. Although many of these regulations may not apply directly to our
business, we expect that laws regulating the solicitation, collection or
processing of personal or consumer information could indirectly affect our
business.
Laws or regulations concerning telecommunications might also negatively
impact us. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on these companies. This type of legislation could increase
the cost of conducting business over the Internet, which could limit the growth
of electronic commerce generally and have a negative impact on our business and
operating results.
RISKS RELATED TO THIS OFFERING
BECAUSE WE ARE IN THE INTERNET INDUSTRY, OUR STOCK PRICE MAY BE PARTICULARLY
VOLATILE, WHICH COULD LEAD TO CLASS ACTION LITIGATION.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
companies, particularly Internet-related companies, have been extremely
volatile, and have experienced fluctuations that have often been unrelated to or
disproportionate to the operating performance of these companies. These broad
market fluctuations could adversely affect the market price of our common stock.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could harm our business and operating results.
OUR EXECUTIVE OFFICER AND DIRECTORS WILL RETAIN SUBSTANTIAL VOTING CONTROL OVER
US AFTER THE OFFERING THAT WILL ALLOW THEM TO INFLUENCE THE OUTCOME OF MATTERS
SUBMITTED TO STOCKHOLDERS FOR APPROVAL.
On completion of this offering and the private placement, our executive
officers and directors and their affiliates, based on ownership as of December
31, 1999, will beneficially own, in the aggregate, approximately 55% of our
outstanding common stock (assuming no exercise of the underwriters' over-
allotment option). As a result, these stockholders will be able to exercise
significant influence over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions,
which could have the effect of delaying or preventing a third party from
acquiring control over us. For more information regarding the ownership of our
outstanding stock by our executive officers and directors and their affiliates,
see "Principal Stockholders."
WE HAVE VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS THAT COULD
SUPPRESS OUR STOCK PRICE AND MAKE IT MORE DIFFICULT TO ACQUIRE US.
Our certificate of incorporation, our bylaws and Delaware law contain
provisions that could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. These provisions
include:
- authorizing the issuance of shares of blank check preferred stock;
- providing for a classified board of directors with staggered, three year
terms; and
- prohibiting specified stockholder action by written consent.
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<PAGE> 20
For information regarding these and other provisions, please see
"Description of Capital Stock." We are also currently considering other
anti-takeover measures, including a stockholders' rights plan.
IF A SIGNIFICANT NUMBER OF SHARES BECOME AVAILABLE FOR SALE AND ARE SOLD IN A
SHORT PERIOD OF TIME, THE MARKET PRICE OF OUR STOCK COULD DECLINE.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Based on shares outstanding as of December 31, 1999, upon completion
of this offering and the private placement, we will have outstanding 34,556,334
shares of common stock. Other than the shares of common stock sold in this
offering, no shares will immediately be eligible for sale in the public market
immediately. Our stockholders will be subject to agreements with the
underwriters or us that restrict their ability to transfer their stock for 180
days from the date of this prospectus. After these agreements expire, an
additional 25,216,753 shares will be eligible for sale in the public market. For
a detailed discussion of the shares eligible for future sale, please see "Shares
Eligible for Future Sale."
AS A NEW INVESTOR, YOU WILL INCUR SUBSTANTIAL DILUTION AS A RESULT OF THIS
OFFERING AND FUTURE EQUITY ISSUANCES.
The initial public offering price will be substantially higher than the
book value per share of our outstanding common stock. As a result, investors
purchasing common stock in this offering will incur immediate dilution of $7.84
a share, assuming an initial public offering price of $10.00 per share. The
exercise of outstanding options and warrants would result in further dilution.
WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING FOR PURPOSES
WITH WHICH YOU MAY NOT AGREE, AND WE MAY NOT BE SUCCESSFUL IN INVESTING THESE
PROCEEDS.
We plan to use the proceeds from this offering for general corporate
purposes. Therefore, we will have broad discretion as to how we will spend the
proceeds, and our stockholders may not agree with the ways in which we use the
proceeds. We may not be successful in investing the proceeds from this offering
in our operations or external investments to yield a favorable return.
18
<PAGE> 21
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology; for instance, may, will,
should, intend, expect, plan, anticipate, believe, estimate, predict, potential
or continue, the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined in the Risk Factors section. These factors
may cause our actual results to differ materially from any forward-looking
statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither any other person nor we
assumes responsibility for the accuracy and completeness of the forward-looking
statements.
19
<PAGE> 22
USE OF PROCEEDS
Our net proceeds from the sale of the 4,000,000 shares of common stock in
this offering and from the sale of 2,400,000 shares of common stock in the
private placement are estimated to be $58.0 million, after deducting estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $62.2 million.
We intend to use the net proceeds of this offering for additional working
capital and other general corporate purposes. We have not yet determined our
expected use of such proceeds, but we currently estimate that through March 31,
2001, we will use approximately $32.1 million for research and development,
sales and marketing and general and administrative expenses. These operating
expenses will be offset by the degree to which we recognize revenues from the
sales of our products and services. The amounts that we actually expend for
working capital and other general corporate purposes will vary significantly
depending on a number of factors, including future revenue growth, if any, and
the amount of cash that we generate from operations. As a result, we will retain
broad discretion over the allocation of the net proceeds from this offering. A
portion of the net proceeds may also be used for the acquisition of businesses,
products and technologies that are complementary to ours. We have no current
agreements or commitments for acquisitions of complementary businesses, products
or technologies. Pending these uses, we will invest the net proceeds of this
offering in short-term, investment grade and interest-bearing securities.
DIVIDEND POLICY
We have not paid any cash dividends since inception and do not currently
intend to pay any cash dividends.
20
<PAGE> 23
CAPITALIZATION
The following table sets forth the following information:
- our actual capitalization as of December 31, 1999;
- our pro forma capitalization after giving effect to the conversion of all
outstanding shares of preferred stock into common stock; and
- our pro forma as adjusted capitalization to reflect our receipt of the
estimated net proceeds from the exercise of warrants to purchase 253,879
shares of common stock at $4.382 that terminate upon the consummation of
this offering and our sale of 4,000,000 shares of common stock in this
offering and the sale of 2,400,000 shares of common stock in the private
placement, after deducting the estimated underwriting discounts and
commissions, estimated private placement discounts, and estimated
offering expenses, the filing of a new certificate of incorporation after
the closing of this offering and the application of our proceeds from
this offering.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Convertible preferred stock: $.0001 par value; 25,500,000
shares authorized, 19,710,957 shares issued and
outstanding, actual; 25,500,000 shares authorized, no
shares outstanding, pro forma; 10,000,000 shares
authorized, no shares outstanding, pro forma as
adjusted............................................... $ 2 $ -- $ --
Common stock: $.0001 par value; 40,000,000 shares
authorized, 8,191,498 shares issued and outstanding,
actual; 75,000,000 shares authorized, 27,902,455 shares
outstanding, pro forma; 150,000,000 shares authorized,
34,556,334 shares outstanding, pro forma as adjusted... 1 3 3
Additional paid-in capital.................................. 57,057 57,057 116,189
Deferred compensation....................................... (6,011) (6,011) (6,011)
Stockholder notes receivable................................ (7,016) (7,016) (7,016)
Accumulated deficit......................................... (24,686) (24,686) (24,686)
-------- -------- -------
Total stockholders' equity............................. 19,347 19,347 78,479
-------- -------- -------
Total capitalization................................... 19,347 19,347 78,479
======== ======== =======
</TABLE>
This table excludes the following shares:
- 2,180,815 shares of common stock issuable upon exercise of stock options
outstanding as of December 31, 1999 at a weighted average exercise price
of $2.97 per share;
- 1,371,077 shares of common stock available for issuance under our 1996
Stock Plan, of which a 1,000,000 share increase to the shares available
under the plan was approved subsequent to December 31, 1999;
- 820,408 shares of common stock issuable upon the exercise of warrants
outstanding as of January 31, 1999 at a weighted average exercise price
of $9.79 per share assuming an exercise price of $10.00 per share of one
warrant to purchase 800,000 shares of common stock;
- 2,200,000 shares of common stock available for issuance under our 1999
Equity Incentive Plan; and
21
<PAGE> 24
- 1,000,000 shares of common stock available for issuance under our 1999
Employee Stock Purchase Plan.
- An aggregate of 1,420,050 shares of common stock issuable pursuant to
options granted between December 31, 1999 and March 2, 2000 at a weighted
average exercise price of $11 per share. In addition we intend to grant
an aggregate of 150,000 shares of common stock pursuant to options to
three executive officers at an exercise price per share equal to the
initial public offering price of our common stock.
See "Management -- Employee Benefit Plans," and Notes 10 and 14 of "Notes
to Consolidated Financial Statements" for a description of our equity plans.
22
<PAGE> 25
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $16.7
million, or approximately $0.59 per share. Net tangible book value per share
represents the amount of stockholders' equity, less intangible assets, plus
proceeds of $1.1 million from the exercise of 253,879 warrants, divided by
28,156,334 shares of common stock outstanding after giving effect to the assumed
exercise of warrants to purchase 253,879 shares of Series E Preferred Stock and
the conversion of all outstanding shares of preferred stock into shares of
common stock upon completion of this offering.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common stock
immediately after completion of this offering and the private placement. After
giving effect to our sale of 4,000,000 shares of common stock in this offering
and 2,400,000 shares of common stock in the private placement at an assumed
initial public offering price of $10.00 per share and after deducting the
estimated underwriting discounts and commissions, discounts for private
placements and estimated offering expenses, our net tangible book value as of
December 31, 1999 would have been $74.7 million or $2.16 per share. This
represents an immediate increase in net tangible book value of $1.57 per share
to existing stockholders and an immediate dilution in net tangible book value of
$7.84 per share to purchasers of common stock in the offering, as illustrated in
the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of December
31, 1999............................................... $0.59
Increase per share attributable to new investors.......... 1.57
-----
Pro forma net tangible book value per share after the
offering.................................................. 2.16
------
Dilution per share to new investors......................... $ 7.84
======
</TABLE>
The following table presents on a pro forma basis as of December 31, 1999,
after giving effect to the conversion of all outstanding shares of preferred
stock into common stock upon completion of this offering and the exercise of
warrants to purchase 253,879 shares of common stock, the differences between the
existing stockholders, the purchasers of shares in the offering and the private
placement investor with respect to the number of shares purchased from us, the
total consideration paid and the average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 28,156,334 81.5% $ 38,176,338 37.9% $ 1.36
New stockholders.............. 4,000,000 11.6 40,000,000 39.7 10.00
Private placement investors... 2,400,000 6.9 22,680,000 22.4 9.45
---------- ----- ------------ -----
Total.................... 34,556,334 100.0% $100,856,338 100.0% $ 2.92
========== ===== ============ =====
</TABLE>
As of December 31, 1999, there were options outstanding to purchase a total
of 2,180,815 shares of common stock at a weighted average exercise price of
$2.97 per share. In addition, as of December 31, 1999, there were warrants
outstanding to purchase 20,408 shares of common stock at a weighted average
exercise price of $1.47 per share. To the extent outstanding options or warrants
are exercised, there will be further dilution to new investors. For a
description of our equity plans, please see "Management -- Employee Benefit
Plans" and Notes 10 and 14 of Notes to Consolidated Financial Statements.
23
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The consolidated statement
of operations data for the period from June 6, 1996 (inception) to March 31,
1997, the fiscal years ended March 31, 1998 and 1999 and for the nine months
ended December 31, 1999 and the consolidated balance sheet data at March 31,
1997, 1998 and 1999 and at December 31, 1999 are derived from our consolidated
financial statements included elsewhere in this prospectus. The statement of
operations data for the nine months ended December 31, 1998 is derived from
unaudited consolidated financial statements included elsewhere in this
prospectus and, in the opinion of our management, includes all adjustments,
consisting only of normal recurring adjustments, that are necessary for a fair
presentation of the results of operations for this period. The historical
results are not necessarily indicative of the operating results to be expected
in the future. Catalogics Software Corporation our predecessor corporation, had
assets of $8,177, $6,154 and $5,952 at March 31, 1995 and 1996 and May 31, 1996,
respectively. The net loss was none, $(2,828) and $(337) for the years ended
March 31, 1995 and 1996 and the two months ended May 31, 1996, respectively.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
PERIOD FROM INCEPTION MARCH 31, DECEMBER 31,
(JUNE 6, 1996) TO ----------------- ------------------
MARCH 31, 1997 1998 1999 1998 1999
--------------------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License........................................ $ 50 $ 170 $ 1,656 $ 970 $ 5,181
Services....................................... 5 -- 1,788 1,010 3,959
------- ------- ------- ------- --------
Total revenues............................... 55 170 3,444 1,980 9,140
Cost of revenues:
License........................................ 3 9 184 118 259
Services....................................... -- -- 881 483 5,105
Services -- related party...................... -- 51 303 153 135
------- ------- ------- ------- --------
Total cost of revenues....................... 3 60 1,368 754 5,499
------- ------- ------- ------- --------
Gross profit..................................... 52 110 2,076 1,226 3,641
Operating expenses:
Research and development....................... 169 1,950 3,893 2,498 4,132
Sales and marketing............................ 62 1,055 4,430 2,683 9,271
General and administrative..................... 77 293 1,389 861 2,924
------- ------- ------- ------- --------
Total operating expenses..................... 308 3,298 9,712 6,042 16,327
------- ------- ------- ------- --------
Loss from operations............................. (256) (3,188) (7,636) (4,816) (12,686)
Interest and other income, net................... 5 87 99 95 319
------- ------- ------- ------- --------
Net loss before taxes............................ (251) (3,101) (7,537) (4,721) (12,367)
Provision for income taxes....................... -- -- -- -- 50
------- ------- ------- ------- --------
Net loss......................................... $ (251) $(3,101) $(7,537) $(4,721) $(12,417)
Deemed dividend on Series E convertible preferred
stock.......................................... -- -- -- -- 925
------- ------- ------- ------- --------
Net loss applicable to common stockholders....... $ (251) $(3,101) $(7,537) $(4,721) $(13,342)
======= ======= ======= ======= ========
Basic and diluted net loss per share applicable
to common stockholders......................... $ (0.15) $ (0.91) $ (1.58) $ (1.05) $ (2.53)
Shares used in computing basic and diluted net
loss per share applicable to common
stockholders................................... 1,634 3,425 4,782 4,479 5,270
Pro forma basic and diluted net loss per share
applicable to common stockholders.............. $ (0.44) $ (0.59)
Shares used in computing pro forma basic and
diluted net loss per share applicable to common
stockholders................................... 17,282 22,455
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
---------------------- DECEMBER 31,
1997 1998 1999 1999
---- ------ ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $788 $ 504 $ -- $14,124
Working capital (deficit)................................... 770 422 (639) 10,551
Total assets................................................ 983 1,357 3,193 27,120
Total stockholders' equity.................................. 957 856 736 19,347
</TABLE>
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes to those statements that appear
elsewhere in this prospectus.
OVERVIEW
Selectica is a leading provider of Internet selling system software and
services that enable companies to efficiently sell complex products and services
over intranets, extranets and the Internet. Our ACE suite of software products
is a comprehensive Internet selling system solution that gives sellers the
ability to manage the sales process in order to facilitate the conversion of
prospective buyers into customers. Our Internet selling system solution allows
companies to use the Internet platform to deploy a selling application to many
points of contact, including personal computers, in-store kiosks and mobile
devices, while offering customers, partners and employees an interface
customized to their specific needs.
History
Selectica was incorporated in June 1996 and acquired the technology and
assets of Catalogics Software Corporation, a development stage Internet software
company founded by Dr. Sanjay Mittal, a co-founder of Selectica, in July 1996.
Selectica was a development-stage company until October 1997. In October 1997,
we released our first version of ACE, which consisted of the ACE Enterprise
Server and ACE Studio. During the following year, we primarily licensed our
products to businesses for pilot programs that involved limited deployments.
Beginning in calendar 1999, we licensed our products for larger scale
deployments and continued to develop and market our ACE suite of products,
expanding our product offering with ACE Enterprise Manager, ACE Quoter and ACE
Mobile. In November 1999, we released the current version of ACE, ACE 4.0, and
expanded our product offering with ACE Repository and ACE Connector.
In addition to our engineering and professional services employees based in
San Jose, California, we provide professional services and perform quality
assurance testing with the assistance of Selectica Configurators India Private
Limited, or Selectica India, a corporation located in Pune, India. Selectica
India was formed in June 1997. From June 1997 through July 1999, we purchased
services from Selectica India on an arms-length contract basis. In July 1999, we
completed an agreement to acquire a 99.9% ownership of Selectica India, making
it a subsidiary of Selectica, Inc. As of December 31, 1999, there were 101
employees of Selectica India. Because we believe that Selectica India provides
us with a strategic advantage in advancing our product development and
consulting activities, we plan to continue expanding this operation. See
"Related Party Transactions -- Selectica Configurators India Pvt. Ltd."
Revenues
We enter into arrangements for the sale of (1) licenses of our software
products and related maintenance contract; (2) bundled license, maintenance, and
services; and (3) services on a time and material basis. In instances where
maintenance is bundled with a license of our software products, such maintenance
term is typically one year.
For each arrangement, we determine whether evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable, and collection
is probable. If any of these criteria are not met, revenue recognition is
deferred until such time as all of the criteria are met.
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<PAGE> 28
Arrangements consisting of license and maintenance only. For those
contracts that consist solely of license and maintenance we recognize license
revenues based upon the residual method after all elements other than
maintenance have been delivered and recognize maintenance revenues over the term
of the maintenance contract as vendor specific objective evidence of fair value
for maintenance does exist.
Arrangements consisting of license, maintenance and other
services. Services can consist of maintenance, training and/or consulting
services. Consulting services include a range of services including installation
of our off-the-shelf software, customization of our software for the customer's
specific application, data conversion and building of interfaces to allow our
software to operate in customized environments.
In all cases, we assess whether the service element of the arrangement is
essential to the functionality of the other elements of the arrangement. In this
determination we focus on whether the software is off-the-shelf software,
whether the services include significant alterations to the features and
functionality of the software, whether the services involve the building of
complex interfaces, the timing of payments and the existence of milestones.
Often the installation of our software requires the building of interfaces to
the customer's existing applications or customization of the software for
specific applications. As a result, judgement is required in the determination
of whether such services constitute "complex" interfaces. In making this
determination we consider the following: (1) the relative fair value of the
services compared to the software, (2) the amount of time and effort subsequent
to delivery of the software until the interfaces or other modifications are
completed, (3) the degree of technical difficulty in building of the interface
and uniqueness of the application, (4) the degree of involvement of customer
personnel, and (5) any contractual cancellation, acceptance, or termination
provisions for failure to complete the interfaces. We also consider refunds,
forfeitures and concessions when determining the significance of such services.
In those instances where we determine that the service elements are
essential to the other elements of the arrangement, we account for the entire
arrangement using contract accounting.
For those arrangements accounted for using contract accounting that do not
include contractual milestones or other acceptance criteria we utilize the
percentage of completion method based upon input measures of hours. For those
contracts that include contract milestones or acceptance criteria we recognize
revenue as such milestones are achieved or as such acceptance occurs.
In some instances the acceptance criteria in the contract requires
acceptance after all services are complete and all other elements have been
delivered. In these instances we recognize revenue based upon the completed
contract method after such acceptance has occurred.
For those arrangements for which we have concluded that the service element
is not essential to the other elements of the arrangement we determine whether
the services are available from other vendors, do not involve a significant
degree of risk or unique acceptance criteria, and whether we have sufficient
experience in providing the service to be able to separately account for the
service. When the service qualifies for separate accounting we use vendor
specific objective evidence for the services and the maintenance to account for
the arrangement using the residual method, regardless of any separate prices
stated within the contract for each element.
Vendor-specific objective evidence of fair value of services is based upon
hourly rates. As noted above, we enter into contracts for services alone and
such contracts are based upon time and material basis. Such hourly rates are
used to assess the vendor specific objective evidence in multiple element
arrangements.
26
<PAGE> 29
In accordance with paragraph 10 of Statement of Position 97-2, Software
Revenue Recognition, vendor specific objective evidence of fair value of
maintenance is determined by reference to the price the customer will be
required to pay when it is sold separately (that is, the renewal rate), which is
based on the price established by management having the relevant authority. Each
license agreement offers additional maintenance renewal periods at a stated
price. Maintenance contracts are typically one year in duration. To date we have
had one maintenance contract come up for renewal for which the customer elected
to renew such maintenance contract. We believe that given the nature of our
products as selling solutions for the Internet, our customers view maintenance
of those products as important to their business and will continue to need
upgrades and support of licensed products. As a result, we believe renewals will
occur in the future as more contracts come up for renewal.
To date we have not entered into arrangements solely for license of our
products and, therefore, we have not demonstrated vendor specific objective
evidence for the license element.
In all cases we classify revenues for these arrangements as license
revenues and services revenues based on the estimates of fair value for each
element.
For the fiscal year ended March 31, 1999 we recognized 63% of license and
services revenues under the percentage-of-completion method and 36% using the
completed contract method. For the nine months ended December 31, 1999 we
recognized 23% of license and services revenues under the residual method, 29%
under the percentage-of-completion method, and 40% using completed contract
method.
Because we rely on a limited number of customers, the timing of customer
acceptance or milestone achievement, or the amount of services we provide to a
single customer can significantly affect our operating results. For example, our
services revenues declined significantly in the quarter ended June 30, 1999 due
to the completion of services under a contract with BMW of North America, one of
our significant customers. Our license and services revenues increased
significantly in the quarters ended September 30, 1999 and December 31, 1999
generally due to the addition of two new customers in each respective quarter.
Customer billing occurs in accordance with contract terms. Customer
advances and amounts billed to customers in excess of revenue recognized are
recorded as deferred revenue. Amounts recognized as revenue in advance of
billing (typically under percentage-of-completion accounting) are recorded as
unbilled receivables.
Factors Affecting Operating Results
A relatively small number of customers account for a significant portion of
our total revenues. For the fiscal year ended March 31, 1998, revenue from
Hewlett-Packard--Germany, Ascend Communications, InterVoice and Insight
accounted for 45%, 27%, 16% and 12% of our total revenues, respectively. For the
fiscal year ended March 31, 1999, revenue from BMW of North America and Olicom
accounted for 60% and 10% of our revenues, respectively. For the nine months
ended December 31, 1999, revenue from Aspect Communications, Fireman's Fund and
3Com Corporation accounted for 15%, 14% and 14% of our revenues, respectively.
We expect that revenues from a limited number of customers will continue to
account for a large percentage of total revenues in future quarters.
To date, our revenues have been predominantly attributable to sales in the
United States. We plan to expand our international operations significantly,
because we believe international markets represent a significant growth
opportunity. Consequently, we expect that international revenues will increase
as a percentage of total revenues in the future. The expansion of our
international operations will be subject to a variety of risks that could
significantly harm our business and operating results.
27
<PAGE> 30
As our international sales and operations expand, we anticipate that our
exposure to foreign currency fluctuations will increase because we have not
adopted a hedging program to protect us from risks associated with foreign
currency fluctuations.
We have a limited operating history upon which we may be evaluated. We have
incurred significant losses since inception and, as of December 31, 1999, we had
an accumulated deficit of approximately $24.7 million. We believe our success
depends on the continued growth of our customer base and the development of the
emerging Internet selling system market. Accordingly, we intend to continue to
invest heavily in sales and marketing and research and development. Furthermore,
we expect to continue to incur substantial operating losses for the foreseeable
future.
In view of the rapidly changing nature of our business and our limited
operating history, we believe that period-to-period comparisons of revenues and
operating results are not necessarily meaningful and should not be relied upon
as indications of future performance. Our limited operating history makes it
difficult to forecast future operating results. Additionally, despite our recent
revenue growth, we do not believe that historical growth rates are necessarily
sustainable or indicative of future growth and we cannot be certain that
revenues will increase. Even if we were to achieve profitability in any period,
we may not be able to sustain or increase profitability on a quarterly or annual
basis.
Equity Transactions
During October 1999, we issued 1,505,702 shares of Series E Preferred Stock
to various investors, including parties related to us, for gross proceeds of
$6,597,986. Of this amount, $23,000 related to the exercise of warrants to
purchase 5,250 shares of Series E Preferred Stock issued in connection with the
convertible debt financing in May 1999. We issued 1,500,452 of these shares at
$4.382 per share while the deemed fair value of such preferred stock at that
date was approximately $7.70. As a result, in the third quarter of fiscal 2000
we recorded $5.0 million of charges related to the difference between the actual
issuance price of the preferred stock and its deemed fair value. Of this amount,
$266,000 was accounted for as compensation expense, $925,000 was accounted for
as a dividend to stockholders in the third quarter of fiscal 2000 and the
remaining amount will be amortized over an approximate two-year period in
connection with a development agreement entered into in September 1999 with
Intel, one of the investors. As of December 31, 1999, approximately $472,000 had
been amortized.
Under the terms of the development agreement with Intel, we will work with
Intel to port the current suite of ACE products to additional platforms. In
connection with the development agreement, we issued warrants to purchase 57,000
shares of Series E convertible Preferred Stock. The warrants were issued in
December 1999 and were valued using the Black-Scholes valuation model. The value
of the warrants is approximately $381,000 and this amount will be expensed over
the remaining life of the development agreement, which will be approximately two
years.
On January 7, 2000, in connection with a license agreement entered into in
November 1999 and one year maintenance agreement of $3.0 million, we issued a
warrant to purchase 800,000 shares of common stock to one of our customers, for
$800,000. The warrant is fully vested, has a life of two years, and an exercise
price per share of the lesser of $13 or the initial public offering price of
this offering. The value of the warrant is approximately $3.7 million and was
determined based upon a Black-Scholes valuation model with an assumed exercise
price of $10.00 per share. The warrant value, less the warrant purchase price of
$800,000, will be recorded net against the license and services revenues as
certain rights of refund lapse.
28
<PAGE> 31
RESULTS OF OPERATIONS
Selectica reports financial results on a fiscal year basis ending March 31.
Therefore, the following references to years relate to our fiscal years. Fiscal
1997 includes only ten months of financial results during which we had no
significant revenue while expenditures were of a start-up nature related to
research and development of our products. All revenue and expense categories for
fiscal 1998 have increased compared to fiscal 1997 due to a full year of revenue
and expenses and increased activities as we introduced and expanded our initial
product offerings. Therefore, fiscal 1997 and 1998 are not comparable periods.
NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999
Revenues
Our revenues increased from $2.0 million for the nine months ended December
31, 1998 to $9.1 million for the nine months ended December 31, 1999, an
increase of 361%. Revenues for the nine months ended December 31, 1998 were
primarily attributable to a single customer, BMW of North America. During the
nine months ended December 31, 1999, we substantially increased our customer
base with the addition of 22 new customers. During this period, customer
concentration decreased and no single customer accounted for more than 15% of
total revenue during the period. We do not believe that the percentage increases
in revenues achieved should be anticipated in future periods.
License. License revenues increased from $970,000 for the nine months ended
December 31, 1998 to $5.2 million for the nine months ended December 31, 1999,
an increase of 434%. License revenues consist of revenues from initial licenses
for our products and sales of additional licenses to existing customers. The
increase in license revenues was primarily due to the addition of new customers
as a result of expanded marketing activities, growth in our sales force, and
greater demand for and the acceptance of our ACE suite of products. During the
nine months ended December 31, 1999, 89% of our license revenue was attributable
to new customer implementations, as compared to 97% of our license revenue
attributable to new customer implementations during the nine months ended
December 31, 1998. We intend to continue to generate additional license revenues
from our existing customers and anticipate that this number will increase in
absolute dollars in future periods, although it will fluctuate as a percentage
of total revenues as our customers and size of transactions change.
Services. Services revenues increased from $1.0 million for the nine months
ended December 31, 1998 to $4.0 million for the nine months ended December 31,
1999, an increase of 292%. Our services revenues are comprised of fees from
consulting, maintenance and training services. The increase in services revenues
was due primarily to several large consulting projects and maintenance
contracts. Services revenues related to new customer consulting projects
represented 73% and 60% of total service revenues for the nine months ended
December 31, 1999 and 1998, respectively. We expect services revenues to
continue to increase in terms of absolute dollars in future periods as the
number of consulting projects and maintenance contracts increases with the
addition of new customers.
Cost of Revenues
Cost of License Revenues. Cost of license revenues increased from $118,000
for the nine months ended December 31, 1998 to $259,000 for the nine months
ended December 31, 1999, an increase of 120% and representing 12% and 5% of
license revenues, respectively. Cost of license revenues consists of the costs
of the product media, duplication, packaging and delivery of our
29
<PAGE> 32
software products to our customers, which may include documentation, shipping
and other data transmission costs.
Cost of Services Revenues, including Related Party. Cost of services
revenues including cost of services from a related party, increased from
$636,000 for the nine months ended December 31, 1998 to $5.2 million for the
nine months ended December 31, 1999, representing 63% and 132% of services
revenues, respectively. Cost of services revenue is comprised mainly of salaries
and related expenses of our services organization. For the period from inception
through June 30, 1999, cost of services revenues excludes expenses of our
professional services organization in Pune, India, which are included in costs
of services revenues -- related party. Of the increase in cost of services
revenues, $1.3 million was attributable to increased personnel in our services
organization to support the increase in the amount of professional services
provided to our customers. The increase in cost of services revenues was also
attributable to $1.2 million in travel and accommodations expenses and
amortization of deferred compensation. The increased travel and accommodations
expenses were primarily a result of an increase in employee travel to client
locations and travel and accommodations for Indian employees traveling to the
United States. We anticipate that cost of services revenues will increase in
absolute dollars in future periods as our number of customers increases and to a
lesser degree as additional expenses are incurred with Indian employees
traveling to the United States and as additional deferred compensation is
expensed. We expect cost of services revenues to fluctuate as a percentage of
service revenue.
Gross Profit
The increase in services revenues has resulted in reduced overall gross
margins, since services revenues typically have lower gross margins than license
revenues. For the nine months ended December 31, 1999, we experienced negative
gross margins for services revenues due to the timing of services revenues
recognition. We expect that our overall gross margins will continue to fluctuate
due to timing of services revenues recognition and will continue to be adversely
affected by the lower margins on our service contracts. The amount of impact on
our gross profit will depend on the mix of services we provide, whether the
services are performed by our in-house staff or third party consultants, and the
overall utilization rates of our professional services organization.
Operating Expenses
Research and Development. Our research and development costs primarily
consist of salaries and related costs of our engineering organization and an
allocation of facilities, overhead and depreciation costs. Research and
development costs increased from $2.5 million in the nine months ended December
31, 1998 to $4.1 million in the nine months ended December 31, 1999. The
increase in research and development costs was primarily due to an increase of
$852,000 from the hiring of additional technical personnel to support the
development of ACE 4.0, the payment of a $544,000 bonus to our Chief Technology
Officer, $472,000 of amortization of the development agreement entered into with
Intel, and $57,000 of amortization of deferred compensation. We believe our
investment in research and development will increase substantially in future
periods.
Sales and Marketing. Our sales and marketing expenses primarily consist of
salaries and related costs for our sales and marketing organization, sales
commissions, expenses for trade shows, public relations, collateral sales
materials, advertising and an allocation of facilities, overhead and
depreciation costs. Sales and marketing expenses increased from $2.7 million in
the nine months ended December 31, 1998 to $9.3 million in the nine months ended
December 31, 1999. The increase in sales and marketing expenses is primarily
attributable to increases in payroll expenses of $2.3 million from the hiring of
additional sales and marketing personnel, including our Vice President
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<PAGE> 33
of Marketing, $1.0 million for increased marketing activities, $1.8 million from
increased travel and sales commissions resulting from higher revenues and
$324,000 of amortization of deferred compensation. We expect that sales and
marketing expenses will increase substantially over the next year as we hire
additional sales and marketing personnel, increase spending on advertising and
marketing programs and establish sales offices in additional domestic and
international locations.
General and Administrative. Our general and administrative expenses include
compensation for administrative personnel, fees for outside professional
advisors and an allocation of overhead costs. General and administrative
expenses increased from $861,000 for the nine months ended December 31, 1998 to
$2.9 million for the nine months ended December 31, 1999. The increase in
general and administrative expenses primarily resulted from a $700,000 increase
in payroll expenses due to hiring additional administrative and support
personnel, including our Chief Financial Officer, a $472,000 increase in legal
and accounting services to support our overall growth, and $142,000 of
amortization of deferred compensation. We expect that general and administrative
expenses will increase substantially over the next year as we assume the
responsibilities of a public company and as we hire additional general and
administrative personnel.
Interest and Other Income, Net
Interest and other income, net primarily consists of interest earned on
cash balances and stockholders notes receivable, offset by interest expense
related to convertible debt issued in the first quarter of fiscal 2000 and
converted in the same quarter. Interest and other income, net increased from
$95,000 for the nine months ended December 31, 1998 to $319,000 in the nine
months ended December 31, 1999.
Provision for Income Taxes
We have recorded a tax provision of $50,000 for the nine months ended
December 31, 1999. The provision for income taxes consists primarily of state
income taxes and foreign taxes.
FASB Statement No. 109 provides for the recognition of deferred tax assets
if realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes our historical operating performance and the
reported cumulative net losses in all prior years, we have provided a full
valuation allowance against its net deferred tax assets. We intend to evaluate
the realizability of the deferred tax assets on a quarterly basis.
FISCAL YEARS ENDED MARCH 31, 1997, 1998 AND 1999
Revenues
Total revenues increased from $170,000 in fiscal 1998 to $3.4 million in
fiscal 1999. We had no material revenues in fiscal 1997.
License. License revenues increased from $170,000 in fiscal 1998 to $1.7
million in fiscal 1999. We attribute the increase in license revenues from
fiscal 1998 to fiscal 1999 primarily to growth in our customer base and an
increase in the average contract amount of license agreements, each of which was
driven by growth in our direct sales force, and, to a lesser extent, the release
of our new ACE Enterprise Manager, ACE Quoter and ACE Mobile products and new
versions of existing products.
Services. We did not recognize any services revenues in fiscal 1998.
Services revenues were $1.8 million in fiscal 1999. Services revenues in fiscal
1999 were attributable to our initial customers
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electing to utilize our professional services organization for product
deployment, maintenance, support and training.
Cost of Revenues
Cost of revenues increased from $60,000 in fiscal 1998 to $1.4 million in
fiscal 1999. Cost of revenues was not material in fiscal 1997.
License. Cost of license revenues increased from $9,000 in fiscal 1998 to
$184,000 in fiscal 1999, consistent with the increase in license revenues and
representing 5% and 11% of license revenues, respectively.
Services. Cost of services revenues, including related party amounts, were
$51,000 in fiscal 1998. Cost of services revenues, including related party
amounts, were $1.2 million in fiscal 1999, representing 66% of services
revenues. Cost of services revenues in fiscal 1999 is primarily attributable to
the development of our customer support and consulting organizations.
Operating Expenses
Research and Development. Research and development expenses increased from
$169,000 in fiscal 1997 to $2.0 million in fiscal 1998 and to $3.9 million in
fiscal 1999. The increase in research and development expenses from fiscal 1997
to fiscal 1998 were primarily due to a $1.2 million increase in salaries expense
from growth in engineering personnel. The increase in research and development
expenses from fiscal 1998 to fiscal 1999 was primarily due to a $1.3 million
increase in salaries expense from growth in engineering personnel. To date, all
software development costs have been expensed in the period incurred.
Sales and Marketing. Sales and marketing expenses increased from $62,000 in
fiscal 1997 to $1.1 million in fiscal 1998 and to $4.4 million in fiscal 1999.
The increase in sales and marketing expenses from fiscal 1997 to fiscal 1998 was
due primarily to a $539,000 increase in salaries expense from the growth in our
sales and marketing organizations and a $137,000 increase from the expansion of
our marketing programs, including increased marketing expenses for trade shows
and travel. The increase in sales and marketing expenses from fiscal 1998 to
fiscal 1999 was due primarily to a $2.0 million increase in salaries expense
from the growth in our sales and marketing organizations, and a $633,000
increase from the expansion of our marketing programs, including increased
marketing expenses for trade shows and travel.
General and Administrative. General and administrative expenses increased
from $77,000 in fiscal 1997 to $293,000 in fiscal 1998 and to $1.4 million in
fiscal 1999. The increase in general and administrative expenses from fiscal
1997 to fiscal 1998 primarily resulted from a $106,000 increase in payroll
expenses due to hiring additional administrative and support personnel. The
increase in general and administrative expenses from fiscal 1998 to fiscal 1999
primarily resulted from a $503,000 increase in payroll expenses due to hiring
additional administrative and support personnel.
Interest and Other Income, Net
Interest and other income, net consists primarily of interest earned on our
cash, cash equivalents and short-term investments offset by interest expense
incurred with respect to our line of credit obligation. Interest and other
income, net increased from $87,000 in fiscal 1998 to $99,000 in fiscal 1999 and
was immaterial in fiscal 1997. The increase in interest income and other income,
net relates primarily to interest earned on proceeds from our equity financing
in June 1998.
Provision for Income Taxes
No provision for federal or state income taxes has been recorded because we
experienced net losses through fiscal 1999.
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QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, selected data
from our consolidated statements of operations. The data has been derived from
our unaudited consolidated financial statements, and, in the opinion of our
management, include all adjustments, consisting only of normal recurring
adjustments, that are necessary for a fair presentation of the results of
operations for these periods. This unaudited information should be read in
conjunction with the consolidated financial statements and notes included
elsewhere in this prospectus. The operating results in any quarter are not
necessarily indicative of the results that may be expected for any future
period. We have incurred losses in each quarter since inception and expect to
continue to incur losses for the foreseeable future.
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License.......................................... $ 164 $ 243 $ 563 $ 686 $ 708 $ 2,125 2,348
Services......................................... 219 108 683 778 493 1,309 2,157
------- ------- ------- ------- ------- ------- -------
Total revenues................................. 383 351 1,246 1,464 1,201 3,434 4,505
Cost of revenues:
License.......................................... 28 39 51 66 52 90 117
Services......................................... 93 118 272 398 1,069 2,082 1,954
Services -- related party........................ 50 50 53 150 135 -- --
------- ------- ------- ------- ------- ------- -------
Total cost of revenues......................... 171 207 376 614 1,256 2,172 2,071
------- ------- ------- ------- ------- ------- -------
Gross profit (loss)............................ 212 144 870 850 (55) 1,262 2,434
Operating expenses:
Research and development......................... 594 827 1,077 1,395 1,479 761 1,892
Sales and marketing.............................. 781 776 1,126 1,747 1,885 2,978 4,408
General and administrative....................... 212 293 356 528 498 1,229 1,197
------- ------- ------- ------- ------- ------- -------
Total operating expenses....................... 1,587 1,896 2,559 3,670 3,862 4,968 7,497
------- ------- ------- ------- ------- ------- -------
Loss from operations............................... (1,375) (1,752) (1,689) (2,820) (3,917) (3,706) (5,063)
Interest and other income (expense), net........... 3 60 31 5 (47) 145 221
------- ------- ------- ------- ------- ------- -------
Net loss before taxes.............................. (1,372) (1,692) (1,658) (2,815) (3,964) (3,561) (4,842)
Provision for income taxes......................... -- -- -- -- 26 24 --
------- ------- ------- ------- ------- ------- -------
Net loss........................................... (1,372) (1,692) (1,658) (2,815) (3,990) (3,585) (4,842)
Deemed dividend related to Series E convertible
preferred stock.................................. -- -- -- -- -- -- 925
------- ------- ------- ------- ------- ------- -------
Net loss applicable to common stockholders......... $(1,372) $(1,692) $(1,658) $(2,815) $(3,990) $(3,585) $(5,767)
======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License.......................................... 43% 69% 45% 47% 59% 62% 52%
Services......................................... 57 31 55 53 41 38 48
------- ------- ------- ------- ------- ------- -------
Total revenues................................. 100 100 100 100 100 100 100
Cost of revenues:
License.......................................... 7 11 4 5 4 3 3
Services......................................... 24 34 22 27 90 61 43
Services -- related party........................ 13 14 4 10 11 -- --
------- ------- ------- ------- ------- ------- -------
Total cost of revenues......................... 44 59 30 42 105 63 46
------- ------- ------- ------- ------- ------- -------
Gross profit (loss)............................ 56 41 70 58 (5) 37 54
Operating expenses:
Research and development......................... 155 236 86 95 123 22 42
Sales and marketing.............................. 204 221 90 120 157 87 98
General and administrative....................... 55 83 29 36 41 36 26
------- ------- ------- ------- ------- ------- -------
Total operating expenses....................... 414 540 205 251 321 145 166
------- ------- ------- ------- ------- ------- -------
Loss from operations............................... (358) (499) (135) (193) (326) (108) (112)
Interest and other income (expense), net........... 1 17 2 -- (4) 4 5
------- ------- ------- ------- ------- ------- -------
Net loss before taxes.............................. (357) (482) (133) (193) (330) (104) (107)
Provision for income taxes......................... -- -- -- -- 2 1 --
------- ------- ------- ------- ------- ------- -------
Net loss........................................... (357) (482) (133) (193) (332) (105) (107)
Deemed dividend related to Series E convertible
preferred stock.................................. -- -- -- -- -- -- (21)
------- ------- ------- ------- ------- ------- -------
Net loss applicable to common stockholders......... (357)% (482)% (133)% (193)% (332)% (105)% (128)%
======= ======= ======= ======= ======= ======= =======
</TABLE>
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Total revenues declined significantly in the quarter ended June 30, 1999
due to the completion of a services contract with a single customer, and
increased significantly in the quarter ended September 30, 1999 primarily as a
result of the addition of two new customers. Revenues for the quarter ended
December 31, 1999 increased by $1.4 million primarily due to the increase in the
number of customers during the quarter, including two customers which, in the
aggregate, comprised approximately 41% of total revenues for the quarter. We
experience significant variability in license and services revenues from quarter
to quarter due to our dependence on a limited number of customers, the large
transaction size of contracts with these customers, the timing of customer
acceptance and the timing of milestone achievement under contracts with
recognition of revenues on a percentage-of-completion basis. Gross profit has
also fluctuated as a result of increased investment in the development of our
customer support and consulting organizations to support the increase in
professional services provided to our customers. Cost of services revenues are
affected by our allocation of overhead costs by department based upon headcount.
As headcount in our professional services organization has increased as a
percentage of overall headcount from fiscal 1999 through the third quarter of
fiscal 2000, an increasing percentage of overhead costs were allocated to cost
of services revenues, resulting in a corresponding reduction in the allocation
of overhead costs to research and development, sales and marketing and general
and administrative expenses in those quarters. We expect gross margin to
continue to fluctuate as a result of continued variation in the mix of our
revenues between high margin license revenues and lower margin services
revenues.
Our operating expenses have increased significantly from inception through
the first nine months of fiscal 2000 as we have transitioned from a development
stage to the commercialization of our services. Research and development
expenses fluctuated from the end of fiscal 1999 through the first three quarters
of fiscal 2000, with an increase in the quarter ended June 30, 1999 as a result
of the payment of a $544,000 bonus to our Chief Technology Officer, offset by a
reduction in the allocation of overhead costs. Sales and marketing expenses
increased significantly during the second and third quarters of fiscal 2000 as a
result of the additional hiring of sales and marketing personnel, including our
Vice President of Sales, Americas and Vice President of Marketing, increased
sales commissions resulting from higher revenues and increased advertising and
promotion expenses, offset by a reduction in the allocation of overhead costs.
General and administrative expenses increased significantly during the second
and third quarters of fiscal 2000 as a result of an increase in payroll expenses
due to hiring additional administrative and support personnel and an increase in
legal and accounting services, offset by a reduction in the allocation of
overhead costs.
We plan to increase our operating expenses as we continue to increase sales
and marketing operations, expand our professional services organization and
continue to fund research and development. Consequently, our losses will
increase in the future. Although we have experienced revenue growth in recent
periods, we cannot be certain that such growth will continue at its current rate
or at all. If our revenue growth is slower than we anticipate or our operating
expenses exceed our expectations, our losses will be significantly greater.
During October and November 1999, we issued a total of 1,505,702 shares of
Series E Preferred Stock to various investors, including 261,981 shares to
related parties and a member of our board of directors, of which 5,250 shares
were a result of exercise of warrants to purchase stock, 79,871 shares to our
officers, 22,820 shares to unrelated parties and 1,141,030 shares to an investor
who will work with us to port the current suite of ACE products to additional
platforms. Gross proceeds from these issuances were $6,597,986. Excluding those
related to warrant exercises, the shares were issued at $4.382 per share while
the deemed fair value of our preferred stock at that date was approximately
$7.70, 110% of the deemed fair value of our common stock on the date of the
closing of Series E convertible Preferred Stock. We recorded approximately $5.0
million of charges related to cheap stock valuation in the third quarter of
fiscal 2000. Of this amount, approximately $925,000 was
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accounted for as a dividend to stockholders, approximately $190,000 as sales and
marketing compensation expense, and approximately $76,000 as general and
administrative compensation expense. The remaining $3.8 million will be
amortized over a two-year period in connection with a development agreement with
one of our investors. Amortization of the development agreement in the amount of
$472,000 was recorded in the nine months ended December 31, 1999, consistent
with the level of our efforts in the area of research and development.
In the past, our quarterly operating results have varied significantly, and
we expect these fluctuations to continue. Future operating results may vary
depending on a number of factors, many of which are outside of our control.
In the short term, we expect our quarterly revenues to be significantly
dependent on the sale of a small number of relatively large orders for our
products and services. In addition, our products and services generally have a
long sales cycle. As a result, our quarterly revenues may fluctuate
significantly if we are unable to complete one or more substantial sales in any
given quarter. In many cases, we recognize revenues from licenses and services
on a percentage-of-completion basis. Deployment of our products requires a
substantial commitment of resources by our customers or their consultants over
an extended period of time. The time required to complete a deployment may vary
from customer to customer and may be protracted due to unforeseen circumstances.
Our ability to recognize these revenues thus may be delayed if we are unable to
meet milestones on a timely basis. We intend to significantly increase our
operating expenses for the foreseeable future. Because these expenses are
relatively fixed in the near term, any shortfall in anticipated revenues could
cause our quarterly operating results to fall below anticipated levels.
We may also experience seasonality in revenues. For example, our quarterly
results may fluctuate based upon our customers' calendar year budgeting cycles.
These seasonal variations may lead to fluctuations in our quarterly revenues and
operating results.
Based upon the foregoing, we believe that period-to-period comparisons of
our results of operations are not necessarily meaningful and that such
comparisons should not be relied upon as indications of future performance. In
some future quarter, our operating results may be below the expectations of
public market analysts and investors, which could cause volatility or a decline
in the price of our common stock.
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents were approximately $14.1 million at December 31,
1999 compared to none at March 31, 1999. This was primarily due to the issuance
of Series E Preferred Stock in July, August, and October of 1999 offset by cash
used in operations and investing. Receivables increased from approximately $1.6
million at March 31, 1999 to approximately $3.5 million at December 31, 1999 as
a direct result of increased revenues from the addition of 22 new customers
during the nine months. Other long term assets increased approximately $1.3
million primarily due to the capitalization of approximately $700,000 of
offering costs and deposits of approximately $500,000 for our San Jose
facilities. We also incurred $3.4 million in fixed asset purchases during the
nine months ended December 31, 1999 to support the increased headcount and the
addition of our new facilities in San Jose and India.
Accrued payroll and related liabilities increased by approximately $700,000
during the nine months ended December 31, 1999 due to the increased headcount
for all departments. Other accrued liabilities increased approximately $1.7
million primarily due to approximately $500,000 in accrued legal and accounting
fees associated with the offering in addition to accrued expenses related to our
new facility. Deferred revenues were approximately $4.3 million at December 31,
1999 compared to
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<PAGE> 38
approximately $1.3 million at March 31, 1999. This increase was primarily due to
increased revenues and the addition of 22 new customers during the nine months.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations since inception primarily through the private
placement of our equity securities and convertible notes through which we have
raised net proceeds of approximately $37.1 million as of December 31, 1999. At
December 31, 1999, our principal sources of liquidity included approximately
$14.1 million of cash and cash equivalents.
Cash used in operations was $6.6 million in fiscal 1999 primarily as a
result of our net losses and increases in accounts receivable corresponding to
increased revenues, which were partially offset by an increase of $902,000 in
deferred revenues, an increase of $484,000 in accounts payable and, to a lesser
degree, increases in accrued liabilities and accrued payroll and related
liabilities. Cash used in operations for the nine months ended December 31, 1999
was $8.2 million primarily as a result of our net loss and increases in accounts
receivable corresponding to increased revenues, increases in other assets
related to costs of our initial public offering, partially offset by a $3.0
million increase in deferred revenues, a $1.7 million increase in accrued
liabilities and a $699,000 increase in accrued payroll and related liabilities.
Cash used in investing activities was $731,000 in fiscal 1999 primarily as
a result of investments in computer equipment and computer software to support
increased headcount. Cash used in investing activities for the nine months ended
December 31, 1999 was $3.5 million primarily as a result of investments in
computer equipment and computer software to support our increased headcount.
Net cash provided by financing activities was $7.1 million in fiscal 1999
and $25.8 million for the nine months ended December 31, 1999. Net cash from
financing activities resulted primarily from the sale of preferred stock and
common stock. For the nine months ended December 31, 1999, cash provided by
financing was also due to the issuance of $1.0 million of convertible notes,
partially offset by common stock repurchases totaling $456,000.
We expect to experience significant growth in our operating expenses for
the foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses and planned capital expenditures will
constitute a material use of our cash resources. Our capital requirements depend
on numerous factors, including developing, marketing, selling and supporting our
products, the timing and extent of establishing international operations, and
other factors. We expect to devote substantial resources to hire additional
research and development personnel to support the development of new products
and new versions of existing products. Sales and marketing expenses are expected
to substantially increase as we hire additional sales and marketing personnel,
increase spending on advertising and marketing programs and establish sales
offices in additional domestic and international locations. General and
administrative expenses are expected to substantially increase as we assume the
responsibilities of a public company and as we hire additional general and
administrative personnel.
We currently anticipate that the net proceeds from this offering, together
with our current cash, cash equivalent and short-term investments, 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 sooner to fund more rapid expansion, to develop new or enhance
existing services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If adequate funds are not
available on acceptable terms, our business and operating results could be
harmed.
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Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments, and accounts receivable. The Company places its
short-term investments in high-credit quality financial institutions. The
Company is exposed to credit risk in the event of default by these institutions
to the extent of the amount recorded on the balance sheet. As of December 31,
1999 all money market funds are invested in the Monarch Funds Cash Fund.
YEAR 2000 COMPLIANCE
Background of Year 2000 Issues
The "year 2000 issue" refers generally to the problems that some software
may have in determining the correct date as a result of the millennium change.
We define "Year 2000 Ready" to mean that testing has revealed that the
electronic components at issue will recognize and properly perform date
sensitive functions into and beyond the year 2000. Software with date sensitive
information that is not Year 2000 Ready may not be able to distinguish whether
"00" means 1900 or 2000, which may result in system failures or the creation of
erroneous results. We are subject to potential year 2000 issues affecting our
products, our internal systems and the systems of our suppliers and customers,
any of which could harm our business.
State of Readiness
Our ACE products are coded Year 2000 Ready and are designed to be Year 2000
Ready upon implementation provided they are configured and used in accordance
with our specifications, and provided that the underlying operating systems and
any other software used with the product are also Year 2000 Ready. Substantial
testing of the ACE suite of products to date has confirmed that there are no
year 2000 issues of which we are currently aware.
However, we have not tested independently installed third-party software
that may be integrated within our customers' systems. Such integrated software
could be susceptible to year 2000 issues and the failure of our customers'
systems to be Year 2000 Ready could impede the success of our applications in
their systems. Accordingly, any year 2000 issues inherent within our software or
within systems which contain our software could result in harm to our business
by way of delay or loss of revenues, diversion of development resources, damage
to our reputation, or increased service or warranty costs, any of which could
harm our business. To date, we have not encountered any material year 2000
issues with respect to our ACE suite of products.
Risks Related to Year 2000 Issues
A significant majority of our license agreements with our customers
represent and warrant that our product is Year 2000 Ready. If our products are
not Year 2000 Ready, we could incur unanticipated expenses to remedy any
problems, which could significantly harm our business and operating results. To
date we have not experienced any Year 2000 issues with regards to our products.
Our current or future customers may incur significant expenses to achieve
year 2000 readiness. If our customers are not Year 2000 Ready, they may
experience material costs to remedy problems, they may face litigation costs and
they may delay purchases or implementation of our products. Year 2000 issues
could reduce or eliminate the budgets that current or potential customers could
have for purchases of our products and services. Also, customers may look to us
to remediate any year 2000 issues associated with their systems. As a result,
our business, financial condition and results of operations could be seriously
harmed.
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We have also completed an assessment of our internal systems, including
software and hardware technology utilized by us, as well as third-party vendors
related to our facilities or otherwise related to our business. We have
inventoried our internal software and hardware systems, as well as products and
services provided by vendors. These systems include those related to product
delivery, customer service, internal and external communications, accounting and
payroll. To the extent that we are not able to test the technology provided by
third-party vendors, we are seeking assurances from such vendors that their
systems are Year 2000 Ready. We are not currently aware of any unresolved
material operational issues or costs associated with preparing our internal
systems for the year 2000. However, we may experience material unanticipated
problems and costs caused by undetected errors, defects in the technology used
in our internal systems or by outside occurrences beyond our control.
We have not adopted a formal contingency plan designed to address Year 2000
issues that may result if our products, our internal systems, or the systems of
our suppliers or customers are not Year 2000 Ready.
We have funded our year 2000 remediation efforts from available cash and
have incurred approximately $54,000 in expenses for such efforts. We currently
estimate that we will not incur any substantial expenses for additional year
2000 remediation efforts. Significant uncertainty exists concerning the
potential costs and effects associated with year 2000 compliance. Any year 2000
compliance problem experienced by us or our customers could decrease demand for
our products that could seriously harm our business and operating results.
However, we may experience unanticipated problems and material costs with
unknown year 2000 issues that could harm our business.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued SOP No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires
entities to capitalize certain costs related to internal-use software once
certain criteria have been met. We expect that the adoption of SOP No. 98-1 will
not have a material impact on our financial position, results of operations or
cash flows. We have implemented SOP No. 98-1 in the current fiscal year.
In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of
Start-Up Activities. SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. We expect that the adoption of SOP No. 98-5 will not have a material
impact on our financial position, results of operations or cash flows. We have
implemented SOP No. 98-5 in the current fiscal year.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we do
not currently hold any derivative instruments and do not engage in hedging
activities, we expect that the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flows. We will
be required to implement SFAS No. 133 for the year ending March 31, 2002.
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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We develop products in the United States and India and sell them worldwide.
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. Since our sales are currently priced in U.S. dollars and are translated
to local currency amounts, a strengthening of the dollar could make our products
less competitive in foreign markets. Interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since our investments are
in short-term instruments calculated at variable rates. Based on the short-term
nature and current levels of our investments, we have concluded that there is no
current material market risk exposure.
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BUSINESS
OVERVIEW
Selectica is a leading provider of Internet selling system software and
services that enable companies to efficiently sell complex products and services
over intranets, extranets and the Internet. Using our Internet selling system
software, businesses can guide their customers, partners and employees through
the selection, configuration, pricing, quotation and fulfillment processes. Our
Internet selling system solution allows companies to use the Internet platform
to deploy a selling application to many points of contact, including personal
computers, in-store kiosks and mobile devices, while offering customers,
partners and employees an interface customized to their specific needs. Our
product architecture has been designed specifically for the Internet, providing
our solution with scalability, reliability and flexibility. Additionally, our
Internet selling system solution has been developed with an open architecture
that leverages data in existing applications, such as enterprise resource
planning, or ERP, systems, providing an easy-to-install application designed to
reduce deployment time. Our current customers include 3Com, Allied Signal,
Aspect Communications, BMW, Centigram, Cisco, expenseVision, Fireman's Fund,
Fujitsu, Hewlett-Packard, LoanMarket, Redback Networks, RTS Software, Samsung,
Sun Microsystems and Watlow.
INDUSTRY BACKGROUND
Evolution of Electronic Commerce
The Internet is transforming the business environment by increasing
competition and enabling the development of new business models. People,
businesses and other organizations are using the Internet as a platform to
communicate, collaborate, access information and conduct business with greater
speed and efficiency. As a result, business-to-business, business-to-consumer
and business-to-employee interactions are being fundamentally altered. In order
to remain competitive, companies must find innovative ways to sell, increase
efficiencies in the sales cycle and deliver greater customer satisfaction.
Forrester Research estimates that the combined value of business-to-consumer and
business-to-business transactions conducted via the Internet will grow to over
$1.4 trillion by 2003. A growing number of companies are seeking to leverage the
Internet to market and sell their products and services. To date, many
electronic commerce transactions have been simple purchases of products such as
books, compact discs, stocks and toys. We believe, however, that the growth in
electronic commerce will be driven by the ability of companies to complete
complex transactions such as business-to-business electronic commerce and the
sale of consumer products and services involving multiple features, options or
involving custom pricing or service options.
Complexity in Electronic Commerce
Complexity in the selling process manifests itself in many ways. One type
is product complexity, where the product has many possible features, with
factors interacting with one another and with other factors to influence the
performance or manufacturability of that item. Examples of complex products
include networking and telecommunications equipment, automobiles and computers.
A second type of complexity is needs complexity, in which the product or service
itself may be relatively simple, such as an insurance policy or a printer, but
the factors that go into evaluating a specific customer's needs and pairing
those needs with the optimal product or service may be complex. A third type of
complexity comes from flexible or customized pricing and discounting schemes,
including those based on the features of the product.
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The completion of a complex sales transaction depends on a seller's ability
to identify and satisfy a buyer's needs. In traditional sales, companies rely on
trained salespeople to interact with customers to address customer needs,
explain product features and ultimately consummate the sale. To date, many
electronic commerce web sites have been static collections of non-interactive
content, and have limited ability to assist and guide a customer through a
purchase decision. Using the Internet to complete complex sales transactions,
however, requires businesses to implement a sophisticated system that performs
the traditional role of the salesperson throughout the sales lifecycle of the
products and services. We believe that such a system must also be able to take
advantage of the emergence of the Internet as an application platform.
The Internet as an Emerging Platform for Business Applications
In parallel with the growth of electronic commerce, the Internet is
becoming a technology platform for business application deployment.
Traditionally, companies seeking to improve their operations have implemented
applications such as ERP, customer relationship management, or CRM, or sales
force automation, or SFA, software based on client-server architectures that
require a significant part of the application to be loaded on every user's
computer. With the emergence of the Internet platform, companies are able to
more broadly and cost effectively deploy business applications to customers,
partners and employees and make the most current application and information
immediately available on Internet-enabled devices. We believe that a selling
application based on the Internet platform offers significant advantages over
one based on traditional client-server architectures, such as the ability to be
deployed on a broad range of browser-enabled devices and easy integration with
other Internet-based applications and legacy systems, including those running on
relational database management systems, or RDBMS.
Limitations of Existing Solutions
Until recently, businesses have generally attempted to address the
challenges of complexity in the selling process by building in-house solutions.
These solutions often require significant up-front development costs and lengthy
deployment periods. Furthermore, due to the rapid pace of change in products and
business processes, companies often find it difficult and expensive to maintain
these systems and integrate new functionality and technologies. As a result,
businesses are seeking to implement third-party packaged applications.
Current commercially available software designed to help companies address
the challenges of complexity in the selling process may have one or more of the
following limitations:
- have not been engineered for the Internet platform and as such are not
easily deployed across a broad range of Internet-enabled devices;
- require significant custom programming;
- provide a limited interactive experience; or
- employ application architectures that limit their scalability and
reliability.
We believe that there is a significant opportunity for an Internet selling
system that leverages the Internet platform to enable companies to efficiently
sell complex products and services using a broad range of Internet-enabled
devices.
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THE SELECTICA SOLUTION
Our ACE suite of products is a comprehensive Internet selling system
solution that enables businesses to easily develop and rapidly deploy an
Internet sales channel that interactively assists their customers, partners and
employees through the selection, configuration, pricing, quoting and fulfillment
processes. Our Internet selling system solution allows companies to use the
Internet platform to deploy a selling application to many points of contact
including personal computers, in-store kiosks and mobile devices while offering
customers, partners and employees an interface customized to meet their specific
needs. ACE is built using Java technology and utilizes a multi-threaded
architecture, which is an application server design that manages a server to
reduce the amount of memory used to support new users as they make connections
to the server, to rapidly deploy, without custom programming, a cost-effective,
robust and highly scalable, Internet-enhanced sales channel.
Some of the major benefits of Selectica's Internet selling system solution
are described below:
Provides Comprehensive Solution. ACE provides all of the functionality for
Internet selling in a single comprehensive solution. Our Internet selling system
solution has been developed with an open architecture that leverages data in
existing enterprise applications, such as ERP systems, providing an
easy-to-install application that is designed to reduce deployment time.
Opportunity for Increased Sales. We enable sellers of complex products and
services to reach and sell to additional customers by enabling them to use the
Internet as an effective sales channel. Our Internet selling system solution is
designed for the Internet platform, providing increased scalability and allowing
companies to sell over a broad range of Internet-enabled devices, including
devices with limited processing power, such as mobile devices.
Shorten Sales Cycle. Generally, in a traditional sales environment for
complex products and services, prospective buyers repeatedly interact with a
seller's sales force to determine an appropriate configuration and pricing.
Selectica's ACE software is designed to enable companies to reduce the time
required to convert interested prospects into customers in several ways,
including:
- providing comprehensive product information to the customer or sales
person at the point of sale without requiring interaction with product
experts; and
- automating the pricing and configuration of complex products and
services, thereby providing customers with accurate information in
real-time.
Improves Efficiency of the Indirect Sales Channel. Using our Internet
selling system solution, companies can enable their channel partners, such as
distributors and resellers to access their selling tools and product
information. This allows distributors and resellers to effectively sell complex
products and services with less support from the company. It also improves order
accuracy, which ultimately leads to greater efficiency and increased customer
satisfaction.
Opportunity for Greater Revenue per Customer. Sellers can use our Internet
selling system solution to perform real-time analysis and optimization to
identify cross-selling and up-selling opportunities, thereby increasing average
order size. For example, a prospective buyer of a computer may be prompted by
ACE to consider additional features such as increased memory or complementary
products such as a printer, based on specific selections made. In addition, by
enabling companies to build an easy-to-use selling channel that is always
available to their customers, ACE allows companies to capture a greater
percentage of their customers' business.
Allows Selling Process to Support Key Business Goals. ACE enables companies
to ensure that all orders conform to specific criteria. For example, if a
company had a minimum gross margin
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requirement for a given product, ACE could ensure that the features and options
chosen will result in a product that meets the company's margin objectives. ACE
also improves inventory management. For example, ACE can automatically promote
the sale of a product for which there is excess inventory.
Enhances Customer Relations. ACE enables a seller of complex products and
services to present each customer with different options based upon the
customer's specified needs. This customization of the selling process actively
engages the customer in the decision making process. ACE also ensures that
customers arrive at a product configuration that meets the business and
manufacturing guidelines of the company. We believe that ACE's functionality
enhances customer loyalty and satisfaction, ultimately resulting in increased
sales.
Rapid Deployment and Reduced Costs of Ownership. An effective Internet
selling system requires the user to build a knowledge base that captures its
product configurations and selling rules. ACE allows users to build, tailor and
maintain their knowledge base without custom programming. This enables users to
rapidly deploy our Internet selling system solution. It also reduces the need
for expensive technical specialists and programmers to maintain and enhance
their businesses' Internet selling systems.
STRATEGY
Our objective is to become the leading platform for Internet selling
systems. Key components of our strategy include:
Maintain Technology Leadership. We have developed ACE to be a comprehensive
Internet selling system that meets the needs of companies looking to efficiently
sell complex products and services. Our product architecture has been
specifically designed for the Internet, providing our solution with scalability,
reliability and flexibility. We intend to continue to invest heavily in research
and development to introduce new functionality and develop innovative products
that enable our customers to increase their selling efficiency.
Pursue Vertical Market Strategy. To date, we have targeted the computer,
networking systems, automotive and communication services industries. By
offering a high-performance and feature-rich Internet selling system solution to
meet complex and evolving needs, we have established reference accounts with
high-profile, market leaders including 3Com, BMW AG, BMW of North America,
Fujitsu PC, Fujitsu Networking Communications and Hewlett-Packard. We intend to
expand our position in these markets and leverage this position to target other
markets with complex products and services such as financial services and
manufacturing. In addition, we intend to leverage our experience in specific
industries to develop solutions that incorporate the business processes and
product knowledge used in those industries.
Continue to Build Relationships with Technology Providers. We believe that
establishing relationships with key technology providers is essential in
providing a comprehensive business solution for our customers. We intend to
focus on enhancing our Internet selling system functionality while partnering
with other leading technology providers to offer enhanced infrastructure and
complementary applications such as one-to-one marketing, supply chain
management, SFA or CRM.
Leverage and Expand Strategic Relationships. Our strategy is to complement
our direct sales force and professional service organization with strategic
partnerships with leading systems integrators and application service providers,
or ASPs. We believe that these partnerships will enable us to expand our market
reach, extend into new vertical markets and increase access to senior decision-
makers. These firms influence a customer's technology selection and their
recommendation represents
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a significant endorsement of our products. In addition, our relationships with
systems integrators and ASPs provide additional implementation and integration
resources.
Expand Internationally. As Internet adoption accelerates overseas, we
believe that international market demand for Internet selling system software
and services will increase. We plan to devote significant resources to grow our
sales and marketing efforts in order to penetrate international markets. We
intend to continue to target businesses characterized by high sales volumes and
countries characterized by high growth in demand for Internet selling system
products and services.
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SELECTICA PRODUCTS
The following table provides a list of our products and a brief description
of the features and benefits to our customers.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
PRODUCT FEATURES BENEFITS
- ------------------------------------------------------------------------------------------------------
ACE Enterprise Server Electronic commerce configuration Enables customized, one-to-one
engine selling on the Internet
Highly scalable Internet-architecture Can scale to support millions of
simultaneous users by simply
installing more servers
Java-based Platform independence
Supports open standard integration Seamlessly integrates with other
interfaces Internet based applications and
legacy systems
Dynamic information update Can update product information
without stopping selling process
Easy-to-use, dynamically generated, Maximizes sales for productivity by
customized interface reducing sales training time
Supports devices with limited Can be deployed on a broad range of
processing power devices
HTML-based client Runs on any device with a standard
Internet browser
- ------------------------------------------------------------------------------------------------------
ACE Mobile Includes the features of ACE
Enterprise with the following
additional features:
Complete stand-alone selling system Enables mobile users to access our
that runs on laptop computers customers' Internet selling systems
with the same user interface as a
connected system
Automatically synchronizes knowledge Ensures accurate product and pricing
bases and quotes information and orders
- ------------------------------------------------------------------------------------------------------
ACE Enterprise Manager Administers multiple ACE Enterprise Add and remove ACE Enterprise Servers
Servers and ACE Mobile without stopping the selling process
Dynamically scales the load Optimizes available CPU, or central
distribution as more servers are processing unit, resources
added
- ------------------------------------------------------------------------------------------------------
ACE Quoter Central server and storage facility Enables users to generate, save and
for customer orders, configurations revise quotes online
and pricing information
Provides easy access from remote Eliminates errors in quotes and
devices to quote archives orders
- ------------------------------------------------------------------------------------------------------
ACE Studio Model, test and debug using a single Simplifies development process
tool
Graphical knowledge base and user Enables application deployment and
interface development tools maintenance by non-technical
personnel
- ------------------------------------------------------------------------------------------------------
ACE Repository Database that stores knowledge base Provides an audit trail for the
in readable, queryable format maintenance of large knowledge bases
- ------------------------------------------------------------------------------------------------------
ACE Connector Provides access to other enterprise Enables easy integration and reduces
applications costs and deployment time
- ------------------------------------------------------------------------------------------------------
</TABLE>
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LOGO
[Selectica Prospectus Product Diagram]
Surrounding the entire graphics is a large box. To the left of the box is a
rectangle. Above the rectangle is the text: "Users." The rectangle is divided
into two parts. In the top of the rectangle is a lap-top computer. Below the
lap-top is the text "Remote Sales Force."
In the lower portion of the rectangle are a computer, a kiosk, a mobile phone
and a personal digital assistant. Beneath these items is the text: "Customers,"
"Partners" and "Internal users."
To the right of the rectangle is a cloud. A two-headed arrow runs from the
cloud to the picture of the multiple devices inside the first rectangle. Inside
the cloud is the following text: "Intranet," "Extranet" and "Internet."
To the right of the cloud is a rectangle. A two-headed arrow runs from the
cloud to this rectangle. Inside the rectangle is the following text: "Web
Server."
To the right of the second rectangle is a large box. Inside the box are a set
of rectangles. Inside the first rectangle is the following text: "ACE Enterprise
Manager." A two-headed arrow runs from this rectangle to the prior rectangle.
The next rectangle to the right is divided into two parts. The top portion
contains the following text "ACE Mobile." A two-headed arrow runs from this
portion of the rectangle to the lap-top computer on the first rectangle.
The lower portion of this rectangle contains the following text: "ACE
Enterprise Server."
The next rectangle to the right is divided into two sections. The top section
contains the following text: "ACE Repository." The bottom section contains the
following text: "ACE Quoter."
The final rectangle in the large box is a rectangle that contains the
following text: "ACE Connectors." A two headed arrow runs from this rectangle to
a vertical line. The vertical line connects to four rectangles by four short
lines.
Above the four rectangles is the following text: "Legacy Systems." The first
rectangle contains the following text: "Order Entry." The next rectangle
contains the following text "RDBMS." The next rectangle contains the following
text: "ERP." The bottom rectangle contains the following text: "CRM/SFA."]
SELECTICA SERVICES
Professional Services
We maintain a highly qualified and experienced professional services
organization to deliver quality Internet selling system solutions. Our
professional services organization offers a broad range of services through its
consulting, customer education and technical support groups. These services
include product education, presales prototype development, training seminars,
product installation, application development, customizations, integration and a
full range of education and technical support. This organization is also
responsible for training our partners to provide professional services and
technical support to our customers. The professional services organization
consisted of 107 people as of December 31, 1999, 31 of which are based in San
Jose, California and 76 of which are based in Pune, India. Because significant
portions of Internet selling system implementations can be performed away from
the customer's site, we have the flexibility of being able to provide services
from either our U.S. or India-based operations.
Customer Support
In addition to professional services, we offer various levels of product
maintenance to our customers. Maintenance services are typically subject to an
annual, renewable contract and are typically priced as a percentage of product
license fees. Customers under maintenance contracts receive technical product
support and product upgrades as they are released throughout the life of the
maintenance contracts. We also provide Select Onsite, which consists of
specialized services provided at our customers' locations.
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CUSTOMERS
Our customer base consists of a diverse group of companies operating in a
wide range of industries that are adopting electronic business strategies to
sell their complex products and services. Our current customers include:
<TABLE>
<S> <C> <C> <C>
3Com Centigram Fujitsu RTS Software
Allied Signal Cisco Hewlett-Packard Samsung
Aspect Communications expenseVision LoanMarket Sun Microsystems
BMW Fireman's Fund Redback Networks Watlow
</TABLE>
CASE STUDIES
The following case studies provide insights into how certain businesses are
benefiting from our Internet selling system solution:
Aspect Communications. Aspect Communications is a worldwide vendor of CRM
solutions. As part of a business restructuring, Aspect changed their strategic
direction from selling individual products to providing comprehensive CRM
solutions. This required that Aspect's sales people and distributors learn a new
selling process. Providing a comprehensive solution required Aspect's sales
people to configure a complete package of products and services based on each
customer's needs. Selectica provided Aspect with an Internet selling system that
prompts sales people with an automated set of questions to determine the
customers need and then recommend a comprehensive CRM solution based upon
customer responses. With ACE, Aspect's configuration, quotation and order
processing is standardized, simple and streamlined. In addition, the new selling
system ensures greater accuracy and faster quote generation.
BMW. One of the world's most respected auto manufacturers for high quality
and brand loyalty is utilizing Selectica's Internet selling system for their
vehicle configurator to remain a leader in the rapidly changing marketing and
sales conditions of the Web. BMW of North America and BMW AG each created their
own web sites to compete with the proliferation of third party Internet auto
portals. By using Selectica's Internet selling system, BMW of North America and
BMW AG each provide customers with the full range of features, options and
financing alternatives to configure and price their vehicles, thereby enabling
customers to custom design vehicles. Using this vehicle configurator, BMW
analyzes configurations that have been saved by users for marketing trends and
product development direction. Through the implementation of Selectica's
technology, BMW hopes customer satisfaction is increased and dealers experience
faster sales cycles.
3Com Corporation. The 3Com Corporation, a $5.8 billion networking equipment
manufacturer, has a corporate-wide e-Business strategy that mandates that a
certain percentage of its total sales revenues come from its web site.
Selectica's Internet selling system helps 3Com's customers buy products and
services via the Internet by providing them with accurate product information
and automated assistance. Our solution automates needs analysis, pricing,
quoting and configuration and also helps users select modems, network interface
cards, notebook PC cards, multi-service access platforms and switches.
Previously, orders for products were either phoned in or faxed into 3Com by
direct sales, distributors and retailers, requiring a manual process. Selectica
technology has increased sales volumes by providing 24 hours a day, seven days a
week availability to 3Com's customers, simplifying the complexity of product
decisions, guaranteeing accuracy, and ease of buying processes for customers, as
well as reduced sales cost.
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TECHNOLOGY
We have developed a unique architecture for developing a personalized,
intuitive, interactive and scalable Internet selling system solution that
includes selection, configuration, pricing, quoting and fulfillment processes.
The four key technological advantages of our Internet selling system solution
include:
- a declarative constraint engine;
- an integrated modeling environment;
- a multi-threaded server; and
- a scalable, thin-client architecture.
Declarative constraint engine
Most existing configurators are custom programs that were written
specifically for the product or family of products being configured. This means
both the configuration logic and the data describing product attributes are
combined in a single computer program that necessitates significant
reprogramming to reflect simple product changes. In contrast, our Internet
selling system solution utilizes a constraint-based engine that is completely
separate from the data describing the product attributes. This means that a
business can easily create and modify the knowledge base to reflect product
changes utilizing our integrated modeling environment thereby eliminating the
need for expensive programming teams.
Our engine, written in Java, is easily deployed on various operating
platforms. The use of Java allows us to support a range of deployment
environments including Java applications in a notebook computer and ACE
Enterprise server generated browser-readable pages, with the same engine and the
same knowledge base.
Integrated modeling environment
We have developed an integrated modeling environment that allows our
customers to easily create a sophisticated Internet selling system solution
without any programming. Our Internet selling system solution utilizes drag and
drop tools that enable sales and marketing personnel, rather than expensive
programmers, to maintain and enhance their businesses' Internet selling systems.
Using these drag and drop tools, businesses can:
- easily create and update knowledge bases containing product attributes;
- create HTML-based graphical user interface, or GUI, applications;
- test the application interactively as the application is being built and
conduct batch order checks;
- verify the semantics of the knowledge base and identify some semantic
errors; and
- create flex models from individual models.
Multi-threaded server
We have a unique highly scalable server architecture for deploying our
customers' applications. The n-tier architecture, an architecture that enables
multiple servers to run at the same time, allows us to support a range of
configurations from a single ACE Enterprise Server, to several ACE
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Enterprise Servers managed via a single ACE Enterprise Manager running on an
HTTP server or another server. An ACE Enterprise Manager can manage a single
server running ACE Enterprise Server or multiple, possibly overlapping servers
all running ACE Enterprise Servers. Our multi-threaded technologies enhance the
performance for each buyer session because each session state is preserved as
the buyer makes subsequent selections. Furthermore, our ACE Enterprise Server
supports a large number of concurrent user sessions because the engine uses a
very small amount of memory for each incremental user session.
Scalable thin-client architecture
Our software, employing a thin-client architecture, supports an Internet
computing model, enabling users to access an ISS with only an industry-standard
browser on a broad range of Internet-enabled devices. Our ACE Enterprise Servers
use our engine to process the user request from an HTML session, using the
knowledge base and legacy data as needed, to enforce rules, eliminate incorrect
choices and make calculations and then suggest choices by generating the next
HTML screen dynamically. Our servers can also be accessed by custom applications
using our thin-client application programming interfaces. Our ACE Enterprise
Server can communicate with our ACE Quoter or one or more database servers from
other vendors, and other enterprise resources, including legacy resources using
ACE Connectors.
SALES AND MARKETING
Our sales and marketing objective is to achieve broad market penetration
through targeted sales and increased brand name recognition. As of December 31,
1999, our sales and marketing team consisted of 66 persons, with sales and field
support personnel in Atlanta, Chicago, Dallas, New York, San Jose, Seattle,
Canada, England and Germany and 23 marketing personnel located in San Jose.
We sell our ACE products primarily through a direct sales force supported
by telesales, system engineering and integration support. We believe that the
integration of these support networks assists in both the establishment and
enhancement of customer relationships. We have developed programs to attract and
retain high quality, motivated sales representatives that have the necessary
technical skills and consultative sales experience.
Our marketing department is engaged in a wide variety of activities, such
as awareness and lead generation programs and product management. These
activities include public relations, speaking programs, seminars, direct mail,
trade shows and advertising.
STRATEGIC RELATIONSHIPS
Our business development group focuses on developing strategic
relationships with vendors who will help us rapidly penetrate key markets with
our comprehensive Internet selling system solution. We have developed strong
working relationships with system integrators, such as Andersen Consulting,
Arthur Andersen, EDS, KPMG and PricewaterhouseCoopers, with independent software
vendors such as BroadVision, InterWorld, Netscape/AOL and Tibco, and with
application service providers such as Asera and Corio.
STRATEGIC INVESTORS
One of our investors is the Intel 64 Fund. The Intel 64 Fund is a quarter
billion dollar equity fund that invests in emerging technologies for
next-generation servers and workstations utilizing Intel's IA-64 architecture.
The Fund is coordinated by Intel and Compaq, Dell, HP, Intel, NEC, and
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SGI as co-investors. The Fund's other investors, managed by Morgan Stanley Dean
Witter, include Bank of America, The Boeing Company, Circuit City, Enron, Ford
Motor Company, General Electric, McKessonHBOC, Morgan Stanley Dean Witter,
Reuters, Sabre, SmithKline Beecham, Sumitomo Corp., SunAmerica and Telmex. In
October 1999, the Intel 64 Fund purchased shares of our preferred stock as part
of a private sale of our securities.
In October 1999 we entered into a license and one-year maintenance
agreement with a customer. In connection with this agreement, we issued a
warrant to purchase 800,000 shares of our common stock. The fair value of the
warrant of approximately $3.7 million will be accounted for as net license and
services revenues as the rights of refund under the agreement lapse.
In September 1999 we entered into a development agreement with an investor.
At the same time we issued shares of convertible preferred stock to this
investor for less than the deemed fair value. The excess of fair value over
purchase prices of these shares of $3.8 million will be expensed over the life
of the development agreement, approximately 2 years. As well, in connection with
this agreement we issued warrants to purchase 57,000 shares of our common stock.
The fair value of these warrants of $381,000 will also be expensed over the life
of the agreement.
RESEARCH AND DEVELOPMENT
To date we have invested substantial resources in research and development.
At December 31, 1999, we had approximately 62 full-time engineers and technical
writing specialists that primarily work on product development, documentation,
quality assurance and testing.
We expect that most of our new products and enhancements to existing
products will be developed internally. However, we will evaluate on an ongoing
basis externally developed technologies for integration into our suite of
products. Enhancements to our existing products are released periodically to add
new features, improve functionality and incorporate feedback and suggestions
from our current customer base. These updates are usually provided as part of
separate maintenance agreement sold with the product license.
COMPETITION
Although we are a leading provider of Internet selling system software and
services, the market for software products that enable electronic commerce is
intensely competitive, and we expect competition in the Internet selling system
software and services market to increase substantially. We encounter competition
from a number of different sources, including in-house and customized
Internet-development companies, companies focused on Internet selling systems
and other enterprise software companies. We expect competition to persist and
intensify, which could result in price reductions, reduced gross margins and
loss of market share. Our principal competitors include Calico Commerce,
FirePond and Trilogy Software. BAAN, Oracle Corporation, SAP and Siebel Systems
offer integrated solutions for electronic commerce incorporating some of the
functionality of an Internet selling system and may intensify their efforts in
our market. In addition, other enterprise software companies may offer
competitive products in the future.
Competitors vary in size and in the scope and breadth of the products and
services offered. Although we believe we have advantages over our competitors
including the comprehensiveness of our solution, our use of Java technology and
our multi-threaded architecture, many of our competitors and potential
competitors have a number of significant advantages over us, including:
- a longer operating history;
- a preferred vendor status with our customers;
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- more extensive name recognition and marketing power; and
- significantly greater financial, technical, marketing and other
resources, giving them the ability to respond more quickly to new or
changing opportunities, technologies and customer requirements.
Our competitors may also bundle their products in a manner that may
discourage users from purchasing our products. Current and potential competitors
may establish cooperative relationships with each other or with third parties,
or adopt aggressive pricing policies to gain market share. Competitive pressures
may require us to reduce the prices of our products and services. We may not be
able to maintain or expand our sales if competition increases and we are unable
to respond effectively.
PROPRIETARY RIGHTS
We rely on a combination of trademark, trade secret and copyright law and
contractual restrictions to protect the proprietary aspects of our technology.
These legal protections afford only limited protection for our technology. We
currently have three pending U.S. patent applications. In addition, we have
three trademarks and have applied to register two of them in the United States.
Our trademark and patent applications might not result in the issuance of any
trademarks or patents. If any patent or trademark is issued, it might be
invalidated or circumvented or otherwise fail to provide us any meaningful
protection. We seek to protect the source code for our software, documentation
and other written materials under trade secret and copyright laws. We license
our software pursuant to signed license agreements, which impose certain
restrictions on the licensee's ability to utilize the software. We also seek to
avoid disclosure of our intellectual property by requiring employees and
consultants with access to our proprietary information to execute
confidentiality agreements. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. In addition, the laws
of many countries do not protect our proprietary rights to as great an extent as
do the laws of the United States. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets and to
determine the validity and scope of the proprietary rights of others. Our
failure to adequately protect our intellectual property could have a material
adverse effect on our business and operating results.
Our success and ability to compete are dependent on our ability to operate
without infringing upon the proprietary rights of others. Any intellectual
property litigation could result in substantial costs and diversion of resources
and could significantly harm our business and operating results. In the past, we
received correspondence from two patent holders recommending that we license
their respective patents. After review of these patents, we informed these
patent holders that in our opinion, it would not be necessary to license these
patents. However, we may be required to license either or both patents or incur
legal fees to defend our position that such licenses are not necessary. We may
not be able to obtain a license to use either patent on commercially reasonable
terms, or at all. In January 2000 we received correspondence from Celestica,
Inc. alleging that our use of the mark SELECTICA infringes upon their registered
mark of CELESTICA. We are currently evaluating the validity of their claim. We
may be required to incur legal fees and enter into litigation with respect to
defending our mark.
Any threat of intellectual property litigation could force us to do one or
more of the following:
- cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant intellectual property, which license
may not be available on reasonable terms;
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<PAGE> 54
- redesign those products or services that incorporate such intellectual
property; or
- pay money damages to the holder of the infringed intellectual property
right.
In the event of a successful claim of infringement against us and our
failure or inability to license the infringed intellectual property on
reasonable terms or license a substitute intellectual property or redesign our
product to avoid infringement, our business and operating results would be
significantly harmed. If we are forced to abandon use of our trademark, we may
be forced to change our name and incur substantial expenses to build a new
brand, which would significantly harm our business and operating results.
EMPLOYEES
At December 31, 1999, we had a total of 269 employees, 101 of whom were
based in India. Of the total, 169 were in engineering, consulting and research
and development, 66 were engaged in sales, marketing and business development
and 34 were in administration and finance. None of our employees is represented
by a labor union and we consider our relations with our employees to be good.
FACILITIES
Our principal administrative, sales, marketing and research and development
facility occupies approximately 80,000 square feet of office space at 3 West
Plumeria Drive, San Jose, California 95134. The lease extends through November
2009. We believe the office space in the new facility will be adequate to meet
our needs for the next 12 months. We also have regional offices in Chicago,
Dallas, New York, Reading, England, Dusseldorf, Germany, and Pune, India.
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MANAGEMENT
Our executive officers and directors and their ages and positions as of
January 31, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Rajen Jaswa............................. 47 Chairman of the Board, Chief Executive Officer
and President
Dr. Sanjay Mittal....................... 47 Vice Chairman of the Board, Chief Technical
Officer and Vice President of Engineering
Dr. S.S. Sundarajan..................... 49 Vice President of Indian Operations
Daniel A. Carmel........................ 38 Vice President of Marketing
Stephen Bennion......................... 53 Chief Financial Officer, Vice President of
Finance and Secretary
Ashish Mathur........................... 42 Vice President of Worldwide Professional
Services
Charles Pendell......................... 45 Vice President of Sales, Americas
Mario Cavalli........................... 48 Vice President of International Sales
Betsy Atkins(1)......................... 44 Director
John Fisher(1)(2)....................... 41 Director
Michael Lyons(2)........................ 57 Director
Robin Richards Donohoe.................. 34 Director
Thomas Neustaetter(2)................... 47 Director
</TABLE>
- -------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Rajen Jaswa, a co-founder of Selectica, has served as our Chairman,
President and Chief Executive Officer since our inception. Prior to Selectica,
Mr. Jaswa co-founded and served as President of OPTi, a supplier of PC
compatible chipsets from January 1995 to January 1996 and as Vice President of
Sales and Marketing from August 1989 to December 1994. Mr. Jaswa received his
B.Tech in Electrical Engineering from the Indian Institute of Technology, his
M.S.E.E. in Electrical Engineering from the University of Toronto and his M.B.A.
from Stetson University.
Dr. Sanjay Mittal, a co-founder of Selectica, has served as our Chief
Technical Officer, Vice President of Engineering and a Director since our
inception. In January 2000 Dr. Mittal was elected Vice Chairman of the Board of
Directors. Prior to co-founding Selectica, from April 1992 to July 1996, Dr.
Mittal was the founder and President of Catalogics Software, a configuration
software company acquired by Selectica in July 1996. From 1990 to April 1992,
Dr. Mittal managed a development team at Metaphor, a business software company.
Prior to that, Dr. Mittal was a senior research scientist at Xerox's Palo Alto
Research Center (PARC) from 1982 to 1990. Dr. Mittal received his B.Tech in
Electrical Engineering from the Indian Institute of Technology and his M.S. and
Ph.D. in Computer Science from Ohio State University.
Dr. S.S. Sundarajan has served as our Vice President of Indian Operations
since June 1998. Prior to joining Selectica, Dr. Sundarajan served as Chief
Executive of Datapro Electronics, a software company focusing on real time
systems, in Pune, India, from April 1986 to June 1998. Dr. Sundarajan received
his B.S. in Engineering from Pune University and his M.S. in Electrical
Engineering and Ph.D. from Ohio State University.
Daniel A. Carmel has served as our Vice President of Marketing and Business
Development since July 1999. Prior to joining Selectica, Mr. Carmel served as
Executive Vice President for Sonnet
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<PAGE> 56
Financial, an Internet financial services company, from August 1994 to July
1999. Mr. Carmel received his B.S. and M.S. in Engineering at the University of
Pennsylvania and his M.B.A. from Stanford University.
Stephen Bennion has served as our Chief Financial Officer and Vice
President of Finance since September 1999. In January 2000 Mr. Bennion was
elected our Secretary. From April 1998 to September 1999, Mr. Bennion served in
various capacities for Cohesive Technology Solutions, a technology consulting
company, including Vice President and Chief Financial Officer and Western Region
Managing Partner. From April 1995 to April 1998, Mr. Bennion served as Executive
Vice President and Chief Financial Officer for Worldtalk Communications, an
Internet e-mail software company. Mr. Bennion received his B.S. in accounting
from Weber State University and is a Certified Public Accountant.
Ashish Mathur has served as our Vice President of Worldwide Professional
Services since April 1997. Prior to joining Selectica, Mr. Mathur served as Vice
President of Worldwide Professional Services for Pure Atria from June 1992 to
April 1997. Mr. Mathur received his B.Tech in Electrical Engineering from the
Indian Institute of Technology and his M.S. in Computer Science from the
University of Southern California.
Charles Pendell joined as our Vice President of Sales, Americas in October
1998. Prior to joining Selectica, Mr. Pendell served as Vice President of
Worldwide Sales and Field Operations for Action Technologies, an Internet-based
workflow software company, from December 1994 to September 1998. Mr. Pendell
received his B.S. in Business Administration from Washington State University.
Mario Cavalli has served as our Vice President of International Sales since
February 2000. From January 1999 to January 2000, Mr. Cavalli served as our
Director of International Sales. Prior to joining Selectica, Mr. Cavalli served
as the President of Business Development International, a European business
development company. Mr. Cavalli received his B.S.E.E. in electrical engineering
from C. Ferreni College in Italy.
Betsy Atkins has served as a director since February 1997. Since 1995, Ms.
Atkins has served as Chief Executive Officer of Baja Corporation, a consulting
firm. Prior to joining Baja, Ms. Atkins was the Chief Executive Officer of NCI,
a manufacturing company. Ms. Atkins is both a founder and serves on the board of
directors of Ascend, a Lucent Network Solutions company. She also serves on the
board of directors of Paradyne, a digital subscriber line networking company,
and Polycom, a video-teleconferencing company. Ms. Atkins received her B.A. in
History from the University of Massachusetts and her B.A. from Trinity College
at Oxford.
John Fisher has served as a director since July 1997. Since 1991, Mr.
Fisher has served as a Managing Director of Draper Fisher Jurvetson, a venture
capital firm. Mr. Fisher serves on the boards of directors of Brodia Group,
Entegrity Solutions, Praxon, RealNames, Sonnet Financial and WIT Capital Group.
Mr. Fisher received his B.A., Magna Cum Laude, in History of Science and his
M.B.A. from Harvard University.
Michael Lyons has served as a director since July 1998. Since 1997, Mr.
Lyons has served as the General Partner of Zilkha Venture Partners, a venture
capital firm. Since June 1992, Mr. Lyons has served as the General Partner of
Potrero Management, a venture capital firm. Since 1989, Mr. Lyons has been a
Consulting Associate Professor at the Stanford University Department of
Management Science and Engineering. Mr. Lyons is a member of the board of
directors of Informed Diagnostics, a sensor technology company and Advanced
Interactive Systems, a firearms training simulation company. Mr. Lyons received
his B.S.E.P. in Engineering Physics from Cornell University, M.S. in Electrical
Engineering from Stanford and M.B.A. with distinction from the Pepperdine
Presidential/ Key Executive Program.
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<PAGE> 57
Robin Richards Donohoe has served as a director since January 1997. Since
1995, Ms. Donohoe has served as General Partner of Draper International India,
L.P., a venture capital firm. Ms. Donohoe is also a General Partner of Draper
Richards L.P., a venture capital firm. Ms. Donohoe received her B.A. Phi Beta
Kappa in International Studies from the University of North Carolina and her
M.B.A. from Stanford University.
Thomas Neustaetter has served as a director since July 1999. Since March
1999, Mr. Neustaetter has been an Executive Member of JK&B Capital, a venture
capital firm. Prior to joining JK&B Capital, Mr. Neustaetter was a Partner of
the Chatterjee Group, an affiliate of Soros Fund Management, from January 1996
to February 1999. Prior to working at the Chatterjee Group, Mr. Neustaetter was
the President and founder of Bancroft Capital, a general consulting firm, from
December 1994 to December 1995. Mr. Neustaetter serves on the boards of
directors of MGC Communications, 21st Century Telecom Group, Gloss.com, emWare,
Inc. and Vertex Holdings. Mr. Neustaetter earned his B.A. Phi Beta Kappa in
Philosophy from the University of California, Berkeley, and his M.B.A. and M.S.
in Information Science from University of California, Los Angeles.
BOARD OF DIRECTORS
We currently have authorized seven directors. Upon the completion of the
offering, the terms of the office of the board of directors will be divided into
three classes: Class A, whose term will expire at the annual meeting of the
stockholders to be held in 2000; Class B, whose term will expire at the annual
meeting of stockholders to be held in 2001; and Class C, whose term will expire
at the annual meeting of stockholders to be held in 2002. The Class A directors
will be Robin Richards Donohoe and Betsy Atkins; the Class B directors will be
John Fisher, Michael Lyons and Rajen Jaswa; and the Class C directors will be
Thomas Neustaetter and Sanjay Mittal. At each annual meeting of stockholders
after the initial classification, each elected director will serve from the time
of his election and qualification until the third annual meeting following his
or her election. This classification of the board of directors may have the
effect of delaying or preventing changes in control or management. All of our
officers serve at the discretion of the board of directors. There are no family
relationships among our directors and officers.
Board Committees
The board of directors has a compensation committee and an audit committee.
Compensation Committee. The compensation committee of the board of
directors reviews and makes recommendations to the board regarding all forms of
compensation provided to our executive officers and directors and our subsidiary
including stock compensation and loans. In addition, the compensation committee
reviews and makes recommendations on bonus and stock compensation arrangements
for all of our employees. As part of these responsibilities, the compensation
committee also administers our 1996 Stock Plan, 1999 Equity Incentive Plan and
1999 Employee Stock Purchase Plan. The current members of the compensation
committee are Ms. Atkins and Mr. Fisher.
Audit Committee. The audit committee of the board of directors reviews and
monitors our corporate financial reporting and our internal and external audits,
including our internal audit and control functions, the results and scope of the
annual audit and other services provided by our independent auditors and our
compliance with legal matters that have a significant impact on our financial
reports. The audit committee also consults with management and our independent
auditors before the presentation of financial statements to stockholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee is responsible for considering and
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<PAGE> 58
recommending the appointment of, and reviewing fee arrangements with, our
independent auditors. The current members of the audit committee are Messrs.
Neustaetter, Lyons and Fisher.
Director Compensation
Ms. Atkins received an option for 30,000 shares of common stock on February
4, 1997 at an exercise price of $0.025 per share and an option for 20,000 shares
of our common stock on November 18, 1999 at an exercise price of $4.38 per
share. Under our 1999 Equity Incentive Plan, each non-employee director who
first becomes a board member following this offering will receive an automatic
option grant of 30,000 shares of our common stock on the date when he or she
initially becomes a board member. Each non-employee director who will continue
to be a board member following an annual meeting of stockholders will receive an
annual automatic option grant of 7,500 shares at each annual meeting under our
1999 Equity Incentive Plan, beginning at the 2001 annual meeting. Please see
"Employee Benefit Plans -- 1999 Equity Incentive Plan" for more details.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors currently consists of
Ms. Atkins and Mr. Fisher. 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
interlocking relationship has existed in the past. For disclosure of any related
party transactions between the members of the compensation committee and
Selectica, please see the section below entitled "Related Party Transactions."
INDEMNIFICATION
Our Second Amended and Restated Certificate of Incorporation, to be
effective after the closing of this offering, includes a provision that
eliminates the personal liability of our directors and officers for monetary
damages for breach of fiduciary duty as a director or officer, except for
liability:
- for any breach of the director's or officer's duty of loyalty to us or
our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director or officer derived an
improper personal benefit.
These provisions are permitted under Delaware law.
Our bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to very limited exceptions;
- we may indemnify our other employees and agents to the same extent that
we indemnified our officers and directors; and
- we must advance expenses, as incurred, to our directors and officers in
connection with a legal proceeding to the fullest extent permitted by
Delaware law, subject to very limited exceptions.
We have also entered into indemnification agreements with our officers and
directors containing provisions that may require us to indemnify our officers
and directors against liabilities that may arise
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<PAGE> 59
by reason of their status or service as directors or officers, other than
liabilities arising from willful misconduct of a culpable nature, to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents compensation information for fiscal year 1999
paid by us for services by our chief executive officer and our four other
highest-paid executive officers whose total salary and bonus for the fiscal year
exceeded $100,000:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION(1) SALARY BONUS OPTIONS
------------------------------ -------- ------- ------------
<S> <C> <C> <C>
Rajen Jaswa................................................. $139,583 $ -- --
Chief Executive Officer and President
Dr. Sanjay Mittal........................................... 139,583 -- --
Chief Technical Officer, Vice President of Engineering and
Secretary
Ashish Mathur............................................... 139,583 -- --
Vice President of Worldwide Professional Services
Charles Pendell(2).......................................... 146,250 -- 300,000
Vice President of Sales, Americas
Vasudev Bhandarkar(3)....................................... 143,621 5,000 --
Vice President, Business Development and Marketing
</TABLE>
- -------------------------
(1) Mr. Daniel A. Carmel commenced service with us as Vice President of
Marketing and Business Development in September 1999, and his annual base
salary is currently $175,000. Mr. Stephen Bennion commenced service with us
as Vice President and Chief Financial Officer in September 1999, and his
annual base salary is currently $175,000.
(2) Mr. Pendell commenced service with us as Vice President of Sales, Americas
in October 1998, and his annual base salary is currently $150,000.
(3) Mr. Bhandarkar ceased service as Vice President, Business Development and
Marketing as of March 19, 1999.
Option Grants in Last Fiscal Year
The following table designates each grant of stock options during fiscal
year 1999 to our chief executive officer and our four other highest-paid
executive officers.
The figures representing percentages of total options granted to employees
in the last fiscal year are based on a total of 1,315,500 option shares granted
to our employees under our 1996 Stock Plan during fiscal year 1999.
The exercise price of each option granted is equal to the fair value of our
common stock as valued by our board of directors on the date of grant. The
exercise price may be paid in cash, in shares of our common stock valued at fair
value on the exercise date or through a cashless exercise procedure involving a
same-day sale of the purchased shares. We may also finance the option exercise
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<PAGE> 60
by lending the optionee sufficient funds to pay the exercise price for the
purchased shares. See "Related Party Transactions -- Loans."
The calculation of the potential realizable value is based on the ten-year
term of the option at the time of grant. We assumed stock price appreciation of
5% and 10% over the assumed initial public offering price of $10.00 per share;
this does not represent our prediction of our stock price performance.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF TOTAL STOCK PRICE
SECURITIES OPTIONS GRANTED APPRECIATION FOR
UNDERLYING TO EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN THE FISCAL PRICE EXPIRATION ------------------------
NAME GRANTED YEAR(%) ($/SHARE) DATE 5% 10%
---- ---------- ------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rajen Jaswa.................. -- -- -- -- -- --
Dr. Sanjay Mittal............ -- -- -- -- -- --
Ashish Mathur................ -- -- -- -- -- --
Charles Pendell.............. 300,000 22.81 $0.25 9/22/08 $1,886,684 $4,781,227
Vasudev Bhandarkar........... -- -- -- -- -- --
</TABLE>
Mr. Mathur was granted an option to purchase 100,000 shares of our common
stock on April 20, 1999 at an exercise price of $1.50 per share. Mr. Pendell was
granted options to purchase a total of 75,000 shares of our common stock on
October 1, 1999 at an exercise price of $2.50 per share. Mr. Daniel Carmel was
granted options to purchase a total of 400,000 shares of our common stock on
September 22, 1999 at an exercise price of $2.50 per share. Mr. Stephen Bennion
was granted options to purchase a total of 300,000 shares of our common stock on
September 22, 1999 at an exercise price of $2.50 per share. Mr. Jaswa was
granted options to purchase a total of 250,000 shares of our common stock on
December 15, 1999 at an exercise price of $10.00 per share. Dr. Mittal was
granted options to purchase a total of 250,000 shares of our common stock on
December 15, 1999 at an exercise price of $10.00 per share.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table presents all unexercised options held by our chief
executive officer and our four highest-paid executive officers during fiscal
year 1999.
The options listed in the table become vested as follows: upon the
completion of 12 months of service, 25% of the option shares vest and upon the
completion of each of the next 36 months of service, 1/48 of the option shares
vest.
The amounts under "Value of Unexercised in-the-Money Options" were
calculated by determining the difference between the exercise price and the
assumed initial public offering price of $10.00 per share.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS AT VALUE OF UNEXERCISED
FISCAL YEAR END IN-THE-MONEY
------------------ OPTIONS AT
NAME UNVESTED VESTED FISCAL YEAR END
---- -------- ------ --------------------
<S> <C> <C> <C>
Rajen Jaswa................................................. -- --
Dr. Sanjay Mittal........................................... -- --
Ashish Mathur............................................... -- --
Charles Pendell............................................. 300,000 0 $2,925,000
Vasudev Bhandarkar.......................................... -- --
</TABLE>
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<PAGE> 61
EMPLOYEE BENEFIT PLANS
1996 Stock Plan.
As of December 31, 1999, options to purchase 2,180,815 shares of common
stock were outstanding under the 1996 Stock Plan and options to purchase
3,767,494 shares had been exercised and 126,435 shares of stock have been
granted for services. Options granted under the 1996 Stock Plan are subject to
terms substantially similar to those described below with respect to options
granted under the 1999 Equity Incentive Plan, except that upon an involuntary
termination following a change in control, the options granted under the 1996
Stock Plan do not accelerate.
1999 Equity Incentive Plan.
Our board of directors adopted our 1999 Equity Incentive Plan on November
18, 1999. We will also seek stockholder approval of this plan. We have reserved
2,200,000 shares of our common stock for issuance under the 1999 Equity
Incentive Plan. As of January 1 of each year, starting in 2001, the number of
shares reserved for issuance under our 1999 Equity Incentive Plan will be
increased automatically by 5% of the total number of shares of common stock then
outstanding or, if less, 1,800,000 shares. No options have yet been granted
under the 1999 Equity Incentive Plan.
Under the 1999 Equity Incentive Plan, the persons eligible to receive
awards are:
- employees;
- non-employee members of the board of directors; and
- consultants.
The types of awards that may be made under the 1999 Equity Incentive Plan
are:
- options to purchase shares of common stock;
- stock appreciation rights;
- restricted shares; and
- stock units.
Options may be incentive stock options that qualify for favorable tax
treatment for the optionee under Section 422 of the Internal Revenue Code of
1986 or nonstatutory stock options not designed to qualify for favorable tax
treatment. With limited restrictions, if shares awarded under the 1999 Equity
Incentive Plan are forfeited, those shares will again become available for new
awards under the 1999 Equity Incentive Plan.
The compensation committee of our board of directors administers the 1999
Equity Incentive Plan. The committee has complete discretion to make all
decisions relating to the interpretation and operation of our 1999 Equity
Incentive Plan. The committee has the discretion to determine which eligible
individuals are to receive an award, and to determine the type, number, vesting
requirements and other features and conditions of each award.
The exercise price for incentive stock options granted under the 1999
Equity Incentive Plan may not be less than 100% of the fair market value of our
common stock on the option grant date. The exercise price for non-statutory
options granted under the 1999 Equity Incentive Plan may not be less than 85% of
the fair market value of our common stock on the option grant date.
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<PAGE> 62
Our 1999 Equity Incentive Plan provides that no participant may receive
options or stock appreciation rights covering more than 330,000 shares in the
same year, except that a newly hired employee may receive options or stock
appreciation rights covering up to 660,000 shares in the first year of
employment.
The exercise price may be paid with:
- cash;
- outstanding shares of common stock;
- the cashless exercise method through a designated broker;
- a pledge of shares to a broker; or
- a promissory note.
The purchase price for newly issued restricted shares awarded under the
1999 Equity Incentive Plan may be paid with:
- cash;
- a promissory note; or
- the rendering of past services.
The committee may reprice options and may modify, extend or assume
outstanding options and stock appreciation rights. The committee may accept the
cancellation of outstanding options or stock appreciation rights in return for
the grant of new options or stock appreciation rights. The new option or right
may have the same or a different number of shares and the same or a different
exercise price.
Each individual who first joins our board of directors as a non-employee
director after the effective date of this offering will receive at that time an
option for 30,000 shares of our common stock. This option becomes vested as to
25% of the option shares upon the completion of 12 months of service and as to
1/48 of the option shares upon the completion of each month of service
thereafter. In addition, at each of our annual stockholders' meetings, beginning
in 2001, each non-employee director who will continue to be a director after
that meeting will automatically be granted at that meeting an option for 7,500
shares of our common stock. However, any non-employee director who receives an
option for 30,000 shares under this plan will first become eligible to receive
the annual option for 7,500 shares at the annual meeting that occurs during the
calendar year following the year in which he or she received the option for
30,000 shares. The option for 7,500 shares becomes vested upon the completion of
12 months of service from the grant date. If there is a change in control, or a
termination as a result of death, disability or retirement after reaching age
65, the options granted to non-employee directors will become fully vested.
If a change in control occurs, an option or other award under the 1999
Equity Incentive Plan will become fully exercisable and fully vested if the
option or award is not assumed by the surviving corporation or its parent or
subsidiary or if the surviving corporation or its parent or subsidiary does not
substitute comparable awards for the awards granted under the 1999 Equity
Incentive Plan. If a change in control occurs and an optionee is involuntarily
terminated within 12 months following this change in control, then the vesting
of options held by the optionee will accelerate, as if the optionee provided
another 12 months of service. This vesting acceleration will not occur if it
prevents us from completing a transaction that is a "pooling of interest"
transaction.
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A change in control includes:
- a merger or consolidation after which our then-current stockholders own
less than 50% of the surviving corporation;
- a sale of all or substantially all of our assets;
- a proxy contest that results in replacement of more than one-half of our
directors over a 24-month period; or
- an acquisition of 50% or more of our outstanding stock by a person other
than a person related to us, including a corporation owned by our
stockholders.
If a merger or other reorganization occurs, the agreement of merger or
reorganization may provide that outstanding options and other awards under the
1999 Equity Incentive Plan shall be assumed by the surviving corporation or its
parent, shall be continued by us if we are the surviving corporation, shall have
accelerated vesting and then expire early or shall be cancelled for a cash
payment.
Our board of directors may amend or terminate the 1999 Equity Incentive
Plan at any time. If our board amends the plan, stockholder approval of the
amendment will be sought only if required by applicable law. The 1999 Equity
Incentive Plan will continue in effect indefinitely unless the board decides to
terminate the plan earlier.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was adopted by our board of directors
on November 18, 1999. We will also seek stockholder approval of this plan. We
have reserved 1,000,000 shares of our common stock for issuance under our 1999
Employee Stock Purchase Plan. As of May 1 each year, starting in 2001, the
number of shares reserved for issuance under our 1999 Employee Stock Purchase
Plan will be increased automatically by 2% of the total number of shares of
common stock then outstanding or, if less, 1,000,000 shares. Our 1999 Employee
Stock Purchase Plan is intended to qualify under Section 423 of the Internal
Revenue Code.
Eligible employees may begin participating in the 1999 Employee Stock
Purchase Plan at the start of an offering period. Each offering period lasts 24
months. Two overlapping offering periods will start on May 1 and November 1 of
each calendar year. However, the first offering period will start on the
effective date of this offering and end on April 30, 2002. Purchases of our
common stock will occur on approximately April 30 and October 31 of each
calendar year during an offering period.
Our 1999 Employee Stock Purchase Plan will be administered by the
compensation committee of our board of directors. Each of our employees is
eligible to participate if he or she is employed by us for more than 20 hours
per week and for more than five months per year.
Our 1999 Employee Stock Purchase Plan permits each eligible employee to
purchase common stock through payroll deductions. Each employee's payroll
deductions may not exceed 15% of the employee's cash compensation. The initial
purchase period during which payroll deductions may be contributed will begin on
the effective date of this offering and end on October 31, 2000. Each
participant may purchase up to 750 shares on any purchase date.
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The price of each share of common stock purchased under our 1999 Employee
Stock Purchase Plan will be 85% of the lower of:
- the fair market value per share of common stock on the date immediately
before the first date of the applicable offering period; or
- the fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the
plan will be 85% of the lower of:
- the price offered to the public in this offering; or
- the fair market value per share of common stock on the purchase date.
Employees may end their participation in the 1999 Employee Stock Purchase
Plan at any time. Participation ends automatically upon termination of
employment with us.
If a change in control occurs, our 1999 Employee Stock Purchase Plan will
end and shares will be purchased with the payroll deductions accumulated to date
by participating employees, unless this plan is assumed by the surviving
corporation or its parent. Our board of directors may amend or terminate the
1999 Employee Stock Purchase Plan at any time. If our board increases the number
of shares of common stock reserved for issuance under the 1999 Employee Stock
Purchase Plan, it must seek the approval of our stockholders.
EMPLOYMENT AGREEMENTS, SEVERANCE AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
Under their respective employment agreements, our Chief Executive Officer,
Rajen Jaswa, and our Chief Technical Officer and Vice President of Engineering,
Dr. Sanjay Mittal, will receive their most recent base salary for 12 months
after their date of termination if they are terminated without cause. In
addition, our repurchase right with respect to the shares of our common stock
that they currently hold will lapse entirely and all of such shares will become
fully vested upon a termination without cause.
Mr. Vasudev Bhandarkar, our former Vice President, Business Development and
Marketing, executed a severance agreement with us on March 19, 1999. Under this
severance agreement, we paid to Mr. Bhandarkar his then base salary and any
COBRA premiums for a 12-month period following his termination date in
consideration for his execution of a release of claims against us. Under the
terms of his offer letter with us, all of the options and shares of our common
stock held by him became fully vested on his termination date.
If a change in control occurs, an option or other award under the 1999
Equity Incentive Plan will become fully exercisable and fully vested if the
option or award is not assumed by the surviving corporation or its parent or
subsidiary or if the surviving corporation or its parent or subsidiary does not
substitute comparable awards for the awards granted under the 1999 Equity
Incentive Plan. In addition, if an optionee is involuntarily terminated within
12 months following a change in control, he or she will become vested in an
additional number of option shares as if he or she completed another 12 months
of service. This vesting acceleration will not occur if it prevents us from
completing a transaction that is a pooling of interest transaction.
Under our 1996 Stock Plan, upon a merger or asset sale, if the options or
stock purchase rights are not assumed by the surviving corporation or its parent
or subsidiary or if the surviving corporation or its parent or subsidiary does
not substitute comparable awards for the options or stock purchase rights, then
the options and stock purchase rights will become fully vested.
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If a change in control occurs and an executive officer or certain of our
key employees are involuntarily terminated within 12 months following this
change in control, then he or she will become vested in an additional number of
option shares equal to the greater of 50% of the then unvested option shares or
the number of option shares the executive officer would become vested in if he
or she completed another 12 months of service.
RELATED PARTY TRANSACTIONS
Equity Financings. Since our inception we have financed our growth
primarily through the sale of Preferred Stock, resulting in the issuance of an
aggregate of 1,700,000 shares of Series A Preferred Stock at an effective
purchase price of $.091667 per share, 3,750,000 shares of Series B Preferred
Stock at a purchase price of $0.2667 per share, 3,253,126 shares of Series C
Preferred Stock at a purchase price of $0.922 per share, 4,863,935 shares of
Series D Preferred Stock at a purchase price of $1.47 per share and 6,143,896
shares of Series E Preferred Stock at a purchase price of $4.382 per share. The
buyers of our Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock included
the following directors, executive officers and 5% stockholders.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Betsy Atkins........................................ -- 93,750 81,328 -- 40,165
Stephen Bennion..................................... -- -- -- -- 22,820
Daniel A. Carmel.................................... -- -- -- -- 57,051
John Fisher......................................... -- -- -- -- 114,103
Rajen Jaswa......................................... 740,000.. 281,250 -- -- --
Thomas Neustaetter.................................. -- -- -- -- 22,820
ENTITIES ASSOCIATED WITH DIRECTORS AND 5%
STOCKHOLDERS
Entities associated with Draper Fisher
Jurvetson(1)...................................... -- -- 2,439,844 714,285 342,308
Draper International India, L.P.(2)................. -- 2,812,500 542,188 510,204 117,103
Entities associated with Zilkha Venture
Partners(3)....................................... -- -- -- 2,448,979 228,206
JK&B Capital III, L.P.(4)........................... -- -- -- -- 1,141,030
Entities associated with Chatterjee Management
Company........................................... -- -- -- 1,020,407 433,592
</TABLE>
- -------------------------
(1) John Fisher, one of our directors, is a general partner of venture funds
associated with Draper Fisher Jurvetson.
(2) Robin Richards Donohoe, one of our directors, is a general partner of Draper
International India, L.P.
(3) Michael Lyons, one of our directors, is a general partner of venture funds
associated with Zilkha Venture Partners.
(4) Thomas Neustaetter, one of our directors, is a member of JK&B Management
LLC, the general partner of JK&B Capital III, L.P.
Bridge Financing. On May 14, 1999 we entered into a Note and Warrant
Purchase Agreement with Draper International, L.P., Draper Fisher Associates
Fund IV, Draper Fisher Partners IV and Betsy Atkins, collectively, the Bridge
Investors. Pursuant to that Note and Warrant Purchase Agreement, the Bridge
Investors agreed to loan us an aggregate of $1,000,000 accruing interest at a
rate of 1% plus the prime rate, in exchange for a promissory note, which would
either convert into our securities upon our next round of equity financing or be
repaid by June 30, 1999 and warrants to purchase an aggregate of 15,000 shares
of Series E Preferred Stock.
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Selectica Configurators India Pvt. Ltd. Beginning in June 1997, Selectica
Configurators India Pvt. Ltd., Selectica India, an Indian corporation, has
conducted research and development and quality assurance operations in India for
us. This company was owned by the parents of Rajen Jaswa, our President and
Chief Executive Officer. We paid $51,000 and $303,000 in fiscal years 1998 and
1999, respectively for consulting services. On July 1, 1999, we purchased
637,500 previously unissued shares of Selectica India. Following this purchase,
we owned 99.997% of the outstanding shares of SCIPL and Mr. Jaswa's parents own
the remaining .003%.
Employment Agreements and Bonuses. In August 1996, we entered into
employment agreements with Mr. Jaswa and Dr. Mittal. These agreements are
substantially similar in form and provide for employment on an "at will" basis
and severance payments in an amount equal to 12 months salary in the event that
these employees are terminated without cause. In June 1999, we paid Dr. Mittal a
bonus of $544,000 in exchange for services rendered to us since our inception.
Catalogics. In July 1996, we purchased all of the outstanding shares of
Catalogics. Catalogics was founded and was majority owned by Dr. Mittal, our
Chief Technology Officer. We exchanged 2,750,000 shares of our common stock for
3,250,000 shares of Catalogics common stock that was owned by Dr. Mittal. Of the
2,750,000 shares of our common stock issued to Dr. Mittal, 1,250,000 shares were
subject to a repurchase right by us. The repurchase right lapses over 48 months
beginning July 1, 1996. The fair value of the 1,250,000 shares of common stock
subject to repurchase was $12,500. After our purchase of all of the capital
stock of Catalogics from Dr. Mittal and the other Catalogics shareholder, we
owned all the stock of Catalogics, and Catalogics became a wholly owned
subsidiary.
Loans. In connection with our start-up phase, on July 25, 1996, Mr. Jaswa
loaned to us the principal sum of $50,000 which accrued interest at a rate of 2%
plus the prime rate compounded annually. Such loan was repaid in January 1997 in
connection with the issuance of our Series B Preferred Stock. On November 4,
1999, Mr. Carmel exercised his option to purchase 400,000 shares of common
stock. He paid for those shares with full recourse promissory notes for
$1,000,000 bearing 6.02% annual interest, secured by the purchased shares. On
October 15, 1999, Mr. Bennion exercised his option to purchase 300,000 shares of
common stock. He paid for those shares with a full recourse promissory note for
$750,000 bearing 6.02% annual interest, secured by the purchased shares. On
October 25, 1999, Mr. Pendell exercised his option to purchase 375,000 shares of
common stock. He paid for these shares with full recourse promissory notes for
$262,500 bearing 6.02% annual interest, secured by the purchased shares. On
December 15, 1999 Dr. Mittal exercised his options to purchase 240,000 shares of
common stock. He paid for those shares with two full recourse promissory notes
for $2,300,000 and $100,000 respectively each bearing 6.20% annual interest,
secured by the purchased shares. On December 15, 1999 Mr. Jaswa exercised his
options to purchase 240,000 shares of common stock. He paid for those shares
with two full recourse promissory notes for $2,300,000 and $100,000 respectively
each bearing 6.20% annual interest, secured by the purchased shares.
Repurchase of Common Stock. In June 1999, we purchased 228,200 shares of
our common stock from Dr. Mittal at a price of $2.00 per share.
Indemnification. We have entered into an indemnification agreement with
each of our officers and directors. See "Management -- Indemnification" for a
description of the indemnification available to our officers and directors under
our Second Amended and Restated Certificate of Incorporation, to be effective
after the closing of this offering and our bylaws.
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PRINCIPAL STOCKHOLDERS
The following table presents selected information regarding beneficial
ownership of our outstanding common stock as of December 31, 1999, and as
adjusted to reflect the sale of the common stock being sold in this offering and
the private placement for:
- each of our directors, our chief executive officer and our four other
highest-paid executive officers;
- all of our directors and executive officers as a group; and
- each other person known by us to own beneficially more than 5% of our
common stock.
Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed below, on the information furnished by such owners, have
sole voting power and investment power with respect to such shares. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a
person and the percent ownership of that person, shares of common stock subject
to options or warrants held by that person that are currently exercisable or
will become exercisable within 60 days after December 31, 1999 are deemed
outstanding, while such shares are not deemed outstanding for purposes of
computing percent ownership of any other person. Percent of beneficial ownership
is based upon 28,156,334 shares of our common stock outstanding as of December
31, 1999, as adjusted to reflect the conversion of all outstanding shares of
preferred stock into common stock upon the closing of this offering.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option. We and Dr. Sanjay Mittal, our Chief Technical
Officer, have granted the underwriters an option to purchase up to 600,000
shares to cover over-allotments, if any.
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Unless otherwise indicated, the address for each listed stockholder is: c/o
Selectica, Inc., 3 West Plumeria Drive, San Jose, California 95134. To our
knowledge, except as indicated in the footnotes to this table and under
applicable community property laws, the persons or entities identified in this
table have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. The percentages contained in the
"After Offering" column reflects the shares sold in the private placement and
assumes that the underwriters do not exercise their over-allotment option for up
to 600,000 additional shares.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
SHARES -------------------
BENEFICIALLY OWNED PRIOR TO AFTER
NAME OF BENEFICIAL OWNER PRIOR TO OFFERING OFFERING OFFERING
------------------------ ------------------ -------- --------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Rajen Jaswa(1).......................................... 2,551,250 9.06% 7.38%
Dr. Sanjay Mittal(2).................................... 3,053,050 10.84% 8.83%
Dr. S.S. Sundarajan(3).................................. 75,000 * *
Ashish Mathur(4)........................................ 550,000 1.93% 1.58%
Stephen Bennion(5)...................................... 372,820 1.31% 1.08%
Daniel A. Carmel(6)..................................... 457,051 1.60% 1.32%
Charles Pendell(7)...................................... 425,000 1.49% 1.23%
Mario Cavalli(8)........................................ 75,000 * *
Betsy Atkins(9)......................................... 257,493 * *
Robin Richards Donohoe(10).............................. 3,981,995 14.14% 11.52%
John Fisher(11)......................................... 3,620,290 12.85% 10.47%
Michael Lyons(12)....................................... 2,677,185 9.51% 7.79%
Thomas Neustaetter(13).................................. 1,163,851 4.13% 3.37%
5% SHAREHOLDERS
Draper International India, L.P......................... 3,981,995 14.14% 11.52%
Entities associated with Draper Fisher Jurvetson(14).... 3,690,283 13.10% 10.68%
Entities associated with Zilkha Venture Partners(15).... 2,677,185 9.51% 7.75%
Entities associated with Chatterjee Management
Company(16)........................................... 1,453,999 5.16% 4.21%
All executive officers and directors as a group (13
persons)(17).......................................... 19,329,978 67.57% 55.22%
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 10,000 shares of common stock issuable pursuant to options
exercisable within 60 days of December 31, 1999. As of December 31, 1999,
we had the right to repurchase 250,000 of Mr. Jaswa's shares and options to
purchase shares.
(2) Includes 300,000 shares of common stock held by Smita Mittal and Shikha
Mittal, Dr. Mittal's daughters and 10,000 shares of common stock issuable
pursuant to options exercisable within 60 days of December 31, 1999. Dr.
Mittal has granted the underwriters a 30-day option to purchase up to
150,000 shares to cover over-allotments, if any. If such option is
exercised in full, following completion of the offering. Dr. Mittal will
beneficially own 2,903,050 or 8.40% of our common stock. As of December 31,
1999, we had the right to repurchase 250,000 of Dr. Mittal's shares and
options to purchase shares.
(3) Includes 75,000 shares of common stock issuable pursuant to options
exercisable within 60 days of December 31, 1999.
(4) Includes 100,000 shares of common stock issuable pursuant to options
exercisable within 60 days of December 31, 1999. Includes 50,000 shares of
common stock issuable pursuant to options that we intend to grant prior to
the initial public offering of our common stock.
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(5) Includes 50,000 shares of common stock issuable pursuant to options that we
intend to grant prior to the initial public offering of our common stock.
(6) Includes 4,500 shares of our common stock held by the Samuel Isaac Carmel
1999 Irrevocable Trust, 4,500 shares of our common stock held by the
Jennifer Sara Carmel 1999 Irrevocable Trust, 4,500 shares of our common
stock held by the Madeline Rose Carmel 1999 Irrevocable Trust. Mr. Carmel's
children are the beneficiaries of the trusts in the foregoing sentence.
(7) Includes 50,000 shares of common stock issuable pursuant to options that we
intend to grant prior to the initial public offering of our common stock.
(8) Includes 75,000 shares of common stock issuable pursuant to options
exercisable within 60 days of December 31, 1999.
(9) Includes 2,250 shares of common stock issuable pursuant to a warrant
exercisable within 60 days of December 31, 1999. Ms. Atkins address is 10
Edgewater Drive, Penthouse F, Coral Gables, Florida 33133.
(10) Includes 3,978,995 shares held by Draper International India, L.P., located
at 50 California Street, Suite 2925, San Francisco, California 94025. Ms.
Richards Donohoe and Mr. William Draper have power to vote and dispose of
shares held by Draper International India, L.P. Ms. Richards Donohoe, a
general partner of Draper International India, L.P., disclaims beneficial
ownership of such shares except to the extent of her pecuniary interests
therein.
(11) This number includes:
- 3,251,687 shares and a warrant to purchase 9,068 shares of common stock
issuable pursuant to a warrant exercisable within 60 days of December 31,
1999 held by Draper Fisher Associates IV, L.P.;
- 244,750 shares and a warrant to purchase 682 shares of common stock
issuable pursuant to a warrant exercisable within 60 days of December 31,
1999 held by Draper Fisher Partners IV L.L.C.; and
- 114,103 shares held by Mr. John Fisher. Mr. Fisher is either a managing
member of the entities listed above or a managing member of the general
partner of the entities listed above.
Timothy Draper, John Fisher and Steve Jurvetson have the power to vote and
dispose of shares held by Draper Fisher Associates IV L.P. and Draper
Fisher Partners IV L.L.C. Mr. Fisher disclaims beneficial ownership of such
shares except to the extent of his pecuniary interests therein. The address
of these individuals and entities is Draper Fisher Jurvetson, 400 Seaport
Court, Suite 250, Redwood City, California 94063.
(12) Includes 2,448,979 shares held by Selectica L.P. and 228,206 shares held by
Zilkha Venture Partners L.P. John P. Rigas, Donald Zilkha and Michael Lyons
have the power to vote and dispose of shares held by Selectica L.P. and
Zilkha Venture Partners. Mr. Lyons, a member of Zilkha Venture Investments,
LLC, the General Partner of both of the entities in the preceding sentence,
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interests therein. Mr. Lyons address is Zilkha Ventures, 1510
Page Mill Road, Palo Alto, California 94304.
(13) Includes 1,141,031 shares held by JK&B Capital III, L.P., David Kronfeld,
Thomas Neustaetter and Albert DaValle have the power to vote and dispose of
shares held by JK&B Capital III, L.P. Mr. Neustaetter, a member of JK&B
Capital Management LLC, the general Partner of JK&B Capital III, L.P.,
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein. Mr. Neustaetter's address is JK&B Capital, 205
North Michigan Avenue, Suite 808, Chicago, Illinois 60601.
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(14) This number includes:
- 3,251,687 shares and a warrant to purchase 9,068 shares of common stock
issuable pursuant to a warrant exercisable within 60 days of December 31,
1999 held by Draper Fisher Associates IV, L.P.;
- 244,750 shares and a warrant to purchase 682 shares of common stock
issuable pursuant to a warrant exercisable within 60 days of December 31,
1999 held by Draper Fisher Partners IV L.L.C.;
- 114,103 shares held by Mr. John Fisher. Mr. Fisher is either a managing
member of the entities listed above or a managing member of the general
partner of the entities listed above;
- 45,461 shares held by Ms. Polly Draper. Ms. Draper is the sister of Tim
Draper. Mr. Draper is either a managing member of the entities listed
above or a managing member of the general partner of the entities listed
above;
- 22,821 shares held by Mr. Steve Jurvetson. Mr. Jurvetson is either a
managing member of the entities listed above or a managing member of the
general partner of the entities listed above;
- 1,141 shares held by the Fonstad Living Trust Dated March 26, 1999. Ms.
Fonstad is either a member of the entities listed above or a member of
the general partner of the entities listed above; and
- 570 shares held by Mr. Warren Packard. Mr. Packard is either a member of
the entities listed above or a member of the general partner of the
entities listed above.
Mr. Fisher disclaims beneficial ownership of such shares except to the
extent of his pecuniary interests therein. The address of these individuals
and entities is Draper Fisher Jurvetson, 400 Seaport Court, Suite 250,
Redwood City, California 94063.
(15) This number includes the shares beneficially owned by the persons and
entities described in footnote 10.
(16) Includes 624,959 shares held by Winston Partners II, LLC and 829,040 shares
held by Winston Partners, L.P. Dr. Purnendu Chatterjee has the power to
vote and dispose of shares held by Winston Partners II, LLC and Winston
Partners L.P. Dr. Chatterjee disclaims beneficial ownership of such shares
except to the extent of his pecuniary interests therein.
(17) This number includes the shares beneficially owned by the persons and
entities described in the footnotes above and includes (a) warrants to
purchase an aggregate of 9,750 shares of common stock issuable pursuant to
warrants exercisable within 60 days of December 31, 1999 and (b) 215,000
shares of common stock issuable pursuant to options exercisable within 60
days of December 31, 1999.
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DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, we will be authorized to issue
150,000,000 shares of common stock, and 10,000,000 shares of undesignated
preferred stock. The following is a summary description of our capital stock.
Our bylaws and our Second Amended and Restated Certificate of Incorporation, to
be effective after the closing of this offering, provide further information
about our capital stock.
COMMON STOCK
As of December 31, 1999, there were 28,156,334 shares of common stock
outstanding, as adjusted to reflect the conversion of all outstanding shares of
preferred stock into common stock upon the closing of this offering and the
exercise of warrants to purchase 253,879 shares of common stock that will
terminate upon the consummation of this offering, that were held of record by
approximately 196 stockholders. After giving effect to the sale of the shares of
common stock to the public offered in this prospectus and in the private
placement, there will be 34,556,334 shares of common stock outstanding, assuming
no exercise of the underwriters' over-allotment option and assuming no exercise
after December 31, 1999 of outstanding options or warrants.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive dividends, if any, as may be declared from time to time by
the board of directors out of funds legally available. See "Dividend Policy." In
the event of our liquidation, dissolution or winding up, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued upon
completion of this offering will be fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to fix the rights, preferences, privileges and related restrictions, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of the series. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of us without further action by the stockholders and may
adversely affect the voting and other rights of the holders of common stock. The
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. At present, we have no plans to issue any of our
preferred stock.
WARRANTS
Immediately following the closing of this offering there will be
outstanding warrants to purchase a total of 820,408 shares of common stock at a
weighted average exercise price of $9.79 per share assuming an exercise price of
$10.00 per share for one warrant to purchase 800,000 shares of common stock.
20,408 of the warrants expire in April 2005, and 800,000 of the warrants expire
in January 2002.
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PRIVATE PLACEMENT WITH SAMSUNG SDS CO., LTD. AND DELL USA, L.P.
On January 31, 2000, we entered into a stock purchase agreement with
Samsung SDS Co., Ltd. under which, contingent upon and immediately following
consummation of the sale of shares in this offering and subject to the filing
and termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable, Samsung agreed to purchase 1,200,000 shares of our common stock in a
private placement at a price per share equal to 96% of the "Price to Public"
appearing on the cover page of this prospectus. Samsung has agreed not to sell,
including any short sale, grant any option to purchase or otherwise transfer or
dispose of any of our securities held by it for a period of one year following
the closing of the private placement, other than hedging transactions entered
into beginning six months following the closing of the private placement.
On February 14, 2000, we entered into a stock purchase agreement with Dell
USA, L.P., under which, contingent upon and immediately following consummation
of the sale of shares in this offering and subject to the filing and termination
of the waiting period under the Hart-Scott-Rodino Act, if applicable, Dell
agreed to purchase 1,200,000 shares of our common stock in a private placement
at a price per share equal to 93% of the "Price to Public" appearing on the
cover page of this prospectus. Dell has agreed not to sell, including any short
sale, grant any option to purchase or otherwise transfer or dispose of any of
our securities held by it for a period of one year following the closing of the
private placement, other than hedging transactions entered into beginning six
months following the closing of this private placement.
REGISTRATION RIGHTS
After this offering and the private placement, the holders of approximately
20,410,957 shares of common stock will be entitled to rights with respect to the
registration of these shares under the Securities Act. Under the terms of the
agreement between us and the holders of these registrable securities, if we
propose to register any of our securities under the Securities Act, either for
our own account or for the account of other security holders exercising
registration rights, these holders are entitled to notice of registration and
are entitled to include their shares of common stock in the registration.
Holders of 18,010,957 shares of the registrable securities are also entitled to
specified demand registration rights under which they may require us to file a
registration statement under the Securities Act at our expense with respect to
our shares of common stock, and we are required to use our best efforts to
effect this registration. Further, the holders of these demand rights may
require us to file additional registration statements on Form S-3. All of these
registration rights are subject to conditions and limitations, among them the
right of the underwriters of an offering to limit the number of shares included
in the registration and our right not to effect a requested registration within
six months following the initial offering of our securities, including this
offering.
ANTI-TAKEOVER PROVISIONS
Selected provisions of Delaware law, and our certificate of incorporation
and bylaws, effective upon the closing of this offering, could make more
difficult the acquisition of us by means of a tender offer or a proxy contest
and the removal of incumbent officers and directors. These provisions,
summarized below, are expected to discourage particular types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of us to first negotiate with us. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure us
outweigh the disadvantages of discouraging these proposals because, among other
things, negotiation of these proposals could result in an improvement of their
terms. However, these provisions could have the effect of discouraging others
from making tender offers for our shares and, as a consequence, they
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may also inhibit fluctuations in the market price of our shares that could
result from actual or rumored takeover attempts.
Stockholder Meetings. Under our bylaws, only our board of directors, the
Chairman of the Board and the Chief Executive Officer may call special meetings
of stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of our board of
directors or a related committee.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. Generally, Section 203 of the
Delaware General Corporation Law prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
- before the date of the business combination, the transaction is approved
by the board of directors of the corporation;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the outstanding stock; or
- on or after the date the transaction is approved by the board and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock. The
existence of this provision would be expected to have an anti-takeover effect
with respect to transactions not approved in advance by our board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
Classified Board of Directors. Our certificate of incorporation provides
that our board of directors will be divided into three classes of directors
serving staggered three-year terms. As a result, only one of the three classes
of our board of directors will be elected each year. The classification system
of electing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of us and may maintain the
incumbency of our board of directors by increasing the difficulty of replacing a
majority of the directors.
Elimination of Stockholder Action by Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for our board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to obtain control of us.
Amendment of Restated Charter. The amendment of any of the above provisions
would require approval by holders of at least 66 2/3% of our outstanding common
stock.
Stockholder Rights Plan. We are considering the adoption of a stockholder
rights plan. Such a plan would allow for the issuance of a dividend to
stockholders of rights to acquire our shares or, under certain circumstances, an
acquiring corporation, at less than their fair market value. These
71
<PAGE> 74
rights would have certain anti-takeover effects by potentially causing
substantial dilution to a person or group that attempts to acquire us.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is U.S. Stock
Transfer Corporation.
NASDAQ NATIONAL MARKET LISTING
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "SLTC."
72
<PAGE> 75
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and the private placement, we will have
34,556,234 shares of common stock outstanding, assuming no exercise of options
or warrants after December 31, 1999. Of these shares, the 4,000,000 shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares held by persons
that directly or indirectly control, or are controlled by, or are under common
control with us, may generally only be sold in compliance with the limitations
of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 30,556,334 shares of common stock are deemed restricted
shares under Rule 144. The number of shares of common stock available for sale
in the public market is limited by restrictions under the Securities Act and
lock-up agreements under which the holders of the shares have agreed not to sell
or dispose of any of their shares for a period of 180 days after the date of
this prospectus without the prior written consent of Credit Suisse First Boston
Corporation. On the date of this prospectus, no shares other than the 4,000,000
shares being sold in this offering will be eligible for sale. Beginning 180 days
after the date of this prospectus, or earlier with the consent of Credit Suisse
First Boston Corporation, 25,216,753 restricted shares will become available for
sale in the public market subject to the limitations of Rule 144 of the
Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person, or persons whose shares are
aggregated, who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares of common stock that does not exceed
the greater of 1% of the then-outstanding shares of our common stock,
approximately 343,563 shares after giving effect to this offering, and the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding this sale. Sales under Rule 144 of the
Securities Act are subject to restrictions relating to manner of sale, notice
and the availability of current public information about us. A person who is not
our affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years, would be entitled to sell
these shares immediately following this offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144 of the Securities Act. However, the transfer agent may require an opinion of
counsel that a proposed sale of shares comes within the terms of Rule 144 of the
Securities Act before effecting a transfer of these shares.
Before this offering, there has been no public market for our common stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional common stock will have on the
market price of our common stock. Nevertheless, sales of substantial amounts of
these shares in the public market, or the perception that these sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through an offering of our equity
securities.
OPTIONS
As of December 31, 1999, options to purchase a total of 2,180,815 shares of
common stock, all of which were issued under the 1996 Stock Plan, were
outstanding and exercisable. All of the shares subject to options are subject to
lock-up agreements. An additional 371,077 shares of common stock were available
as December 31, 1999 for future option grants or direct issuances under the 1996
Stock Plan. In addition, in November 1999, 1,000,000 shares were reserved for
issuance under our 1999 Equity Incentive Plan and 2,200,000 shares were reserved
for issuance under our 1999 Employee Stock Purchase Plan. See
"Management -- Employee Benefit Plans -- 1996 Stock Plan,"
73
<PAGE> 76
"-- 1999 Equity Incentive Plan" and "-- 1999 Employee Stock Purchase Plan" and
Note 10 of Notes to Consolidated Financial Statements.
Rule 701 under the Securities Act provides that shares of common stock
acquired on the exercise of outstanding options may be resold by persons other
than our affiliates, beginning 90 days after the date of this prospectus,
subject only to the manner of sale provisions of Rule 144, and by affiliates,
beginning 90 days after the date of this prospectus, subject to all provisions
of Rule 144 except its one-year minimum holding period. We intend to file one or
more registration statements on Form S-8 under the Securities Act to register
all shares of common stock subject to outstanding stock options and common stock
issued or issuable under our 1999 Stock Plan.
We expect to file the registration statement covering shares offered under
the 1996 Stock Plan, the 1999 Employee Stock Purchase Plan and the 1999 Equity
Incentive Plan approximately 30 days after the closing of this offering. These
registration statements are expected to become effective upon filing. Shares
covered by these registration statements will then be eligible for sale in the
public markets, subject to the lock-up agreements.
WARRANTS
As of December 31, 1999, we had outstanding warrants to purchase 1,074,287
shares of common stock. When these warrants are exercised and the exercise price
is paid in cash, the shares must be held for one year before they can be sold
under Rule 144. All warrants to purchase shares of common stock contain "net
exercise provisions." These provisions allow a holder to exercise a warrant for
a lesser number of shares of common stock in lieu of paying cash. The number of
shares which would be issued in this case would be based upon the market price
of the common stock at the time of the net exercise. If the warrant had been
held for at least one year, the shares of common stock could be publicly sold
under Rules 144 and 145. After the lock-up agreements described above expire,
warrants to purchase 20,408 shares of our common stock, which also contain net
exercise provisions, will have been outstanding for at least one year.
74
<PAGE> 77
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
Thomas Weisel Partners LLC, U.S. Bancorp Piper Jaffray Inc. and E*OFFERING Corp.
are acting as representatives, the following respective number of shares of
common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Thomas Weisel Partners LLC..................................
U.S. Bancorp Piper Jaffray Inc..............................
E*OFFERING Corp.............................................
---------
Total............................................. 4,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We and the selling stockholder have granted to the underwriters a 30-day
option to purchase on a pro rata basis up to 450,000 additional shares from us
and 150,000 outstanding shares from the selling stockholder at the initial
public offering price less the underwriting discounts and commissions. This
option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
and the selling stockholder will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us................. $ $ $ $
Expenses payable by us................. $ $ $ $
Underwriting Discounts and
Commissions paid by selling
stockholder............................ $-- $ $-- $
Expenses payable by the selling
stockholder............................ $-- $ $-- $
</TABLE>
75
<PAGE> 78
In addition, Credit Suisse First Boston Corporation will receive from us an
aggregate fee equal to 3% of the gross proceeds from the common stock offered to
Samsung SDS Co. Ltd. in a private placement, which is scheduled to close
immediately following the consummation of this offering.
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and substantially all of our stockholders
have agreed that we and they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any of our common stock, or publicly disclose
the intention to make any such offer, sale, pledge, disposition or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, except, in our case,
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.
The underwriters have reserved for sale, at the initial public offering
price, up to 200,000 shares of common stock, to be distributed by E*OFFERING,
for employees, directors and other persons associated with us who have expressed
an interest in purchasing common stock in the offering. The number of shares
available for sale to the general public in the offering will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.
We and the selling stockholder have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments which
the underwriters may be required to make in that respect.
We have made application to list our shares of common stock on The Nasdaq
Stock Market's National Market under the symbol "SLTC."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined by negotiation between us
and the underwriters. The principal factors to be considered in determining the
public offering price include:
- the information set forth in this prospectus and otherwise available to
the underwriters;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker/dealer in December 1998. Since December
1998, Thomas Weisel Partners has acted as a lead or co-manager on numerous
public offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
under the underwriting agreement entered into in connection with this offering.
76
<PAGE> 79
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
A prospectus in electronic format will be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The underwriters may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Distribution will be allocated
by the representatives of the underwriters to underwriters that may make
Internet distributions on the same basis as other allocations. Other than the
prospectus in electronic format, the information on the web sites maintained by
the underwriters is not part of the prospectus or the registration statement of
which this prospectus forms a part, has not been approved and/or endorsed by
Selectica or any underwriter in its capacity as underwriter and should not be
relied upon by investors.
77
<PAGE> 80
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where required
by law, that the purchaser is purchasing as principal and not as agent, and
(iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recession or rights of action under the civil liability provisions of
the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. Such report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
78
<PAGE> 81
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
79
<PAGE> 82
LEGAL MATTERS
The validity of the common stock being offered will be passed upon for
Selectica by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California. The underwriters have been represented by Wilson Sonsini
Goodrich & Rosati, Palo Alto, California. As of the date of this prospectus,
some members and employees of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP beneficially owned an aggregate of 28,631 shares of our stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at March 31, 1998 and 1999 and December 31,
1999 and for the period from June 6, 1996 (inception) through March 31, 1997,
and for each of the two years in the period ended March 31, 1999, and for the
nine months ended December 31, 1999 as described in their report. We have
included our financial statements and schedule in the prospectus and elsewhere
in the registration statement in reliance on Ernst & Young LLP's report, given
upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
being offered. This prospectus does not contain all of the information presented
in the registration statement and the exhibits to the registration statement.
For further information with respect to Selectica and our common stock we are
offering, reference is made to the registration statement and the exhibits filed
as a part of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document referred to may be
only summaries of these documents. The exhibits to this registration statement
should be referenced for the complete contents of these contracts and documents.
Each statement is qualified in all respects by reference to the exhibit. The
registration statement, including the exhibits, may be inspected without charge
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
all or any part may be obtained from this office after payment of fees
prescribed by the Commission. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants, including us, that file electronically with the
Commission. The address of the site is www.sec.gov.
80
<PAGE> 83
SELECTICA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 84
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Selectica, Inc.
We have audited the accompanying consolidated balance sheets of Selectica,
Inc. as of March 31, 1998 and 1999 and December 31, 1999, and the related
statements of operations, stockholders' equity, and cash flows for the period
from June 6, 1996 (inception) through March 31, 1997 and for each of the two
years in the period ended March 31, 1999, and for the nine months ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Selectica, Inc.
at March 31, 1998 and 1999, and December 31, 1999, and the consolidated results
of its operations and its cash flows for the period from June 6, 1996
(inception) through March 31, 1997 and for each of the two years in the period
ended March 31, 1999, and for the nine months ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Jose, California
January 26, 2000, except for
Note 14, as to which the date is
February 14, 2000
F-2
<PAGE> 85
SELECTICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
MARCH 31, EQUITY
-------------------------- DECEMBER 31, DECEMBER 31,
1998 1999 1999 1999
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 206,040 $ -- $ 14,123,645
Short-term investments.................................... 297,539 -- --
Accounts receivable, net of allowance for doubtful
accounts of $29,750 at March 31, 1998, $104,000 at March
31, 1999, and $254,000 at December 31, 1999............. 387,944 1,634,577 3,539,220
Advances to related party................................. 1,620 17,730 58,519
Prepaid expenses and other current assets................. 30,400 166,454 601,494
----------- ------------ ------------
Total current assets...................................... 923,543 1,818,761 18,322,878
Property and equipment, net................................. 292,583 1,012,469 3,649,373
Goodwill, net of amortization of $58,975 at March 31, 1998,
$92,675 at March 31, 1999, and $112,950 at December 31,
1999...................................................... 77,025 53,325 35,550
Advances to related party, noncurrent....................... -- 155,000 --
Other assets................................................ 63,926 53,926 1,316,924
Investments, restricted..................................... -- 99,845 99,845
Development agreement, net of amortization of none at March
31, 1998 and 1999 and $472,242 at December 31, 1999....... -- -- 3,695,026
----------- ------------ ------------
Total assets................................................ $ 1,357,077 $ 3,193,326 $ 27,119,596
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 101,780 $ 585,610 $ 515,183
Accrued payroll and related liabilities................... 365 258,105 956,838
Other accrued liabilities................................. -- 328,609 2,038,859
Deferred revenues......................................... 383,182 1,285,144 4,261,265
Advances from officers.................................... 16,023 332 --
----------- ------------ ------------
Total current liabilities................................... 501,350 2,457,800 7,772,145
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $0.0001 par value:
Authorized shares -- 25,000,000 at March 31, 1998 and
1999, 25,500,000 at December 31, 1999 and pro forma.
Issued and outstanding shares -- 8,703,126 at March 31,
1998, 13,567,061 at March 31, 1999 and 19,710,957 at
December 31, 1999 and none pro forma (liquidation
preference of $38,800,367 at December 31, 1999)........... 870 1,356 1,971 $ --
Common stock, $0.0001 par value:
Authorized shares -- 40,000,000 at December 31, 1999 and
75,000,000 pro forma Issued and outstanding -- 5,520,561
at March 31, 1998, 6,237,877 at March 31, 1999,
8,191,498 at December 31, 1999, and 27,902,455 pro
forma................................................... 552 624 819 2,790
Additional paid-in capital.................................. 4,211,023 11,878,365 57,057,135 57,057,135
Deferred compensation....................................... (4,386) (255,586) (6,011,456) (6,011,456)
Stockholder notes receivable................................ -- -- (7,015,750) (7,015,750)
Accumulated deficit......................................... (3,352,332) (10,889,233) (24,685,268) (24,685,268)
----------- ------------ ------------ ------------
Total stockholders' equity.................................. 855,727 735,526 19,347,451 $ 19,347,451
----------- ------------ ------------ ============
Total liabilities and stockholders' equity.................. $ 1,357,077 $ 3,193,326 $ 27,119,596
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 86
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
FROM
JUNE 6, 1996
(INCEPTION) NINE MONTHS ENDED
THROUGH YEARS ENDED MARCH 31, DECEMBER 31,
MARCH 31, ------------------------- --------------------------
1997 1998 1999 1998 1999
------------ ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License....................... $ 50,000 $ 169,505 $ 1,656,015 $ 970,007 $ 5,180,625
Services...................... 4,500 -- 1,788,467 1,010,832 3,958,957
--------- ----------- ----------- ----------- ------------
Total revenues........... 54,500 169,505 3,444,482 1,980,839 9,139,582
Cost of revenues:
License....................... 2,500 9,000 183,715 117,877 258,828
Services...................... -- -- 881,017 483,401 5,105,159
Services -- related party..... -- 51,200 302,511 152,511 135,000
--------- ----------- ----------- ----------- ------------
Total cost of revenues... 2,500 60,200 1,367,243 753,789 5,498,987
--------- ----------- ----------- ----------- ------------
Gross profit.................... 52,000 109,305 2,077,239 1,227,050 3,640,595
Research and development...... 169,307 1,950,101 3,893,750 2,497,828 4,132,374
Sales and marketing........... 61,873 1,054,798 4,429,368 2,682,549 9,270,724
General and administrative.... 76,623 292,494 1,389,554 861,250 2,923,539
--------- ----------- ----------- ----------- ------------
Total operating expenses........ 307,803 3,297,393 9,712,672 6,041,627 16,326,637
--------- ----------- ----------- ----------- ------------
Loss from operations............ (255,803) (3,188,088) (7,635,433) (4,814,577) (12,686,042)
Other income (expense), net..... (1,600) 5,091 -- -- (1,765)
Interest income................. 6,520 81,548 127,388 116,038 381,060
Interest expense................ -- -- (28,856) (22,419) (59,856)
--------- ----------- ----------- ----------- ------------
Loss before provision for income
taxes......................... (250,883) (3,101,449) (7,536,901) (4,720,958) (12,366,603)
Provision for income taxes...... -- -- -- -- 50,000
--------- ----------- ----------- ----------- ------------
Net loss........................ (250,883) (3,101,449) (7,536,901) (4,720,958) (12,416,603)
Deemed dividend on Series E
convertible preferred stock... -- -- -- -- 925,314
--------- ----------- ----------- ----------- ------------
Net loss applicable to common
stockholders.................. $(250,883) $(3,101,449) $(7,536,901) $(4,720,958) $(13,341,917)
========= =========== =========== =========== ============
Basic and diluted, net loss per
share applicable to common
stockholders.................. $ (0.15) $ (0.91) $ (1.58) $ (1.05) $ (2.53)
Weighted-average shares of
common stock outstanding used
in computing basic and
diluted, net loss per share
applicable to common
stockholders.................. 1,633,988 3,425,395 4,782,235 4,479,472 5,270,056
Pro forma basic and diluted, net
loss per share applicable to
common stockholders........... $ (0.44) $ (0.59)
Weighted-average shares used in
computing pro forma basic and
diluted, net loss per share... 17,281,930 22,454,553
</TABLE>
See accompanying notes.
F-4
<PAGE> 87
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK ADDITIONAL
--------------------- ------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
----------- ------- --------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founder for cash at
$0.01 per share............................... -- $ -- 1,250,000 $125 $ 12,375 $ --
Issuance of common stock to founder in exchange
for services.................................. -- -- 1,250,000 125 12,375 --
Issuance of common stock in exchange for
Catalogics.................................... -- -- 1,500,000 150 14,850 --
Issuance of common and convertible preferred
stock in exchange for the assets of Alma
Enterprises................................... 200,000 20 100,000 10 19,193 --
Exercise of stock options by employees and
consultants................................... -- -- 562,500 56 5,544 --
Issuance of common stock to consultants in
exchange for services......................... -- -- 35,061 4 392 --
Issuance of stock to employees................. -- -- 473,000 47 3,853 --
Issuance of Series A convertible preferred
stock in July 1996 for cash at $0.091667 per
share......................................... 1,500,000 150 -- -- 137,350 --
Issuance of Series B convertible preferred
stock in January 1997 for cash at $0.26667 per
share (net of issuance costs of $5,000)....... 3,750,000 375 -- -- 994,625 --
Deferred compensation related to options
granted at less than fair value............... -- -- -- -- 14,183 (14,183)
Amortization of deferred compensation.......... -- -- -- -- -- 6,256
Net loss....................................... -- -- -- -- -- --
---------- ------ --------- ---- ----------- -----------
Balance at March 31, 1997...................... 5,450,000 545 5,170,561 517 1,214,740 (7,927)
Issuance of Series C convertible preferred
stock in October 1997 for cash at $0.922 per
share (net of issuance costs of $11,000)...... 3,253,126 325 -- -- 2,988,058 --
Exercise of stock options by employees and
consultants................................... -- -- 338,000 34 7,306 --
Issuance of common stock to consultants in
exchange for services......................... -- -- 12,000 1 919 --
Amortization of deferred compensation.......... -- -- -- -- -- 3,541
Net loss....................................... -- -- -- -- -- --
---------- ------ --------- ---- ----------- -----------
Balance at March 31, 1998...................... 8,703,126 870 5,520,561 552 4,211,023 (4,386)
Issuance of Series D convertible preferred
stock in June, July, and August 1998 for cash
at $1.47 per share (net of issuance costs of
$57,658)...................................... 4,863,935 486 -- -- 7,091,856 --
Exercise of stock options by employees and
consultants, net of repurchases............... -- -- 671,012 67 38,507 --
Issuance of common stock to consultants in
exchange for services......................... -- -- 46,304 5 42,565 --
Warrants issued in conjunction with credit
agreement..................................... -- -- -- -- 25,714 --
Deferred compensation related to options
granted at less than fair value............... -- -- -- -- 298,700 (298,700)
Compensation expense related to acceleration of
stock options................................. -- -- -- -- 170,000 --
Amortization of deferred compensation.......... -- -- -- -- -- 47,500
Net loss....................................... -- -- -- -- -- --
---------- ------ --------- ---- ----------- -----------
Balance at March 31, 1999...................... 13,567,061 1,356 6,237,877 624 11,878,365 (255,586)
<CAPTION>
STOCKHOLDER TOTAL
NOTES ACCUMULATED STOCKHOLDERS'
RECEIVABLE DEFICIT EQUITY
----------- ------------ -------------
<S> <C> <C> <C>
Issuance of common stock to founder for cash at
$0.01 per share............................... $ -- $ -- $ 12,500
Issuance of common stock to founder in exchange
for services.................................. -- -- 12,500
Issuance of common stock in exchange for
Catalogics.................................... -- -- 15,000
Issuance of common and convertible preferred
stock in exchange for the assets of Alma
Enterprises................................... -- -- 19,223
Exercise of stock options by employees and
consultants................................... -- -- 5,600
Issuance of common stock to consultants in
exchange for services......................... -- -- 396
Issuance of stock to employees................. -- -- 3,900
Issuance of Series A convertible preferred
stock in July 1996 for cash at $0.091667 per
share......................................... -- -- 137,500
Issuance of Series B convertible preferred
stock in January 1997 for cash at $0.26667 per
share (net of issuance costs of $5,000)....... -- -- 995,000
Deferred compensation related to options
granted at less than fair value............... -- -- --
Amortization of deferred compensation.......... -- -- 6,256
Net loss....................................... -- (250,883) (250,883)
---------- ------------ -----------
Balance at March 31, 1997...................... -- (250,883) 956,992
Issuance of Series C convertible preferred
stock in October 1997 for cash at $0.922 per
share (net of issuance costs of $11,000)...... -- -- 2,988,383
Exercise of stock options by employees and
consultants................................... -- -- 7,340
Issuance of common stock to consultants in
exchange for services......................... -- -- 920
Amortization of deferred compensation.......... -- -- 3,541
Net loss....................................... -- (3,101,449) (3,101,449)
---------- ------------ -----------
Balance at March 31, 1998...................... -- (3,352,332) 855,727
Issuance of Series D convertible preferred
stock in June, July, and August 1998 for cash
at $1.47 per share (net of issuance costs of
$57,658)...................................... -- -- 7,092,342
Exercise of stock options by employees and
consultants, net of repurchases............... -- -- 38,574
Issuance of common stock to consultants in
exchange for services......................... -- -- 42,570
Warrants issued in conjunction with credit
agreement..................................... -- -- 25,714
Deferred compensation related to options
granted at less than fair value............... -- -- --
Compensation expense related to acceleration of
stock options................................. -- -- 170,000
Amortization of deferred compensation.......... -- -- 47,500
Net loss....................................... -- (7,536,901) (7,536,901)
---------- ------------ -----------
Balance at March 31, 1999...................... -- (10,889,233) 735,526
</TABLE>
See accompanying notes.
F-5
<PAGE> 88
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK ADDITIONAL
--------------------- ------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
----------- ------- --------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Series E convertible preferred
stock in June, July, August, and October 1999
for cash at $4.382 per share (net of issuance
costs of $930,921)........................... 5,908,770 $ 591 $ -- $ -- $24,345,272 $ --
Issuance of Series E convertible preferred
stock in June 1999 at $4.382 per share in
exchange for convertible notes payable (net
of issuance costs of $48,173)................ 229,876 23 -- -- 944,447 --
Repurchase of common stock held by founder.... (228,200) (23) (2,259) --
Warrants issued in connection with Series E
convertible preferred stock Financing........ -- -- -- -- 615,654 --
Warrants issued in connection with convertible
notes payable................................ -- -- -- -- 49,781 --
Compensation expense related to acceleration
of stock options............................. -- -- -- -- 65,625 --
Exercise of warrants issued in connection with
Series E preferred stock financing........... 5,250 1 -- -- 23,005 --
Warrants issued in connection with development
agreement.................................... -- -- -- -- 381,330 --
Exercise of stock options by employees, net of
repurchase................................... -- -- 510,751 51 312,200 --
Exercise of stock by employees for notes...... -- -- 1,638,000 163 7,015,587 --
Issuance of common stock for services......... -- -- 33,070 4 106,404 --
Issuance of Series E convertible stock for
less than fair value in October 1999......... -- -- -- -- 4,976,264 --
Deferred compensation related to options
granted at less than fair value.............. -- -- -- -- 6,345,460 (6,345,460)
Amortization of deferred compensation......... -- -- -- -- -- 589,590
Net loss...................................... -- -- -- -- -- --
---------- ------ --------- ---- ----------- -----------
Balance at December 31, 1999.................. 19,710,957 $1,971 8,191,498 $819 $57,057,135 $(6,011,456)
========== ====== ========= ==== =========== ===========
<CAPTION>
STOCKHOLDER TOTAL
NOTES ACCUMULATED STOCKHOLDERS'
RECEIVABLE DEFICIT EQUITY
----------- ------------ -------------
<S> <C> <C> <C>
Issuance of Series E convertible preferred
stock in June, July, August, and October 1999
for cash at $4.382 per share (net of issuance
costs of $930,921)........................... $ -- $ -- 24,345,863
Issuance of Series E convertible preferred
stock in June 1999 at $4.382 per share in
exchange for convertible notes payable (net
of issuance costs of $48,173)................ -- -- 944,470
Repurchase of common stock held by founder.... -- (454,118) (456,400)
Warrants issued in connection with Series E
convertible preferred stock Financing........ -- -- 615,654
Warrants issued in connection with convertible
notes payable................................ -- -- 49,781
Compensation expense related to acceleration
of stock options............................. -- -- 65,625
Exercise of warrants issued in connection with
Series E preferred stock financing........... -- -- 23,006
Warrants issued in connection with development
agreement.................................... -- -- 381,330
Exercise of stock options by employees, net of
repurchase................................... -- -- 312,251
Exercise of stock by employees for notes...... (7,015,750) -- --
Issuance of common stock for services......... -- -- 106,408
Issuance of Series E convertible stock for
less than fair value in October 1999......... -- (925,314) 4,050,950
Deferred compensation related to options
granted at less than fair value.............. -- -- --
Amortization of deferred compensation......... -- -- 589,590
Net loss...................................... -- (12,416,603) (12,416,603)
----------- ------------ -----------
Balance at December 31, 1999.................. $(7,015,750) $(24,685,268) $19,347,451
=========== ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 89
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1996 YEARS ENDED NINE MONTHS ENDED
(INCEPTION) MARCH 31, DECEMBER 31,
THROUGH ------------------------- --------------------------
MARCH 31, 1997 1998 1999 1998 1999
-------------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................ $ (250,883) $(3,101,449) $(7,536,901) $(4,720,958) $(12,416,603)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.......................................... 8,563 59,359 208,947 110,371 713,230
Amortization.......................................... 25,275 33,700 33,700 17,775 17,775
Issuance of stock in exchange for services............ 22,396 920 42,570 42,570 371,420
Amortization of development agreement................. -- -- -- -- 472,242
Amortization of deferred compensation................. 6,256 3,541 47,500 22,591 589,590
Accrued interest on convertible notes converted to
convertible preferred stock......................... -- -- -- -- 7,317
In-process research and development................... 16,500 -- -- -- --
Warrants issued in conjunction with credit
agreement........................................... -- -- 25,714 25,714 --
Warrants issued in conjunction with debt financing.... -- -- -- -- 35,107
Accelerated vesting of stock options to employees..... -- -- 170,000 -- 65,625
Changes in assets and liabilities:
Accounts receivable................................. -- (387,944) (1,246,633) (843,258) (1,904,643)
Advances to related party........................... -- (1,620) (171,110) 420 264,211
Prepaid expenses and other current assets........... (7,765) (22,635) (136,054) (65,911) (435,040)
Other assets........................................ -- (51,427) -- 7,501 (1,262,998)
Accounts payable.................................... 25,870 75,910 483,830 57,335 (70,427)
Accrued payroll and related liabilities............. 164 202 257,740 116,076 698,733
Other accrued liabilities........................... -- -- 328,609 47,421 1,710,250
Deferred revenues................................... -- 383,182 901,962 868,508 2,976,121
Advances from officers.............................. 200 15,823 (15,691) (14,165) (332)
---------- ----------- ----------- ----------- ------------
Net cash used in operating activities................... (153,424) (2,992,438) (6,605,817) (4,328,010) (8,168,422)
INVESTING ACTIVITIES
Capital expenditures.................................... (53,405) (287,877) (928,833) (560,088) (3,350,134)
Purchases of available-for-sale investments............. (790,735) (8,569,135) (5,576,918) (5,576,918) --
Sales of available-for-sale investments................. 100,000 8,962,331 5,774,612 5,620,777 --
Acquisition of Catalogics, Inc.......................... (150,000) -- -- -- --
Acquisition of Selectica, India......................... -- -- -- -- (150,000)
---------- ----------- ----------- ----------- ------------
Net cash provided by (used in) investing activities..... (894,140) 105,319 (731,139) (516,229) (3,500,134)
FINANCING ACTIVITIES
Net proceeds from issuance of convertible preferred
stock................................................. 1,132,500 2,988,383 7,092,342 7,092,342 24,913,344
Exercise of warrants in exchange for preferred stock.... -- -- -- -- 23,006
Repurchase of common stock.............................. -- -- -- -- (456,400)
Proceeds from issuance of convertible notes............. -- -- -- -- 1,000,000
Proceeds from issuance of common stock.................. 12,500 7,340 38,574 31,753 312,251
---------- ----------- ----------- ----------- ------------
Net cash provided by financing activities............... 1,145,000 2,995,723 7,130,916 7,124,095 25,792,201
---------- ----------- ----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents.... 97,436 108,604 (206,040) 2,279,856 14,123,645
Cash and cash equivalents at beginning of the period.... -- 97,436 206,040 206,040 --
---------- ----------- ----------- ----------- ------------
Cash and cash equivalents at end of the period.......... $ 97,436 $ 206,040 $ -- $ 2,485,896 $ 14,123,645
========== =========== =========== =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................................. $ -- $ -- $ 3,142 $ 15,102 $ 52,539
Issuance of stock in exchange for Catalogics, Inc....... $ 15,000 $ -- $ -- $ -- $ --
Issuance of stock in exchange for fixed assets.......... $ 19,223 $ -- $ -- $ -- $ --
Deferred compensation related to stock options.......... $ 14,183 $ -- $ 298,700 $ 285,849 $ 6,345,460
Convertible notes payable and accrued interest converted
to convertible preferred stock........................ $ -- $ -- $ -- $ -- $ 944,470
Warrants issued in conjunction with convertible notes
payable............................................... $ -- $ -- $ -- $ -- $ 49,781
Warrants issued in conjunction with convertible
preferred stock financing............................. $ -- $ -- $ -- $ -- $ 615,654
Warrants issued in connection with development
agreement............................................. $ -- $ -- $ -- $ -- $ 381,330
Issuance of stock in exchange for notes................. $ -- $ -- $ -- $ -- $ 7,015,750
</TABLE>
See accompanying notes.
F-7
<PAGE> 90
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Selectica, Inc. (the Company or Selectica) was incorporated in the state of
California on June 6, 1996. The Company was organized to develop and market
Internet selling system software for electronic commerce, sales force
automation, and build-to-order applications.
Unaudited Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated financial statements for
the nine-month period ended December 31, 1998 have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, the accompanying unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the Company's
results of its operations for the nine months ended December 31, 1998.
Principles of Consolidation
The consolidated financial statements include all the accounts of the
Company and those of its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
Foreign Currency Transactions
Foreign currency transactions at foreign operations are measured using the
U.S. dollar as the functional currency. Accordingly, monetary accounts
(principally cash and cash equivalents, accounts receivable, accounts payable,
and accrued liabilities) are remeasured using the foreign exchange rate at the
balance sheet date. Operations accounts and non-monetary balance sheet accounts
are remeasured at the rate in effect at the date of transaction. The effects of
foreign currency remeasurement are reported in current operations and were
immaterial for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments, and accounts receivable. The Company places its
short-term investments in high-credit quality financial institutions. The
Company is exposed to credit risk in the event of default by these institutions
to the extent of the amount recorded on the balance sheet. As of December 31,
1999 all money market funds are invested in a single fund. Accounts receivable
are derived from revenues earned from customers primarily located
F-8
<PAGE> 91
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
in the United States. The Company performs ongoing credit evaluations of its
customers' financial condition and generally does not require collateral. The
Company maintains reserves for potential credit losses, and historically, such
losses have been immaterial.
Customer Concentrations
A limited number of customers have historically accounted for a substantial
portion of the Company's revenues.
Customers who accounted for at least 10% of total revenues were as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1997 YEARS ENDED NINE MONTHS ENDED
(INCEPTION) MARCH 31, DECEMBER 31,
THROUGH ----------------- --------------------
MARCH 31, 1997 1998 1999 1998 1999
-------------- --------- ---- ------------ ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BMW of North America............... * * 60% 69% *
Olicom, Inc. ...................... * * 10% 14% *
Hewlett Packard of Germany......... * 45% * * *
Ascend Communications, Inc. ....... * 27% * * *
InterVoice, Inc. .................. * 16% * * *
Insight Enterprises, Inc. ......... * 12% * * *
V*Mall Corporation................. 100% * * * *
Aspect Communications.............. * * * * 15%
3Com Corporation................... * * * * 14%
Fireman's Fund Insurance........... * * * * 14%
</TABLE>
- -------------------------
* Revenues were less than 10%.
Cash Equivalents and Short-Term Investments
Cash equivalents consist of short-term, highly liquid financial
instruments, principally money markets funds and commercial paper with
insignificant interest rate risk that are readily convertible to cash and have
maturities of three months or less from the date of purchase. Short-term
investments consist of money market funds and commercial paper that are readily
convertible to cash. As of December 31, 1999 all money market funds are invested
in a single fund. The fair market value, based on quoted market prices, of cash
equivalents and short-term investments is substantially equal to their carrying
value at March 31, 1998 and 1999, and at December 31, 1999.
Under the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," management classifies investments as available-for-sale at
the time of purchase and periodically reevaluates such designation. Unrecognized
gains or losses on available-for-sale securities are included, net of tax, in
stockholders' equity until their disposition. Realized gains and losses and
declines in value judged to be other than temporary on available-for-sale
securities are included in interest income. The cost of securities sold is based
on the specific-identification method.
F-9
<PAGE> 92
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets, generally the shorter of the lease term or three to five years.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price of acquired companies
over estimated fair values of tangible and intangible net assets acquired.
Goodwill is amortized on a straight-line basis over the estimated useful life,
generally five years. The carrying values of long-term assets and intangibles
are reviewed if facts and circumstances suggest that they may be impaired. If
this review indicates that carrying values of long-term assets, other
intangibles, and associated goodwill will not be recoverable based on projected
undiscounted future cash flows, carrying values are reduced to estimated fair
values by first reducing goodwill and second by reducing long-term assets and
other intangibles.
Revenue Recognition
The Company enters into arrangements for the sale of 1) licenses of
software products and related maintenance contract; 2) bundled license,
maintenance, and services; and 3) services on a time and material basis. In
instances where maintenance is bundled with a license of software products, such
maintenance term is typically one year.
For each arrangement, the Company determines whether evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collection is probable. If any of these criteria are not met, revenue
recognition is deferred until such time as all of the criteria are met.
ARRANGEMENTS CONSISTING OF LICENSE AND MAINTENANCE ONLY. For those
contracts that consist solely of license and maintenance the Company recognizes
license revenues based upon the residual method after all elements other than
maintenance have been delivered as prescribed by Statement of Position 98-9
"Modification of SOP No. 97-2 with Respect to Certain Transactions." The Company
recognizes maintenance revenues over the term of the maintenance contract as
vendor specific objective evidence of fair value for maintenance exists.
ARRANGEMENTS CONSISTING OF LICENSE, MAINTENANCE AND OTHER
SERVICES. Services can consist of maintenance, training and/or consulting
services. Consulting services include a range of services including installation
of off-the-shelf software, customization of the software for the customer's
specific application, data conversion and building of interfaces to allow the
software to operate in customized environments.
In all cases, the Company assesses whether the service element of the
arrangement is essential to the functionality of the other elements of the
arrangement. In this determination the Company focuses on whether the software
is off-the-shelf software, whether the services include significant alterations
to the features and functionality of the software, whether the services involve
the building of complex interfaces, the timing of payments and the existence of
milestones. Often the installation of the software requires the building of
interfaces to the customer's existing applications or customization of the
software for specific applications. As a result, judgement is required in the
F-10
<PAGE> 93
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
determination of whether such services constitute "complex" interfaces. In
making this determination the Company considers the following: (1) the relative
fair value of the services compared to the software, (2) the amount of time and
effort subsequent to delivery of the software until the interfaces or other
modifications are completed, (3) the degree of technical difficulty in building
of the interface and uniqueness of the application, (4) the degree of
involvement of customer personnel, and (5) any contractual cancellation,
acceptance, or termination provisions for failure to complete the interfaces.
The Company also considers refunds, forfeitures and concessions when determining
the significance of such services.
In those instances where the Company determines that the service elements
are essential to the other elements of the arrangement, the Company accounts for
the entire arrangement using contract accounting.
For those arrangements accounted for using contract accounting that do not
include contractual milestones or other acceptance criteria the Company utilizes
the percentage of completion method based upon input measures of hours. For
those contracts that include contract milestones or acceptance criteria the
Company recognizes revenue as such milestones are achieved or as such acceptance
occurs.
In some instances the acceptance criteria in the contract requires
acceptance after all services are complete and all other elements have been
delivered. In these instances the Company recognizes revenue based upon the
completed contract method after such acceptance has occurred.
For those arrangements for which the Company has concluded that the service
element is not essential to the other elements of the arrangement the Company
determines whether the services are available from other vendors, do not involve
a significant degree of risk or unique acceptance criteria, and whether the
Company has sufficient experience in providing the service to be able to
separately account for the service. When the service qualifies for separate
accounting the Company uses vendor specific objective evidence for the services
and the maintenance to account for the arrangement using the residual method,
regardless of any separate prices stated within the contract for each element.
Vendor-specific objective evidence of fair value of services is based upon
hourly rates. As previously noted, the Company enters into contracts for
services alone and such contracts are based upon time and material basis. Such
hourly rates are used to assess the vendor specific objective evidence in
multiple element arrangements.
In accordance with paragraph 10 of Statement of Position 97-2, "Software
Revenue Recognition," vendor specific objective evidence of fair value of
maintenance is determined by reference to the price the customer will be
required to pay when it is sold separately (that is, the renewal rate), which is
based on the price established by management having the relevant authority. Each
license agreement offers additional maintenance renewal periods at a stated
price. Maintenance contracts are typically one year in duration.
Through the nine months ended December 31, 1999 the Company has not entered
into arrangements solely for license of its products and, therefore, the Company
has not demonstrated vendor specific objective evidence for the license element.
In all cases revenues are classified for these arrangements as license revenues
and services revenues based on the estimates of fair value for each element.
F-11
<PAGE> 94
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Customer billing occurs in accordance with contract terms. Customer
advances and amounts billed to customers in excess of revenue recognized are
recorded as deferred revenues. Amounts recognized as revenue in advance of
billing (typically under percentage-of-completion accounting) are recorded as
unbilled receivables.
Advertising Expense
The cost of advertising is expensed as incurred. Advertising expense for
the nine-month period ended December 31, 1999 was $193,024. Advertising expenses
were immaterial for all other periods presented.
Development Costs
Costs incurred in the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. The Company believes its current
process for developing software is essentially completed concurrently with the
establishment of technological feasibility; accordingly, software costs incurred
after the establishment of technological feasibility have not been material and,
therefore, have been expensed.
Comprehensive Loss
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). FAS 130 establishes standards for the reporting and displaying of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company adopted FAS 130 in the year ended March 31, 1999. The
Company had no items of other comprehensive income to report in any of the
periods presented.
Net Loss Per Share
Basic and diluted net loss per common share is presented in conformity with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS
128), for all periods presented. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 98, common stock and convertible
preferred stock issued or granted for nominal consideration prior to the
anticipated effective date of the Company's initial public offering must be
included in the calculation of basic and diluted net loss per common share as if
they had been outstanding for all periods presented. (see Note 14)
In accordance with FAS 128, basic and diluted net loss per share have been
computed using the weighted-average number of shares of common stock outstanding
during the period, less shares subject to repurchase. Pro forma basic and
diluted net loss per share, as presented in the statements of operations, have
been computed as described above and also gives effect, under Securities and
F-12
<PAGE> 95
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Exchange Commission guidance, to the conversion of the convertible preferred
stock (using the if-converted method) from the original date of issuance.
The following table presents the computation of basic and diluted and pro
forma basic and diluted net loss per share:
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
JUNE 6, 1996 YEARS ENDED MARCH 31, DECEMBER 31,
(INCEPTION) THROUGH ------------------------- --------------------------
MARCH 31, 1997 1998 1999 1998 1999
------------------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss applicable to common
stockholders..................... $ (250,883) $(3,101,449) $(7,536,901) $(4,720,958) $(13,341,917)
=========== =========== =========== =========== ============
Basic and diluted:
Weighted-average shares of common
stock outstanding.............. 3,933,538 5,243,255 5,987,019 5,918,686 6,606,041
Less weighted-average shares
subject to repurchase.......... (2,299,550) (1,817,860) (1,204,784) (1,439,214) (1,335,985)
----------- ----------- ----------- ----------- ------------
Weighted-average shares used in
computing basic and diluted,
net loss per share applicable
to common stockholders......... 1,633,988 3,425,395 4,782,235 4,479,472 5,270,056
=========== =========== =========== =========== ============
Basic and diluted, net loss per
share applicable to common
stockholders..................... $ (0.15) $ (0.91) $ (1.58) $ (1.05) $ (2.53)
=========== =========== =========== =========== ============
Pro forma:
Shares used above.............. 4,782,235 5,270,056
Pro forma adjustment to reflect
weighted-average effect of
the assumed conversion of
convertible preferred
stock........................ 12,499,695 17,184,497
----------- ------------
Shares used in computing pro
forma basic and diluted, net
loss per share applicable to
common stockholders.......... 17,281,930 22,454,553
=========== ============
Pro forma basic and diluted,
net loss per share applicable
to common stockholders....... $ (0.44) $ (0.59)
=========== ============
</TABLE>
The Company has excluded all outstanding stock options and shares subject
to repurchase by the Company from the calculation of basic and diluted net loss
per share because these securities are antidilutive for all periods presented.
Options and warrants to purchase 655,000, 1,279,600, 1,444,058, 1,354,059, and
2,455,102 shares of common stock for the period from June 6, 1996 (inception)
through March 31, 1997, for the years ended March 31, 1998 and 1999, and for the
nine-month periods ended December 31, 1998 and 1999, respectively, were not
included in the computation of diluted net loss per share applicable to common
stockholders because the effect would be antidilutive. Such securities, had they
been dilutive, would have been included in the computation of diluted net loss
per share using the treasury stock method.
F-13
<PAGE> 96
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Stock-Based Compensation
The Company accounts for employee stock-based compensation under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
Opinion No. 25), and related interpretations. Pro forma net loss, as presented
in Note 10, is a disclosure required by Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (FAS 123).
Segment Information
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (FAS 131),
in fiscal 1998. FAS 131 supersedes FAS 14, "Financial Reporting for Segments of
a Business Enterprise," and establishes standards for reporting information
about operating segments. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker or group in deciding
how to allocate resources and in assessing performance. The Company operates in
one segment, Internet selling system software for electronic commerce. The
Company primarily markets its products in the United States. For the fiscal year
ended March 31, 1998, sales to international locations, principally Europe,
represented 46% of total revenues. Foreign sales were less than 10% for all
other periods presented. Export revenues are attributable to countries based on
the location of the customers.
The Company holds long-lived assets in India with a net book value of
$263,219 at December 31, 1999.
Unaudited Pro Forma Stockholders' Equity
If the offering contemplated by this prospectus is consummated, each share
of convertible preferred stock outstanding will automatically be converted into
one share of common stock. Unaudited pro forma stockholders' equity at December
31, 1999, as adjusted for the assumed conversion of convertible preferred stock
based on the shares of convertible preferred stock outstanding at December 31,
1999, is disclosed on the balance sheet.
Unaudited basic and diluted pro forma net loss per share, as presented in
the consolidated statements of operations, has been computed using the
weighted-average number of common shares outstanding, adjusted to include the
pro forma effects of the conversion of the preferred stock to common stock as if
such conversion had occurred on April 1, 1998 for the year ended March 31, 1999
and on April 1, 1999 for the nine-month period ended December 31, 1999, or at
the date of original issuance, if later.
New Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1). SOP 98-1 requires entities to capitalize certain costs related to
internal-use software once certain criteria have been met. SOP 98-1 is effective
for years beginning after December 15, 1998. The Company adopted SOP 98-1
F-14
<PAGE> 97
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
for the fiscal year ending March 31, 2000. The adoption of SOP 98-1 did not have
a material impact on the Company's financial position or results of operations.
In April 1998, the AICPA issued Statement of Position No. 98-5, "Reporting
on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires that all
start-up costs related to new operations must be expensed as incurred. In
addition, all start-up costs that were capitalized in the past must be written
off when SOP 98-5 is adopted. The Company implemented SOP 98-5 on January 1,
1999. The adoption of SOP 98-5 did not have a material impact on its financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 establishes accounting methods for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. The Company will be required to
implement FAS 133 for the fiscal year ending March 31, 2002. Because the Company
does not currently hold any derivative instruments and does not engage in
hedging activities, the Company does not expect that the adoption of FAS 133
will have a material impact on its financial position or results of operations.
2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
All cash equivalents and short-term investments as of March 31, 1998, 1999,
and December 31, 1999 are classified as available-for-sale securities and
consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------- DECEMBER 31,
1998 1999 1999
-------- ------- ------------
<S> <C> <C> <C>
Cash equivalents:
Money market fund.......................... $ 7,277 $ -- $13,849,255
Commercial paper........................... 198,763 -- --
-------- ------- -----------
Total................................... $206,040 $ -- $13,849,255
======== ======= ===========
Short-term investments:
Commercial paper........................... $297,539 $99,845 $ 99,845
======== ======= ===========
</TABLE>
The Company has an operating lease that requires a security deposit to be
maintained at a financial institution for the term of the lease. The security
deposit in the amount of $99,845 is classified as a restricted long-term
investment and is held in commercial paper. The interest earned on the
investment can be used in operations.
Unrealized holding gains and losses on available-for-sale securities at
March 31, 1998, 1999, and December 31, 1999 and gross realized gains and losses
on sales of available-for-sale securities during the period from June 6, 1996
(inception) through March 31, 1997, the years ended March 31, 1998 and 1999, and
for the nine-month periods ended December 31, 1998 and 1999 were not
significant.
F-15
<PAGE> 98
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------- DECEMBER 31,
1998 1999 1999
-------- ---------- ------------
<S> <C> <C> <C>
Furniture and equipment...................... $105,019 $ 191,681 $ 897,824
Computers and software....................... 255,486 1,097,657 3,269,287
Leasehold improvements....................... -- -- 472,361
-------- ---------- ----------
360,505 1,289,338 4,639,472
Less accumulated depreciation and
amortization............................... (67,922) (276,869) (990,099)
-------- ---------- ----------
Total net fixed assets..................... $292,583 $1,012,469 $3,649,373
======== ========== ==========
</TABLE>
4. NOTES RECEIVABLE
In consideration for the issuance of the Company's common stock, various
key employees executed promissory notes in the principal amount of $7,015,750.
The notes bear interest at the rates between 6.02% to 6.20% per annum and are
due and payable four years from the date of the issuance. The notes are full
recourse, and in addition, each of the employees has pledged the common stock,
1,638,000 shares of common stock in aggregate, as collateral to secure the
obligations under the notes.
5. OPERATING LEASE COMMITMENTS
The Company leases office space under operating lease agreements that
expire at various dates through 2004. In October 1999, the Company entered into
a lease agreement for new headquarter facilities in San Jose, California. The
lease terminates in January 2010. Amounts due under the terms of this lease are
included in the lease commitment below and total $21.6 million. The Company
vacated the premises at 2890 Zanker Road in January 2000 and entered into a
sublet agreement. Rental receipts under the sublet agreement are materially
consistent with future payments.
Aggregate future minimum annual payments under these lease agreements,
which have non-cancelable lease terms, as of December 31, 1999, are as follows:
<TABLE>
<S> <C>
2000............................................... $ 1,866,682
2001............................................... 2,294,726
2002............................................... 2,414,294
2003............................................... 2,188,026
2004............................................... 2,189,635
Thereafter......................................... 12,861,051
-----------
Total............................................ $23,814,414
===========
</TABLE>
Rent expense was $14,752, $147,710, and $489,649 for the period from June
6, 1996 (inception) through March 31, 1997, and for the years ended March 31,
1998 and 1999 and $321,708 and $726,765 for the nine months ended December 31,
1998 and 1999, respectively.
F-16
<PAGE> 99
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
6. LITIGATION
The Company is a party to various litigation and claims in the ordinary
course of business. Although the results of litigation and claims cannot be
predicted with certainty, the Company believes that the final outcome of such
matters will not have a material adverse effect on the Company's financial
position, results of operations, or cash flows.
7. LINE OF CREDIT
The Company's credit agreement with a bank expired in June 1999.
The Company also has a $100,000 available letter of credit in connection
with the Company's lease agreement. No amounts were committed under this letter
of credit at December 31, 1999.
8. CONVERTIBLE PROMISSORY NOTES
In May 1999, the Company issued convertible promissory notes in the
principal amount of $1,000,000 that earned interest at a rate of prime plus 1%.
During June 1999, the convertible promissory notes and related accrued but
unpaid interest of $7,317 were converted into 228,206 shares of Series E
convertible preferred stock.
9. ACQUISITIONS
Catalogics Acquisition
In July 1996, the Company acquired the assets of Catalogics Software
Corporation (Catalogics), a development stage software company in the business
of internet software development. In exchange for the assets of Catalogics, the
Company paid $150,000 and issued 2,750,000 shares of the Company's common stock.
Of the 2,750,000 shares of the Company's common stock, issued to Dr. Mittal,
1,250,000 shares were subject to a repurchase right by the Company. The
repurchase right lapses over 48 months beginning July 1, 1996. (see Note 10).
Through this acquisition, the Company received an assembled workforce consisting
solely of the founder of Catalogics, and the rights to software in the
development stage. The acquisition was accounted for as a purchase, and the
total purchase price was allocated as described below. The assembled workforce
intangible is being amortized over three years, and the related goodwill is
being amortized over five years, their estimated useful lives.
<TABLE>
<S> <C>
Workforce intangible........................................ $ 30,000
In-process research and development......................... 16,500
Goodwill.................................................... 118,500
--------
$165,000
========
</TABLE>
As of March 31, 1998 and 1999, and December 31, 1999, accumulated
amortization of intangible assets was approximately $58,975, $92,675, and
$112,950 respectively.
F-17
<PAGE> 100
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Alma Acquisition
In October 1996, the Company acquired the assets of Alma Enterprises, a
development stage software company in the business of software consulting, in
exchange for 200,000 shares of Series A convertible preferred stock and 100,000
shares of the Company's common stock. The transaction was accounted for as a
purchase. The cost of the transaction was allocated to the various fixed assets
acquired in the transaction. The amount of consideration given, $19,223,
approximated the fair value of the fixed assets obtained.
Selectica India Acquisition
In July 1999, the Company converted $150,000 of advances to Selectica
Configurators India Pvt. Ltd. (Selectica India) into 637,500 shares of common
stock of Selectica India, representing 99.9% of total outstanding shares.
Through this acquisition, the Company received various fixed assets and an
assembled workforce and assumed various liabilities. The acquisition was
accounted for as a purchase, and the total purchase price was allocated to net
tangible assets.
10. STOCKHOLDERS' EQUITY
Common Stock
In July 1996, the Company issued 2,500,000 shares of common stock to the
founders of the Company in exchange for $12,500, the then estimated fair value
of common stock. Such shares vest ratably over 48 months. As of March 31, 1998
and 1999, and December 31, 1999, 1,406,250, 781,250, and 312,500 shares are
subject to repurchase at $0.01 per share, respectively.
Common Stock Reserved for Future Issuance
At December 31, 1999, common stock reserved for future issuance was as
follows:
<TABLE>
<S> <C>
Stock option plans:
Outstanding............................................... 2,180,815
Reserved for future grants................................ 2,571,077
Employee Stock Purchase Plan................................ 1,000,000
Warrants to purchase Series D convertible preferred stock... 20,408
Warrants to purchase Series E convertible preferred stock... 253,879
Warrants to purchase common stock........................... 800,000
Conversion of preferred stock............................... 19,710,957
----------
Total common stock reserved for future issuance........... 26,537,136
==========
</TABLE>
F-18
<PAGE> 101
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Convertible Preferred Stock
Convertible preferred stock at March 31, 1997, 1998 and 1999 and December
31, 1999 is as follows:
<TABLE>
<CAPTION>
SHARES
AUTHORIZED MARCH 31,
LIQUIDATION DECEMBER 31, ---------------------------------- DECEMBER 31,
PREFERENCE 1999 1997 1998 1999 1999
----------- ------------ --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Series A................ $0.091667 1,800,000 1,700,000 1,700,000 1,700,000 1,700,000
Series B................ $0.266666 4,000,000 3,750,000 3,750,000 3,750,000 3,750,000
Series C................ $0.922190 3,300,000 -- 3,253,126 3,253,126 3,253,126
Series D................ $ 1.5876 5,000,000 -- -- 4,863,935 4,863,935
Series E................ $ 4.382 6,500,000 -- -- -- 6,143,896
Undesignated............ 4,900,000 -- -- -- --
---------- --------- --------- ---------- ----------
25,500,000 5,450,000 8,703,126 13,567,061 19,710,957
========== ========= ========= ========== ==========
</TABLE>
Series E convertible preferred stockholders are entitled to receive, prior
and in preference to any distribution to other preferred or common stockholders,
$4.382 per share plus any declared but unpaid dividends. Series A, B, C, and D
convertible preferred stock have a liquidation preference of $0.091667,
$0.266666, $0.922190, and $1.5876 per share, respectively, plus declared but
unpaid dividends prior and in preference to distribution to common stockholders.
Any remaining assets of the Company are to be distributed between Series E
convertible preferred stockholders and common stockholders on a pro rata, if
converted, basis until such point as holders of Series E convertible preferred
stock have received total distributions of $8.764. Any amounts in excess of this
amount will be distributed to common stockholders. Each share of Series E
convertible preferred stock shall automatically convert into shares of common
stock upon a liquidation in which holders of Series E convertible preferred
stock would receive aggregate proceeds of more than $10.955 per share, if
converted. Series A, B, C, and D convertible preferred stockholders are entitled
to noncumulative dividends at the rate of $0.0055, $0.0213, $0.0736, $.1176, and
$0.3506 per share, per annum, respectively, or if greater on an as converted
basis, an amount equal to that paid on common stock when and if declared by the
Board of Directors and in preference to common stock dividends. No dividends
have been declared or paid by the Company as of any year presented.
The holders of each share of Series A, B, C, D, and E convertible preferred
stock are entitled to one vote for each share of common stock into which such
convertible preferred share may be converted. The shares are convertible at any
time at the option of the holder and will automatically convert on a one-for-one
basis in the event of an underwritten public offering of the Company's common
stock in which the aggregate proceeds are at least $25,000,000, provided that
such automatic conversion shall only occur with respect to Series E convertible
preferred stock if the per share offering price of such offering is not less
than $6.573, as adjusted. Such conversion can occur for Series A, B, and C
convertible preferred stock upon the consent of the holders of a majority of the
then outstanding shares of convertible preferred stock with Series A, B, and C
voting as a single class. Such conversion can occur for Series D convertible
preferred stock upon the consent of a majority of the then outstanding shares of
Series D convertible preferred stock, and for Series E convertible preferred
stock upon the consent of two-thirds of the then outstanding shares of Series E
convertible preferred stock, The conversion rate of the Series A, B, C, D, and E
convertible preferred
F-19
<PAGE> 102
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
stock is subject to adjustment in the event of, among other things, certain
dilutive issuances of stock, business combinations, stock splits, and stock
dividends.
During October 1999, the Company issued a total of 1,505,702 shares of
Series E convertible preferred stock to various investors, including 261,981
shares to related parties and a member of the board of directors, of which 5,250
shares were a result of exercise of warrants to purchase stock, 79,871 shares to
officers of the Company, and 22,820 shares to unrelated parties. Also included
in the issuance were 1,141,030 shares to an investor whereby the investor and
the Company will work to port the current suite of ACE products to additional
platforms. Gross proceeds from these issuances were $6,597,986. These shares
excluding those related to warrant exercises, were issued at $4.382 per share
while the deemed fair value of our preferred stock at that date approximated
$7.70, 110% of the deemed fair value of common stock on the date of the closing
of Series E convertible preferred stock. The Company recorded approximately $5.0
million of charges related to cheap stock valuation in the third quarter of
fiscal 2000. Of this amount approximately $925,000 was accounted for as a
dividend to stockholders, approximately $190,000 as sales and marketing
compensation expense, and approximately $76,000 as general and administrative
compensation expense in the third quarter. The remaining amount of $3.8 million
will be amortized over a two year period in connection with a development
agreement with one of the investors. Amortization of the development agreement
of $472,000 was recorded in the nine months ended December 31, 1999 and is
consistent with the level of efforts in the area of research and development.
Warrants
In association with a credit agreement entered into with a financial
institution (see Note 7), the Company issued a warrant that entitles the holder
to purchase 20,408 shares of Series D convertible preferred stock at an exercise
price of $1.47 per share. The warrant expires April 17, 2005. The fair value of
the warrant, $25,714, was amortized over the life of the credit agreement. The
Company determined the fair value of the warrants using the Black-Scholes
valuation model assuming a fair value of the Company's Series D convertible
preferred stock of $1.47, a risk-free interest rate of 6.0%, a volatility factor
of 147%, and a life of five years.
In connection with the convertible promissory notes issued in May 1999, the
Company issued warrants to purchase 15,000 shares of Series E convertible
preferred stock at $4.382 per share. This transaction resulted in the valuation
of warrants of $49,781 of which $35,107 was amortized as interest expense prior
to the conversion of the convertible debt into Series E convertible preferred
stock on June 16, 1999. The Company determined the fair value of the warrants
using the Black-Scholes valuation model assuming a fair value of the Company's
Series E convertible preferred stock of $4.382, risk free interest rate of 5.9%,
volatility factor of 96.1%, and a life of five years. The warrants expire in May
2004 or upon the completion of the Company's initial public offering, whichever
occurs first. In October 1999, warrant to purchase 5,250 shares of Series E
convertible preferred stock were exercised.
In connection with the issuance of shares of the Company's Series E
convertible preferred stock, the Company issued warrants to purchase 187,129
shares of the Company's Series E convertible preferred stock at $4.382 per
share. The warrants expire on May 14, 2004 or upon the completion of the
Company's initial public offering, whichever occurs first. The Company
determined the fair value of the warrants using the Black-Scholes valuation
model assuming a fair value of the Company's
F-20
<PAGE> 103
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Series E convertible preferred stock of $4.382, risk free interest rate of
5.78%, volatility factor of 96.1%, and a life of five years.
In September 1999, the Company entered into a development agreement with an
investor whereby the investor and the Company will work to port the current
suite of ACE products to additional platforms. In connection with the
development agreement, the Company issued warrants to purchase 57,000 shares of
Series E convertible preferred stock at $4.382 per share. The warrants were
issued in December 1999 are immediately exercisable, and expire on the earlier
of September 23, 2001 or the closing of the Company's initial public offering.
The holder of the warrant may elect to net exercise this warrant. The Company
determined the fair value of the warrants using the Black-Scholes valuation
model assuming a fair value of the Company's Series E convertible preferred
stock of $10.00, risk free interest rate of 5.5%, volatility factor of 80% and a
life of 22 months. The fair value of $381,000 will be amortized over the
remaining life of the development agreement.
In November 1999, the Company entered into a license agreement and one year
maintenance contract in the amount of $3.0 million with a customer and in
connection with the agreement committed to the issuance of a warrant to purchase
800,000 shares of common stock. In January 2000 the warrant was issued with an
exercise price of the lesser of $13.00 or the initial public offering price of
the Company. The holder of the warrant may elect to net exercise this warrant.
The warrants are immediately exercisable and expire in January 2002. The value
of the warrants was estimated to be $3.7 million and was based upon a
Black-Scholes valuation model with the following assumptions: risk free interest
rate of 5.5%, dividend yield of 0%, volatility of 80%, expected life of 2 years,
exercise price and fair value of $10.00. The warrant value less the warrant
purchase price of $800,000, will be recorded as an offset to related license and
services revenues when the rights of refund under the agreement lapse.
Stock Option Plan
The Company's 1996 Stock Plan (the Plan) was adopted by the Board of
Directors on August 26, 1996. The Plan provides for granting of incentive stock
options to employees and nonstatutory stock options to outside directors and
consultants. Incentive stock options are granted at an exercise price of not
less than the fair value per share of the common stock on the date of grant as
determined by the Board of Directors. Nonstatutory stock options are granted at
an exercise price of not less than 85% of the fair value per share on the date
of grant as determined by the Board of Directors. Vesting and exercise
provisions are determined by the Board of Directors at the time of grant.
Options generally vest with respect to 25% of the shares one year after the
options' vesting commencement date and the remainder ratably over the following
three years. Options granted under the Plan have a maximum term of ten years.
Options can be exercised at any time and stock issued under the Plan may be, as
determined by the Board of Directors, subject to repurchase by the Company. This
right to repurchase generally lapses over four years from the original date of
issuance or grant.
F-21
<PAGE> 104
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Activity under the stock option plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
------------------------------------------------------------
SHARES NUMBER OF WEIGHTED-AVERAGE
AVAILABLE SHARES EXERCISE PRICE EXERCISE PRICE
----------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
Beginning authorized.............. 1,650,000 -- $-- $ --
Options granted................... (1,217,500) 1,217,500 $0.010 - $0.030 $0.02
Options exercised............... -- (562,500) $0.010 - $0.030 $0.01
Stock grant for services........ (35,061) -- $0.011 $0.01
----------- ----------
Balance at March 31, 1997......... 397,439 655,000 $0.010 - $0.030 $0.02
Increase in shares reserved..... 1,339,500 -- $-- $ --
Options granted................. (970,100) 970,100 $0.030 - $0.100 $0.07
Options exercised............... -- (338,000) $0.010 - $0.100 $0.02
Options canceled................ 7,500 (7,500) $0.100 $0.10
Stock grant for services........ (12,000) -- $0.077 $0.08
----------- ----------
Balance at March 31, 1998......... 762,339 1,279,600 $0.030 - $0.100 $0.06
Increase in shares reserved..... 750,000 -- $-- $ --
Options granted................. (1,315,500) 1,315,500 $0.100 - $1.250 $0.37
Options exercised............... -- (702,262) $0.030 - $0.500 $0.05
Options canceled................ 469,188 (469,188) $0.030 - $0.500 $0.10
Shares repurchased.............. 31,250 -- $0.010 $0.01
Stock grant for services........ (46,304) -- $0.020 - $0.300 $0.26
----------- ----------
Balance at March 31, 1999......... 650,973 1,423,650 $0.030 - $2.500 $0.35
Increase in shares reserved..... 2,659,090 -- $-- $ --
Options granted................. (3,068,750) 3,068,750 $1.500 - $10.00 $4.38
Options exercised............... -- (2,164,732) $0.030 - $10.00 $3.39
Options canceled................ 146,853 (146,853) $0.100 - $8.500 $1.18
Shares repurchased.............. 15,981 -- $0.100 - $0.500 $ .22
Stock grant for services........ (33,070) -- $1.500 - $4.380 $2.37
----------- ----------
Balance at December 31, 1999...... 371,077 2,180,815 $0.030 - $10.00 $2.97
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
-------------------------------------- ------------------------
NUMBER OF WEIGHTED- WEIGHTED-
OUTSTANDING AVERAGE WEIGHTED- OPTIONS AVERAGE
SHARES AS OF REMAINING AVERAGE VESTED AT AGGREGATE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, PURCHASE
EXERCISE PRICES 1999 LIFE PRICE 1999 PRICE
--------------- ------------ ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$0.100 - $0.100.................. 168,200 8.05 $0.10 85,361 $ 0.10
$0.200 - $0.500.................. 281,950 8.68 $0.28 55,091 $ 0.31
$1.000 - $1.250.................. 169,918 9.11 $1.09 10,561 $ 1.05
$1.500 - $2.500.................. 937,647 9.54 $1.97 50,327 $ 1.81
$4.380 - $4.380.................. 317,850 9.84 $4.38 15,566 $ 4.38
$8.500 - $10.00.................. 305,250 9.95 $9.71 301 $10.00
--------- -------
$0.100 - $10.00.................. 2,180,815 9.38 $2.97 217,207 $ 0.92
========= =======
</TABLE>
F-22
<PAGE> 105
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
All shares granted under the Plan are exercisable, however, shares
exercised but not vested are subject to repurchase. At December 31, 1999,
2,016,299 shares were subject to repurchase under the Plan.
1999 Employee Stock Purchase Plan
On November 18, 1999, the Company's Board of Directors approved, subject to
shareholder approval, the adoption of the 1999 Employee Stock Purchase Plan (the
Purchase Plan). A total of 1,000,000 shares of common stock has been reserved
for issuance under the Purchase Plan. On each May 1, starting in 2001, the
number of shares will be automatically increased by the lesser of 2% of then
outstanding shares of common stock or 1,000,000 shares. Each offering period
will consist of four consecutive purchase periods of six months duration. The
initial offering period is expected to begin on the effective date of this
offering and ends on April 30, 2002.
The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed 15% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
the Company's common stock at the beginning of each offering period or at the
end of each purchase period. Employees who work more than five months per year
and more than twenty hours per week are eligible to participate in the Purchase
Plan. Stockholders who own more than 5% of outstanding common stock are excluded
from participating in the Purchase Plan. Each eligible employee is limited to
purchase no more than 750 shares per purchase date (1,500 shares per year) and
no more than $25,000 of stock per calendar year. If not terminated earlier, the
Purchase Plan has a term of twenty years.
1999 Equity Incentive Plan
On November 18, 1999, the Company's Board of Directors approved, subject to
shareholder approval, the 1999 Equity Incentive Plan (the Equity Incentive
Plan). A total of 2,200,000 shares of common stock has been reserved under the
Equity Incentive Plan. On each January 1, starting in 2001, the number of shares
will be automatically increased by the lesser of 5% of then outstanding shares
or 1,800,000. The Equity Incentive Plan includes Incentive Stock Options,
Nonstatutory Stock Options, Stock Appreciation Rights, Shares of Restricted
Stock, and Stock Units. All employees, nonemployee directors, and consultants
are eligible to participate in the Equity Incentive Plan. Each eligible
participant is limited to being granted 330,000 shares per year, except in the
first year of employment where the limit is 660,000 shares. The Equity Incentive
Plan has a term of 10 years.
Stock Issued for Services
Under the terms of the Company's 1996 Stock Plan from time to time the
Company issues shares of common stock in exchange for services. All services
were complete at the date of grant and the value of the services was based upon
the then fair value of the common stock. During fiscal 1997, the Company issued
35,061 shares of common stock at a weighted average fair value of $0.011 per
share in exchange for legal and accounting services. During fiscal 1998 the
Company issued 12,000 shares of common stock at a weighted average fair value of
$0.077 in exchange for accounting services. During fiscal 1999, the Company
issued 46,304 shares of common stock at a weighted average fair value of $0.919
in exchange for various services including legal, marketing, business
F-23
<PAGE> 106
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
development, and recruiting services. During the nine-months ended December 31,
1999 the Company issued 33,070 shares of common stock at a weighted average fair
value of $3.218 in exchange for various services including legal, accounting,
recruiting, and consulting.
Deferred Compensation
During the years ended March 31, 1998 and 1999, and the nine-month period
ended December 31, 1999, the Company recorded aggregate deferred compensation of
$6,644,160 representing the difference between the exercise price of stock
options granted and the then deemed fair value of the Company's common stock.
The amortization of deferred compensation is charged to operations over the
vesting period of the options using the straight-line method, which is typically
four years. For the period from June 6, 1996 (inception) through March 31, 1997,
for the years ended March 31, 1998 and 1999, and for the nine-month periods
ended December 31, 1998 and 1999, the Company amortized $6,256, $3,541, $47,500,
$22,591, and $589,590, respectively.
Accelerated Options
In March 1999, in association with an employee termination agreement, the
Company accelerated 137,000 shares of unvested common stock and recorded
$170,000 of related compensation expense.
Accounting for Stock-Based Compensation
Pro forma information regarding net loss is required by FAS 123 and has
been determined as if the Company has accounted for its employee stock options
granted under the fair value method of FAS 123. The fair value of options
granted was estimated at the date of grant using the minimum-value method and
the following weighted-average assumptions: a risk-free interest rate for the
period from June 6, 1996 (inception) through March 31, 1997, for the years ended
March 31, 1998 and 1999, and for the nine-month periods ended December 31, 1998
and 1999 of 6.67%, 5.94%, 5.05%, 4.87%, and 5.96%, respectively; no dividend
yield or volatility factor; and an expected life of seven years. The
weighted-average fair value of options granted where the exercise price is equal
to the deemed fair value of common stock on the date of grant in the period from
June 6, 1996 (inception) through March 31, 1997, for the years ended March 31,
1998 and 1999, and for the nine-month periods ended December 31, 1998 and 1999
was $0.01, $0.02, $0.11, $0.08 and $2.63, respectively. The weighted-average
fair value of options granted where the exercise price is less than the deemed
fair value of common stock on the date of grant for the year ended March 31,
1999 and for the nine months ended December 31, 1998 and 1999 was $0.56, $0.57
and $3.75, respectively. There were no options where the exercise price was less
than the deemed fair value of common stock on the date of grant in the period
from June 6, 1996 (inception) through March 31, 1997 and for the year ended
March 31, 1998. The Company has accounted for the differential between the
exercise price and deemed fair value as deferred compensation.
The option valuation model was developed for use in estimating the fair
value of nonpublicly traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected life and risk-free
interest rate. Because the Company's options have characteristics significantly
different from those of
F-24
<PAGE> 107
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
traded options and because the changes in the subjective input assumptions can
materially affect the fair value estimate, the existing model do not necessarily
provide a reliable single measure of the fair value of its options.
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant date for awards under those
plans consistent with the method of FAS 123, the Company's net loss and net loss
per share would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6,
1996
(INCEPTION) NINE MONTHS ENDED
THROUGH YEARS ENDED MARCH 31, DECEMBER 31,
MARCH 31, ------------------------- --------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss applicable to common
stockholders:
As reported..................... $(250,883) $(3,101,449) $(7,536,901) $(4,720,958) $(13,341,917)
Pro forma..................... $(252,666) $(3,111,548) $(7,551,879) $(4,729,568) $(13,643,274)
Basic and diluted, pro forma net
loss per share applicable to
common stockholders........... $ (0.15) $ (0.91) $ (1.58) $ (1.06) $ (2.59)
</TABLE>
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31,
1999
------------
<S> <C>
Current provision:
State.................................................... $20,000
Foreign.................................................. 30,000
-------
$50,000
=======
</TABLE>
F-25
<PAGE> 108
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
The difference between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate (35%) to income
before taxes is explained below:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6,
1996 NINE MONTHS
(INCEPTION) ENDED
THROUGH YEARS ENDED MARCH 31, DECEMBER 31,
MARCH 31, ------------------------- -------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Tax (benefit) at federal
statutory rate............ $(88,000) $(1,085,000) $(2,637,000) $(1,652,000) $(4,328,000)
Loss for which no tax
benefit is currently
recognizable.............. 88,000 1,085,000 2,637,000 1,652,000 4,328,000
State taxes................. -- -- -- -- 20,000
Foreign taxes............... -- -- -- -- 30,000
-------- ----------- ----------- ----------- -----------
Total provision........ $ -- $ -- $ -- $ -- $ 50,000
======== =========== =========== =========== ===========
</TABLE>
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------------- DECEMBER 31,
1998 1999 1999
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........... $ 1,188,000 $ 3,967,000 $ 7,717,000
Tax credit carryforwards................. 103,000 296,000 486,000
Deferred revenue......................... 153,000 314,000 664,000
Accruals and reserves not currently
deductible............................ -- 136,000 500,000
Other.................................... -- -- 264,000
----------- ----------- -----------
Total deferred tax assets.................. 1,444,000 4,713,000 9,631,000
Valuation allowance........................ (1,444,000) (4,713,000) (9,631,000)
----------- ----------- -----------
Net deferred tax assets............... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The Company has recorded a tax provision of $50,000 for the nine months
ended December 31, 1999. The provision for income taxes consists primarily of
state income taxes and foreign taxes. There is no provision for income taxes for
the period from June 6, 1996 (inception) through March 31, 1997, for the years
ended March 31, 1998 and 1999, and for the nine-month period ended December 31,
1998.
Financial Accounting Standards Board Statement No. 109 provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Based on the weight of available evidence, which includes the
Company's historical operating performance and the reported cumulative net
losses in all prior years, the Company has provided a full valuation allowance
against its net deferred tax assets.
The valuation allowance increased by $3,269,000 and $4,918,000 during the
year ended March 31, 1999 and the nine-month period ended December 31, 1999,
respectively.
F-26
<PAGE> 109
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $19,400,000 and $14,600,000, respectively.
As of December 31, 1999, the Company also had federal and state research and
development tax credit carryforwards of approximately $300,000 and $200,000,
respectively.
The net operating loss and tax credit carryforwards will expire at various
dates beginning in 2005 through 2020, if not utilized.
Utilization of the net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The annual limitation may result in the expiration of the net operating loss and
credit carryforwards before utilization.
12. RELATED PARTY
During the years ended March 31, 1998 and 1999 and the nine-month period
ended December 31, 1999, certain services were performed by Selectica
Configurators India Pvt. Ltd. (Selectica India), a related party. These efforts
included quality and assurance testing and consulting services. Prior to June
30, 1999, Selectica India was owned by the parents of the chief executive
officer and founder of the Company. Total expenses related to these efforts,
which are included in the Company's statements of operations, by Selectica
India, amounted to $51,200, $302,511, and $135,000 for the years ended March 31,
1998 and 1999 and for the nine-month period ended December 31, 1999,
respectively. The Company also advanced $155,000 to Selectica India during 1999
for future services efforts. No expenses were incurred related to Selectica
India during fiscal 1997. Amounts included in accounts payable were immaterial
for all periods presented. During July 1999, the Company acquired a majority
ownership of Selectica, India. See Note 9 for further details.
In December 1999, the Company acquired approximately 2% of the equity in
LoanMarket Resources, LLC in exchange for a license and consulting service
agreement. As there is no readily determinable fair value for the equity
position in LoanMarket Resources, LLC because this is a privately held company
the Company has not ascribed any value to the investment. Revenue recognized on
the agreement was approximately $434,000 for the nine months ended December 31,
1999 and represented the percentage-of-completion to date. Amounts recognized
under the contract were less than total cash received to date. Remaining cash
receipts of approximately $366,000 are included in deferred revenues as of
December 31, 1999.
13. BENEFIT PLAN
Effective February 1998, the Company adopted a tax-deferred savings plan,
the Selectica 401(k) Plan (the 401(k) Plan), for the benefit of qualified
employees. The 401(k) Plan is designed to provide employees with an accumulation
of funds at retirement. Qualified employees may elect to make contributions to
the 401(k) Plan on a monthly basis. The 401(k) Plan does not require the Company
to make any contributions. No contributions were made by the Company for the
years ended March 31, 1998 and 1999 and the nine-month periods ended December
31, 1998 and 1999. Administrative expenses relating to the 401(k) Plan are
insignificant.
F-27
<PAGE> 110
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
14. SUBSEQUENT EVENTS
Reincorporation
In October 1999, the Board of Directors approved the Company's
reincorporation in the state of Delaware, and the designation of common stock
and preferred stock with $0.0001 par value per share. In addition, the Company's
Certificate of Incorporation will be amended to authorize 75,000,000 shares of
common stock, and 25,000,000 shares of undesignated preferred stock upon
reincorporation. The reincorporation was approved by the state of Delaware on
January 19, 2000.
The Board of Directors has the authority, without action by the
stockholders, to designate and issue the preferred stock in one or more series
and to fix the rights, preferences, privileges and related restrictions,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of the series. The
accompanying consolidated financial statements have been retroactively restated
to give effect to the reincorporation.
Initial Public Offering
In October 1999, the Board of Directors approved the filing of a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell common stock to the public. Upon completion of the initial
public offering the Company's Certificate of Incorporation will be amended to
authorize 150,000,000 shares of common stock and 10,000,000 shares of preferred
stock.
In connection with the initial public offering the Company will issue
1,200,000 shares of common stock at a price of 93% of the initial public
offering price to Dell USA, L.P., a customer. The 7% discount on this issuance
will be recognized as an offset to revenues as license revenues on the related
license agreement are recognized. In addition, the Company will also issue to
Samsung SDS Co., Ltd. ("Samsung") 1,200,000 shares of its common stock at a
price of 96% of the initial public offering price. Samsung is also a customer
and as such the 4% discount on this issuance will be offset to license revenues
as the related license revenues under the license agreement are recognized.
1996 Stock Plan
In January 2000, the Board of Directors approved the increase of 1,000,000
shares of common stock under the 1996 Stock Plan. The increase in shares is
subject to stockholder approval.
F-28
<PAGE> 111
Inside Back Cover
[DESCRIPTION OF ARTWORK
At the top of the page is the name "Selectica" with the company's logo to
the left of it. The following caption is beneath the name of the company and
its logo: "The Internet Selling System Company."
In the upper middle portion of the page is the following text: "Selectica
Delivers Internet Selling Systems and Services to these Global Companies."
Beneath the text is a broad, shaded arrow pointing downward.
Beneath the arrow are our customers' logos.
Beneath the logos, at the bottom of the page is the following text:
"Selectica is enabling companies in a wide range of industries to adopt
electronic business strategies for selling their complex products and
services."]
<PAGE> 112
[Selectica Logo]
<PAGE> 113
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table presents the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 13,358
NASD fee.................................................... 8,000
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 235,000
Legal fees and expenses..................................... 600,000
Accounting fees and expenses................................ 400,000
Blue sky fees and expenses.................................. 15,000
Custodian and transfer agent fees........................... 10,000
Miscellaneous fees and expenses............................. 123,642
----------
Total............................................. $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit indemnification
under limited circumstances for liabilities, including reimbursement for
expenses incurred, arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VI, Section 6.1 of our bylaws provides for mandatory
indemnification of our directors, officers and employees to the maximum extent
permitted by the Delaware General Corporation Law. Our Certificate of
Incorporation provides that, under Delaware law, our officers and directors
shall not be liable for monetary damages for breach of the officers' or
directors' fiduciary duty as officers or directors to our stockholders and us.
This provision in the Certificate of Incorporation does not eliminate the
officers' or directors' fiduciary duty, and in appropriate circumstances,
equitable remedies like injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each officer or director will
continue to be subject to liability for breach of the officer's or director's
duty of loyalty to us for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the officer or director and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect an officer's or
director's responsibilities under any other law, such as the federal securities
laws or state or federal environmental laws. We have entered into
indemnification agreements with our officers and directors, a form of which is
attached as Exhibit 10.1 and incorporated by reference. The indemnification
agreements provide our officers and directors with further indemnification to
the maximum extent permitted by the Delaware General Corporation Law. Reference
is made to Section 7 of the underwriting agreement contained in Exhibit 1.1 to
this prospectus, indemnifying officers and directors of ours against limited
liabilities.
II-1
<PAGE> 114
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 1996, we have issued and sold the following securities:
1. We granted direct issuances or stock options to purchase 6,698,285
shares of our common stock at exercise prices ranging from $0.01 to $10.00
per share to employees, consultants, directors and other service providers
under our 1996 Stock Plan.
2. We issued and sold an aggregate of 3,893,929 shares of our common
stock to employees, consultants, and other service providers for aggregate
consideration of approximately $7,529,809 under direct issuances or
exercises of options granted under our 1996 Stock Plan.
3. In July 1996, we issued and sold 1,500,000 shares of our Series A
Preferred Stock for an aggregate purchase price of approximately $137,501
and 1,250,000 shares of our common stock for an aggregate purchase price of
$12,500 to Rajen Jaswa under a stock purchase agreement.
4. In July 1996, we issued an aggregate of 2,750,000 shares of our
common stock to Dr. Sanjay Mittal in exchange for 3,250,000 shares of
Catalogics. Of the 2,750,000 shares of our common stock Dr. Mittal received
1,250,000 shares were subject to a repurchase right by us. The repurchase
right lapses over 48 months beginning July 1, 1996. The fair value of the
1,250,000 shares of common stock subject to repurchase was $12,500.
5. In October 1996, we issued 200,000 shares of our Series A
Preferred Stock and 89,000 shares of our common stock to Vasudev Bhandarkar
and an additional 11,000 shares of our common stock to a group of employees
of Alma Enterprises in exchange for the fixed assets of Alma Enterprises.
6. In October 1996, we issued and sold 473,000 shares of common stock
for an aggregate purchase price of $4,730 to Vasudev Bhandarkar under a
stock purchase agreement.
7. In January 1997, we issued and sold 3,750,000 shares of our Series
B Preferred Stock for an aggregate purchase price of approximately
$1,001,330 to a group of investors under a stock purchase agreement.
8. From July 24, 1997 through October 1, 1997, we issued and sold
3,253,126 shares of our Series C Preferred Stock for an aggregate purchase
price of approximately $2,999,382 to a group of investors under a stock
purchase agreement.
9. On April 17, 1998 we issued a warrant to purchase 32,609 shares of
our Series C Preferred Stock with an exercise price of $0.92 per share to
Imperial Bank. The warrant was subsequently amended on July 1, 1998 to be
exercisable for 20,408 shares of our Series D Preferred Stock with an
exercise price of $1.47 per share.
10. From June 17, 1998 through July 27, 1998 we issued and sold
4,863,935 shares of our Series D Preferred Stock for an aggregate purchase
price of approximately $7,149,984 to a group of investors under a stock
purchase agreement.
11. On February 11, 1999, we issued a warrant to purchase 187,129
shares of our Series E Preferred Stock with an exercise price of up to
$4.38 per share to Deutsche Bank Securities. Upon consummation of the
initial public offering, we will terminate the warrant unless it is
previously exercised in accordance with its terms.
12. On May 14, 1999, we issued and sold warrants to purchase 15,000
shares of our Series E Preferred Stock with an exercise price of $4.38 per
share to a group of investors under
II-2
<PAGE> 115
a note and warrant purchase agreement for an aggregate purchase price of
$375.00. On November 15, 1999, two holders exercised their respective
warrants to purchase an aggregate of 5,250 shares of Series E Preferred
Stock. Upon consummation of the initial public offering, we will terminate
the remaining warrants unless they are previously exercised in accordance
with their terms.
13. From June 16, 1999 through October 12, 1999 we issued and sold
6,138,646 shares of our Series E Preferred Stock for an aggregate purchase
price of approximately $26,879,546 to a group of investors under a stock
purchase agreement.
14. On December 10, 1999 we issued warrants to purchase 57,000 shares
of our Series E Preferred Stock with an exercise price of $4.38 per share
to Intel Corporation. Upon consummation of the initial public offering, the
warrant will terminate unless it is previously exercised in accordance with
its terms.
15. On January 7, 2000 we issued and sold a warrant to purchase
800,000 shares of our common stock with an exercise price of the lesser of
$13.00 per share or the initial public offering price to Cisco Systems,
Inc. for an aggregate purchase price of approximately $800,000.
16. On January 19, 2000 Selectica, Inc., a California corporation
(Selectica California), was merged with and into its wholly-owned
subsidiary, Selectica, Inc., a Delaware corporation (Selectica Delaware),
for purposes of reincorporating into the State of Delaware. In connection
with the reincorporation, Selectica Delaware issued shares of its common
stock and preferred stock to the holders of common stock and preferred
stock of Selectica California, such that each holder of common stock or
preferred stock of Selectica California received a proportionate interest
in the common stock or preferred stock of Selectica Delaware. The issuance
of shares in the reincorporation was pursuant to an exemption from the
registration requirements of the Securities Act provided by Rule 145
promulgated thereunder.
17. On January 31, 2000 we entered into an agreement with Samsung SDS
Co. Ltd., to issue and sell 1,200,000 shares of our common stock to Samsung
at a per share price equal to 96% of the initial public offering price.
18. On February 14, 2000 we entered into an agreement with Dell USA,
L.P. to issue and sell 1,200,000 shares of our common stock to Dell USA,
L.P. at a price per share equal to 93% of the initial public offering
price.
Except as otherwise stated, the sale of the above securities was deemed to
be exempt from registration under the Securities Act in reliance upon Section
4(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act as transactions by an
issuer not involving any public offering or transactions under compensation
benefit plans and contracts relating to compensation as provided under Rule 701.
The recipients of securities in each transaction represented their intentions to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution and appropriate legends were affixed to the
share certificates issued in these transactions. All recipients had adequate
access, through their relationships with us, to information about us.
II-3
<PAGE> 116
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of the
Registrant.
3.2** Form of Second Amended and Restated Certificate of
Incorporation to be filed immediately following the closing
of the offering made under this Registration Statement.
3.3 Amended and Restated Bylaws of the Registrant.
4.1** Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* Form of Registrant's Common Stock certificate.
4.3** Amended and Restated Investor Rights Agreement dated June
16, 1999.
4.4** Warrant to Purchase Stock between the Registrant and
Imperial Bank, dated April 17, 1998; First Amendment to
Warrant between the Registrant and Imperial Bank, dated July
1, 1998.
4.5** Warrant to Purchase Stock between the Registrant and Cisco
Systems, Inc., dated January 14, 2000.
5.1** Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1** Form of Indemnification Agreement.
10.2** 1996 Stock Plan.
10.3** 1999 Employee Stock Purchase Plan.
10.4** 1999 Equity Incentive Plan.
10.5** Lease between Spieker Properties L.P. and the Registrant,
dated December 8, 1997.
10.6** Lease between John Arrillaga Survivors Trust and the Richard
T. Perry Separate Property Trust as Landlord and the
Registrant as Tenant, dated October 1, 1999.
10.7**+ Major Account License Agreement between the Registrant and
Fujitsu Network Communications, dated November 4, 1998.
10.8**+ Agreement for Web Site Design and Development Service
between the Registrant and BMW of North America, dated July
15, 1998.
10.9**+ Major Account License Agreement between the Registrant and
the Fireman's Fund Insurance Company, dated June 24, 1999.
10.10**+ Major Account License Agreement between the Registrant and
LoanMarket Resources, dated June 30, 1999.
10.11**+ Major Account License Agreement between the Registrant and
Aspect Telecommunications, dated May 17, 1999.
10.12**+ A Consulting Engagement Proposal from the Registrant to
3Com, dated July 29, 1999.
10.13**+ A Consulting Engagement Proposal from the Registrant to
3Com, dated August 10, 1999.
10.14** Employment Agreement between the Registrant and Rajen Jaswa,
dated as of July 1, 1997.
10.15** Employment Agreement between the Registrant and Dr. Sanjay
Mittal, dated as of July 1, 1997.
10.16** Offer letter from the Registrant to Stephen Bennion dated as
of September 16, 1999.
10.17** Offer letter from the Registrant to Daniel A. Carmel dated
as of July 23, 1999.
10.18**+ Major Account License Agreement between the Registrant and
Samsung SDS Co., Ltd., dated January 12, 2000; Amendment #1
to Major Account License Agreement between the Registrant
and Samsung SDS Co., Ltd., dated February 10, 2000.
10.19+ International Value Added Reseller Agreement between the
Registrant and Samsung SDS Co., Ltd., dated January 12,
2000; Amendment #1 to International Value Added Reseller
Agreement between the Registrant and Samsung SDS Co., Ltd.,
dated February 29, 2000.
</TABLE>
II-4
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.20** Stock Purchase Agreement between the Registrant and Samsung
SDS Co., Ltd., dated January 31, 2000; Amendment #1 to the
Stock Purchase Agreement between the Registrant and Samsung
SDS Co., Ltd., dated February 8, 2000.
10.21** Lease between John Arrillaga Survivors Trust and Richard T.
Perry Separate Property Trust as Landlord and the Registrant
as Tenant, dated October 1, 1999.
10.22** Stock Purchase Agreement between the Registrant and Dell
USA, L.P., dated February 14, 2000.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2** Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
ITEM 17. UNDERTAKINGS
We undertake to provide to the underwriters at the closing specified in the
underwriting agreement, certificates in the denominations and registered in the
names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant under the Delaware General Corporation Law, the Certificate of
Incorporation or our bylaws, the underwriting agreement, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission this
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against these liabilities, other than the payment by us of expenses incurred or
paid by a director, officer, or controlling person of ours in the successful
defense of any action, suit or proceeding, is asserted by a director, officer or
controlling person in connection with the securities being registered in this
offering, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether this indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of this issue.
We undertake that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by us under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered, and the offering of these securities at that time shall be deemed
to be the initial bona fide offering.
(b) The following financial schedule is filed with this registration
statement:
Schedule II -- Valuation and Qualifying Accounts
II-5
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Jose, State of California, on this 3rd day of March, 2000.
SELECTICA, INC.
By: /s/ RAJEN JASWA
--------------------------------------
Rajen Jaswa
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 4 to the Registration Statement has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Chief Executive Officer and
- --------------------------------------------- President (Principal Executive
Rajen Jaswa Officer) and Chairman of the Board
* Chief Technology Officer, Vice
- --------------------------------------------- President, Engineering and Vice
Sanjay Mittal Chairman of the Board
* Chief Financial Officer (Principal
- --------------------------------------------- Financial and Accounting Officer)
Stephen Bennion
* Director
- ---------------------------------------------
Betsy S. Atkins
* Director
- ---------------------------------------------
Robin Richards Donohoe
* Director
- ---------------------------------------------
Michael Lyons
* Director
- ---------------------------------------------
Thomas Neustaetter
* Director
- ---------------------------------------------
John Fisher
*By: /s/ RAJEN JASWA March 3, 2000
- ---------------------------------------------
Rajen Jaswa
Attorney-in-Fact
*By: /s/ STEPHEN BENNION March 3, 2000
- ---------------------------------------------
Stephen Bennion
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 119
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNT
SELECTICA, INC.
DECEMBER 31, 1999
<TABLE>
<CAPTION>
BALANCE ADDITIONS
AS OF CHARGED TO BALANCE AS
BEGINNING COSTS AND OF END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended March 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts........... $ -- $ -- $ -- $ --
Year ended March 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts........... $ -- $ 29,750 $ -- $ 29,750
Year ended March 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts........... $ 29,750 $ 74,250 $ -- $104,000
Nine months ended December 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts........... $104,000 $150,000 $ -- $254,000
</TABLE>
<PAGE> 120
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of the
Registrant.
3.2** Form of Second Amended and Restated Certificate of
Incorporation to be filed immediately following the closing
of the offering made under this Registration Statement.
3.3 Amended and Restated Bylaws of the Registrant.
4.1** Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* Form of Registrant's Common Stock certificate.
4.3** Amended and Restated Investor Rights Agreement dated June
16, 1999.
4.4** Warrant to Purchase Stock between the Registrant and
Imperial Bank, dated April 17, 1998; First Amendment to
Warrant between the Registrant and Imperial Bank, dated July
1, 1998.
4.5** Warrant to Purchase Stock between the Registrant and Cisco
Systems, Inc., dated January 14, 2000.
5.1** Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1** Form of Indemnification Agreement.
10.2** 1996 Stock Plan.
10.3** 1999 Employee Stock Purchase Plan.
10.4** 1999 Equity Incentive Plan.
10.5** Lease between Spieker Properties L.P. and the Registrant,
dated December 8, 1997.
10.6** Lease between John Arrillaga Survivors Trust and the Richard
T. Perry Separate Property Trust as Landlord and the
Registrant as Tenant, dated October 1, 1999.
10.7**+ Major Account License Agreement between the Registrant and
Fujitsu Network Communications, Inc., dated November 4,
1998.
10.8**+ Agreement for Web Site Design and Development Service
between the Registrant and BMW of North America, Inc., dated
July 15, 1998.
10.9**+ Major Account License Agreement between the Registrant and
the Fireman's Fund Insurance Company, dated June 24, 1999.
10.10**+ Major Account License Agreement between the Registrant and
LoanMarket Resources, LLC., dated June 30, 1999.
10.11**+ Major Account License Agreement between the Registrant and
Aspect Telecommunications, dated May 17, 1999.
10.12**+ A Consulting Engagement Proposal from the Registrant to
3Com, dated July 29, 1999.
10.13**+ A Consulting Engagement Proposal from the Registrant to
3Com, dated August 10, 1999.
10.14** Employment Agreement between the Registrant and Rajen Jaswa,
dated as of July 1, 1997.
10.15** Employment Agreement between the Registrant and Dr. Sanjay
Mittal, dated as of July 1, 1997.
10.16** Offer letter from the Registrant to Stephen Bennion dated as
of September 16, 1999.
10.17** Offer letter from the Registrant to Daniel A. Carmel dated
as of July 23, 1999.
10.18**+ Major Account License Agreement between the Registrant and
Samsung SDS Co., Ltd., dated January 12, 2000; Amendment #1
to Major Account License Agreement between the Registrant
and Samsung SDS Co., Ltd., dated February 10, 2000.
10.19+ International Value Added Reseller Agreement between the
Registrant and Samsung SDS Co., Ltd., dated January 12,
2000; Amendment #1 to International Value Added Reseller
Agreement between the Registrant and Samsung SDS Co., Ltd.,
dated February 29, 2000.
10.20** Stock Purchase Agreement between the Registrant and Samsung
SDS Co., Ltd., dated January 31, 2000; Amendment #1 to the
Stock Purchase Agreement between the Registrant and Samsung
SDS Co., Ltd., dated February 8, 2000.
10.21** Lease between John Arrillaga Survivors Trust and Richard T.
Perry Separate Property Trust as Landlord and the Registrant
as Tenant, dated October 1, 1999.
</TABLE>
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.22** Stock Purchase Agreement between the Registrant and Dell
USA, L.P., dated February 14, 2000.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2** Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
<PAGE> 1
EXHIBIT 1.1
_________ SHARES
SELECTICA, INC.
COMMON STOCK, PAR VALUE $0.0001 PER SHARE
UNDERWRITING AGREEMENT
March __, 2000
CREDIT SUISSE FIRST BOSTON CORPORATION
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY INC.
E*OFFERING CORP.,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Selectica, Inc., a Delaware corporation ("Company"),
proposes to issue and sell 4,000,000 shares of its Common Stock, par value
$0.0001 per share ("Securities") (such 4,000,000 shares of Securities being
hereinafter referred to as the "Firm Securities"). The Company also proposes to
sell to the Underwriters, at the option of the Underwriters, an aggregate of not
more than 450,000 additional shares of its Securities, and Dr. Sanjay Mittal
(the "Selling Stockholder") also proposes to sell to the Underwriters, at the
option of the Underwriters, not more than 150,000 additional outstanding shares
of the Company's Securities, as set forth below (such 600,000 additional shares
being hereinafter referred to as the "Optional Securities"). The Firm Securities
and the Optional Securities are herein collectively called the "Offered
Securities". As part of the offering contemplated by this Agreement, E*OFFERING
Corp. (the "Designated Underwriter") has agreed to reserve out of the Firm
Securities purchased by it under this Agreement, up to 200,000 shares, for sale
to the Company's directors, officers, employees and other parties associated
with the Company (collectively, "Participants"), as set forth in the Prospectus
(as defined herein) under the heading "Underwriters" (the "Directed Share
Program"). The Firm Securities to be sold by the Designated Underwriter pursuant
to the Directed Share Program (the "Directed Shares") will be sold by the
Designated Underwriter pursuant to this Agreement at the public offering price.
Any Directed Shares not orally confirmed for purchase by a Participant by the
end of the business day on which this Agreement is executed will be offered to
the public by the Underwriters as set forth in the Prospectus. The Company and
the Selling Stockholder hereby agree with the several Underwriters named in
Schedule A hereto ("Underwriters") as follows:
2. Representations and Warranties of the Company and the Selling
Stockholder.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(i) A registration statement (No. 333-92545) relating
to the Offered Securities, including a form of prospectus, has been filed with
the Securities and Exchange Commission ("Commission") and either (A) has been
declared effective under the Securities Act of 1933, as amended ("Act") and is
not proposed to be amended or (B) is proposed to be amended by amendment or
post-effective amendment. If such registration statement (the "initial
registration statement") has been declared effective, either (A) an additional
registration statement (the "additional registration statement") relating to the
Offered Securities may have been filed with the Commission pursuant to Rule
462(b) ("Rule 462(b)") under the Act and, if so filed, has become effective upon
filing pursuant to such Rule and the Offered Securities all have been duly
registered under the Act
<PAGE> 2
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (B) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule 462(b)
and will become effective upon filing pursuant to such Rule and upon such filing
the Offered Securities will all have been duly registered under the Act pursuant
to the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial registration
statement or if an additional registration statement has been filed and the
Company does not propose to amend it, and if any post-effective amendment to
either such registration statement has been filed with the Commission prior to
the execution and delivery of this Agreement, the most recent amendment (if any)
to each such registration statement has been declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c) ("Rule
462(c)") under the Act or, in the case of the additional registration statement,
Rule 462(b). For purposes of this Agreement, "Effective Time" with respect to
the initial registration statement or, if filed prior to the execution and
delivery of this Agreement, the additional registration statement means (A) if
the Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared effective by
the Commission or has become effective upon filing pursuant to Rule 462(c), or
(B) if the Company has advised the Representatives that it proposes to file an
amendment or post-effective amendment to such registration statement, the date
and time as of which such registration statement, as amended by such amendment
or post-effective amendment, as the case may be, is declared effective by the
Commission. If an additional registration statement has not been filed prior to
the execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect to
such additional registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule 462(b).
"Effective Date" with respect to the initial registration statement or the
additional registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective Time,
including all information contained in the additional registration statement (if
any) and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all information (if
any) deemed to be a part of the initial registration statement as of its
Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is
hereinafter referred to as the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time, including the contents
of the initial registration statement incorporated by reference therein and
including all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b), is
hereinafter referred to as the "Additional Registration Statement". The Initial
Registration Statement and the Additional Registration Statement are hereinafter
referred to collectively as the "Registration Statements" and individually as a
"Registration Statement". The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter referred to as
the "Prospectus". No document has been or will be prepared or distributed in
reliance on Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (A) on the
Effective Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the rules
and regulations of the Commission ("Rules and Regulations") and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, (B) on the Effective Date of the Additional Registration Statement
(if any), each Registration Statement conformed, or will conform, in all
respects to the requirements of the Act and the Rules and Regulations and did
not include, or will not include, any untrue statement of a material fact and
did not omit, or will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (C) on
the date of this Agreement, the Initial Registration Statement and, if the
Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration Statement
each conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all respects to the
requirements of the Act and the Rules and Regulations, and neither of such
documents includes, or will include, any untrue statement of a material fact or
omits, or will omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If the Effective Time
of the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and the Prospectus will conform in
all respects to the requirements of the Act and
-2-
<PAGE> 3
the Rules and Regulations, neither of such documents will include any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading,
and no Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only such
information is that described as such in Section 7(c) hereof.
(iii) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly qualified
to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of its
business requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the condition (financial
or other), business, properties or results of operations of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect").
(iv) Each subsidiary of the Company has been duly
incorporated and is an existing corporation in good standing under the laws of
the jurisdiction of its incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus; and each subsidiary of the Company is duly qualified to do business
as a foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect; all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued and is
fully paid and nonassessable; and the capital stock of each subsidiary owned by
the Company, directly or through subsidiaries, is owned free from liens,
encumbrances and defects.
(v) The Offered Securities and all other outstanding
shares of capital stock of the Company have been duly authorized; all
outstanding shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this Agreement on
each Closing Date (as defined below), such Offered Securities will have been,
validly issued, fully paid and nonassessable and will conform to the description
thereof contained in the Prospectus; and the stockholders of the Company have no
preemptive rights with respect to the Securities.
(vi) Except as disclosed in the Prospectus, there are
no contracts, agreements or understandings between the Company and any person
that would give rise to a valid claim against the Company or any Underwriter for
a brokerage commission, finder's fee or other like payment in connection with
this offering.
(vii) Except as disclosed in the Prospectus, there are
no contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such securities
in the securities registered pursuant to a Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Act.
(viii) The Offered Securities have been approved for
listing on The Nasdaq Stock Market's National Market, subject to notice of
issuance.
(ix) No consent, approval, authorization, or order of,
or filing with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in connection
with the issuance and sale of the Offered Securities by the Company, except such
as have been obtained and made under the Act and such as may be required under
state securities laws.
-3-
<PAGE> 4
(x) The execution, delivery and performance of this
Agreement, and the issuance and sale of the Offered Securities will not result
in a breach or violation of any of the terms and provisions of, or constitute a
default under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over the
Company or any subsidiary of the Company or any of their properties, or any
agreement or instrument to which the Company or any such subsidiary is a party
or by which the Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject, or the charter or
by-laws of the Company or any such subsidiary, and the Company has full power
and authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement.
(xi) This Agreement has been duly authorized, executed
and delivered by the Company.
(xii) Except as disclosed in the Prospectus, the
Company and its subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each case free
from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or to be made thereof by them;
and except as disclosed in the Prospectus, the Company and its subsidiaries hold
any leased real or personal property under valid and enforceable leases with no
exceptions that would materially interfere with the use made or to be made
thereof by them.
(xiii) The Company and its subsidiaries possess
adequate certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by them,
except for such certificates, authorities or permits the failure of which to
obtain would not have a Material Adverse Effect, and have not received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
any of its subsidiaries, would individually or in the aggregate have a Material
Adverse Effect.
(xiv) No labor dispute with the employees of the
Company or any subsidiary exists or, to the knowledge of the Company, is
imminent that might have a Material Adverse Effect.
(xv) The Company and its subsidiaries own, possess or
can acquire on reasonable terms, adequate trademarks, trade names and other
rights to inventions, know-how, patents, copyrights, confidential information
and other intellectual property, including applications licensed directly from
third parties (collectively, "intellectual property rights") necessary to
conduct the business now operated by them, or presently employed by them, and,
except as disclosed in the Prospectus, have not received any notice of
infringement of or conflict with asserted rights of others with respect to any
intellectual property rights that, if determined adversely to the Company or any
of its subsidiaries, would individually or in the aggregate have a Material
Adverse Effect. The discoveries, inventions, products or processes of the
Company referred to in the Prospectus do not, to the Company's knowledge,
infringe or conflict with any intellectual property right of any third party.
(xvi) Except as disclosed in the Prospectus, neither
the Company nor any of its subsidiaries is in violation of any statute, any
rule, regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), owns or operates any real property
contaminated with any substance that is subject to any environmental laws, is
liable for any off-site disposal or contamination pursuant to any environmental
laws, or is subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in the
aggregate have a Material Adverse Effect; and the Company is not aware of any
pending investigation which might lead to such a claim.
(xvii) Except as disclosed in the Prospectus, there
are no pending actions, suits or proceedings against or affecting the Company,
or any of its subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in
-4-
<PAGE> 5
the aggregate have a Material Adverse Effect, or would materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement, or which are otherwise material in the context of the sale of the
Offered Securities; and no such actions, suits or proceedings are threatened or,
to the Company's knowledge, contemplated.
(xviii) The financial statements included in each
Registration Statement and the Prospectus present fairly the financial position
of the Company and its consolidated subsidiaries as of the dates shown and their
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent basis and the
schedules included in each Registration Statement present fairly the information
required to be stated therein; and the assumptions used in preparing the pro
forma financial statements included in each Registration Statement and the
Prospectus provide a reasonable basis for presenting the significant effects
directly attributable to the transactions or events described therein, the
related pro forma adjustments give appropriate effect to those assumptions, and
the pro forma columns therein reflect the proper application of those
adjustments to the corresponding historical financial statement amounts.
(xix) Except as disclosed in the Prospectus, since the
date of the latest audited financial statements included in the Prospectus there
has been no material adverse change, nor any development or event involving a
prospective material adverse change in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole, and, except as disclosed in or contemplated by
the Prospectus, there has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock.
(xx) The execution and delivery of the Agreement and
Plan of Merger dated as of January 19, 2000 (the "Merger Agreement") between
Selectica, Inc., a California corporation (the "California Corporation"), and
the Company, effecting the reincorporation of the California Corporation under
the laws of the State of Delaware, was duly authorized by all necessary
corporate action on the part of each of the California Corporation and the
Company. Each of the California Corporation and the Company had all corporate
power and authority to execute and deliver the Merger Agreement, to file the
Merger Agreement with the Secretary of State of California and the Secretary of
State of Delaware and to consummate the reincorporation contemplated by the
Merger Agreement, and the Merger Agreement at the time of execution and filing
constituted a valid and binding obligation of each of the California Corporation
and the Company.
(xxi) The Company is not and, after giving effect to
the offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(xxii) The Company (i) has notified each holder of a
currently outstanding option issued under the Company's 1996 Stock Option Plan
and 1999 Equity Incentive Plan, and each person who has acquired Securities
pursuant to the exercise of any option granted under such option plans that
pursuant to the terms of such option plans, none of such options or shares may
be sold or otherwise transferred or disposed of for a period of 180 days after
the date of the initial public offering of the Offered Securities and (ii) has
imposed a stop-transfer instruction with the Company's transfer agent in order
to enforce the foregoing lock-up provision imposed pursuant to the Option Plan.
(xxiii) Except as disclosed in the Prospectus, all
outstanding Securities, and all securities convertible into or exercisable or
exchangeable for Securities, are subject to valid and binding agreements
(collectively, "Lock-up Agreements") that restrict the holders thereof from
selling, making any short sale of, granting any option for the purchase of, or
otherwise transferring or disposing of, any of such Securities, or any such
securities convertible into or exercisable or exchangeable for Securities, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Credit Suisse First Boston Corporation ("CSFBC").
(xxiv) The Company (i) has notified each stockholder
who is party to the Amended and Restated Investors Rights Agreement dated June
16, 1999 (the "Rights Agreement"), that
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<PAGE> 6
pursuant to the terms of the Rights Agreement, none of the shares of the
Company's capital stock held by such stockholder may be sold or otherwise
transferred or disposed of for a period of 180 days after the date of the
initial public offering of the Offered Securities and (ii) has imposed a
stop-transfer instruction with the Company's transfer agent in order to enforce
the foregoing lock-up provision imposed pursuant to the Rights Agreement.
(xxv) Neither the Company nor any of its affiliates
does business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida Statutes and the
Company agrees to comply with such Section if prior to the completion of the
distribution of the Offered Securities it commences doing such business.
(xxvi) The Company has not offered, or caused the
Underwriters to offer, any Offered Securities to any person pursuant to the
Directed Share Program with the specific intent to unlawfully influence (i) a
customer or supplier of the Company to alter the customer's or supplier's level
or type of business with the Company or (ii) a trade journalist or publication
to write or publish favorable information about the Company or its products.
(xxvii) The Company and each of its subsidiaries
maintain a system of internal accounting procedures and controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations; (ii) transactions and
contract terms, including performance criteria and Company commitments, are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP; and (iii) revenue is recorded on complex material
contracts only after review and approval by a senior executive in the finance
organization.
Furthermore, the Company represents and warrants to the Underwriters
that (i) the Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendments or supplements thereto will
comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization , approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the securities
law and regulations or foreign jurisdictions in which the Directed Shares are
offered outside the United States.
(b) The Selling Stockholder represents and warrants to, and agrees with,
the several Underwriters that:
(i) The Selling Stockholder has and on each Closing Date
hereinafter mentioned will have valid and unencumbered title to the Offered
Securities to be delivered by the Selling Stockholder on such Closing Date and
full right, power and authority to enter into this Agreement and to sell,
assign, transfer and deliver the Offered Securities to be delivered by the
Selling Stockholder on such Closing Date hereunder; and upon the delivery of and
payment for the Offered Securities on each Closing Date hereunder the several
Underwriters will acquire valid and unencumbered title to the Offered Securities
to be delivered by the Selling Stockholder on such Closing Date.
(ii) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (A) on the
Effective Date of the Initial Registration Statement, the Initial Registration
Statement did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, (B) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement did not include, or
will not include, any untrue statement of a material fact and did not omit, or
will not omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (C) on the date of
this Agreement, the Initial Registration Statement and, if the Effective Time of
the Additional Registration Statement is prior to the execution and delivery of
this Agreement, the Additional Registration Statement each conforms, and at the
time of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing
is required) at the Effective Date of the Additional Registration Statement in
which the Prospectus is included, neither the Registration Statement nor the
Prospectus includes, or will include, any untrue statement of a material fact or
omits, or will omit, to state any material fact required to be stated therein or
necessary to make the statements
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<PAGE> 7
therein not misleading. If the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this Agreement: on the
Effective Date of the Initial Registration Statement, the Initial Registration
Statement and the Prospectus will conform in all respects to the requirements of
the Act and the Rules and Regulations, neither of such documents will include
any untrue statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. The two preceding sentences do not apply to statements in or
omissions from a Registration Statement or the Prospectus based upon written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information is that described as such in Section 7(c).
(iii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Selling Stockholder and any
person that would give rise to a valid claim against the Selling Stockholder or
any Underwriter for a brokerage commission, finder's fee or other like payment
in connection with this offering.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $[____] per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, at the office of CSFBC, Eleven Madison Avenue,
New York, New York, against payment of the purchase price in Federal (same day)
funds by official bank check or checks or wire transfer to an account at a bank
acceptable to CSFBC drawn to the order of the Company at the office of Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP ("GDSVFH"), 155 Constitution
Drive, Menlo Park, California, at 10:00 A.M., New York time, on March [__],
2000, or at such other time not later than seven full business days thereafter
as CSFBC and the Company determine, such time being herein referred to as the
"First Closing Date." For purposes of Rule 15c6-1 under the Exchange Act, the
First Closing Date (if later than the otherwise applicable settlement date)
shall be the settlement date for payment of funds and delivery of securities for
all the Offered Securities sold pursuant to the offering. The certificates for
the Firm Securities so to be delivered will be in definitive form, in such
denominations and registered in such names as CSFBC requests and will be made
available for checking and packaging at the above office of CSFBC in New York at
least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company and the
Selling Stockholder from time to time not more than 30 days subsequent to the
date of the Prospectus, the Underwriters may purchase all or less than all of
the Optional Securities at the purchase price per Security to be paid for the
Firm Securities. The Company and the Selling Stockholder agree, severally and
not jointly, to sell to the Underwriters the respective numbers of Optional
Securities obtained by multiplying the number of shares specified in such notice
by a fraction the numerator of which is [______________] in the case of the
Company and [________________] in the case of the Selling Stockholder and the
denominator of which is the total number of Optional Securities (subject to
adjustment by CSFBC to eliminate fractions). Such Optional Securities shall be
purchased from the Company and the Selling Stockholder for the account of each
Underwriter in the same proportion as the number of shares of Firm Securities
set forth opposite such Underwriter's name bears to the total number of shares
of Firm Securities (subject to adjustment by CSFBC to eliminate fractions) and
may be purchased by the Underwriters only for the purpose of covering
over-allotments made in connection with the sale of the Firm Securities. No
Optional Securities shall be sold or delivered unless the Firm Securities
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Optional Securities or any portion thereof may be exercised from
time to time and to the extent not previously exercised may be surrendered and
terminated at any time upon notice by CSFBC to the Company and the Selling
Stockholder.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date," which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase
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<PAGE> 8
Optional Securities is given. The Company and the Custodian will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, at the above
office of CSFBC in New York, against payment of the purchase price therefor in
Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to CSFBC drawn to the order of the Company at the
above office of GDSVFH. The certificates for the Optional Securities being
purchased on each Optional Closing Date will be in definitive form, in such
denominations and registered in such names as CSFBC requests upon reasonable
notice prior to such Optional Closing Date and will be made available for
checking and packaging at the above office of CSFBC at a reasonable time in
advance of such Optional Closing Date.
Certificates in negotiable form for the Offered Securities to be sold by
the Selling Stockholder hereunder have been placed in custody, for delivery
under this Agreement, under Custody Agreement made with
[_________________________], as custodian ("Custodian"). The Selling Stockholder
agrees that the shares represented by the certificates held in custody for the
Selling Stockholder under such Custody Agreement are subject to the interests of
the Underwriters hereunder, that the arrangements made by the Selling
Stockholder for such custody are to that extent irrevocable, and that the
obligations of the Selling Stockholder hereunder shall not be terminated by
operation of law, whether by the death of the Selling Stockholder or the
occurrence of any other event. If the Selling Stockholder should die, or if any
other such event should occur, before the delivery of the Offered Securities
hereunder, certificates for such Offered Securities shall be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death or other event had not occurred, regardless of whether or not the
Custodian shall have received notice of such death or other event.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company and the Selling Stockholder. The
Company agrees with the several Underwriters and the Selling Stockholder that:
(a) If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement, the Company will file
the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC, subparagraph
(4)) of Rule 424(b) not later than the earlier of (A) the second business day
following the execution and delivery of this Agreement or (B) the fifteenth
business day after the Effective Date of the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as of
such execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on or prior
to the time the Prospectus is printed and distributed to any Underwriter, or
will make such filing at such later date as shall have been consented to by
CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration statement as
filed or the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not effect
such amendment or supplementation without CSFBC's consent; and the Company will
also advise CSFBC promptly of the effectiveness of each Registration Statement
(if its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration Statement
or the Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best efforts
to prevent the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with sales by
any Underwriter or dealer, any event occurs as a
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<PAGE> 9
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will promptly notify CSFBC of
such event and will promptly prepare and file with the Commission, at its own
expense, an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance. Neither CSFBC's
consent to, nor the Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12 months
beginning after the Effective Date of the Initial Registration Statement (or, if
later, the Effective Date of the Additional Registration Statement) which will
satisfy the provisions of Section 11(a) of the Act. For the purpose of the
preceding sentence, "Availability Date" means the 45th day after the end of the
fourth fiscal quarter following the fiscal quarter that includes such Effective
Date, except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the end of
such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of
each Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a prospectus
relating to the Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the Prospectus and all
amendments and supplements to such documents, in each case in such quantities as
CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M.,
New York time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial Registration
Statement. All other such documents shall be so furnished as soon as available.
The Company will pay the expenses of printing and distributing to the
Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates and
will continue such qualifications in effect so long as required for the
distribution; provided, however, that the Company will not be required to
arrange for the qualification of the Offered Securities in any jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such qualification, unless the Company is already subject
to service of process in such jurisdiction.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a copy
of its annual report to stockholders for such year; and the Company will furnish
to the Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Exchange Act or mailed to stockholders, and (ii) from time to time, such other
information concerning the Company as CSFBC may reasonably request.
(h) The Company and the Selling Stockholder agree with the
several Underwriters that the Company and the Selling Stockholder will pay all
expenses incident to the performance of the obligations of the Company and the
Selling Stockholder, as the case may be, under this Agreement, for any filing
fees and other expenses (including fees and disbursements of counsel) incurred
in connection with qualification of the Offered Securities for sale under the
laws of such jurisdictions as CSFBC designates and the printing of memoranda
relating thereto, for the filing fee incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by
the National Association of Securities Dealers, Inc. of the Offered Securities,
for any travel expenses of the Company's officers and employees and any other
expenses of the Company in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities, for any transfer taxes on the
sale by the Selling Stockholder of the Offered Securities to the Underwriters
and for expenses incurred in distributing preliminary prospectuses and the
Prospectus (including any amendments and supplements thereto) to the
Underwriters.
(i) The Selling Stockholder agrees to deliver to CSFBC,
attention: Transactions Advisory Group on or prior to the First Closing Date, a
properly completed and executed United States
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<PAGE> 10
Treasury Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
(j) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell, contract
to sell, pledge or otherwise dispose of, directly or indirectly, or file with
the Commission a registration statement under the Act relating to, any
additional shares of its Securities or securities convertible into or
exchangeable or exercisable for any shares of its Securities, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of CSFBC, except issuances of
Securities pursuant to the conversion of convertible securities or the exercise
of warrants or options, in each case outstanding on the date hereof, grants of
employee stock options pursuant to the terms of a plan in effect on the date
hereof, issuances of Securities pursuant to the exercise of such options,
pursuant to the Company's 1999 Employee Stock Purchase Plan or the Company's
issuance of Securities to Samsung SDS Co., Ltd. and Dell USA L.P. in a private
placement to be consummated immediately following the First Closing.
(k) The Company agrees to use its best efforts to cause (i) each
of its directors, officers and stockholders and (ii) each person who acquires
Securities of the Company pursuant to the exercise of any option or right
granted under the Company's 1996 Stock Option Plan or the 1999 Equity Incentive
Plan and/or the purchase of Securities of the Company pursuant to the Company's
1999 Employee Stock Purchase Plan, to sign a Lock-up Agreement, which states
that such person will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of Securities or securities
convertible into or exchangeable or exercisable for any shares of Securities, or
publicly disclose the intention to make any such offer, sale, pledge or
disposal, for a period of 180 days after the date of the Prospectus without the
prior written consent of CSFBC; and the Company will (i) enforce the terms of
each such Lock-up Agreement and (ii) issue and impose a stop-transfer
instruction with the Company's transfer agent in order to enforce the foregoing
Lock-up Agreements.
(l) Except with the prior written consent of CSFBC, the Company
agrees (i) not to amend or terminate, or waive any right under, any Lock-up
Agreement, or take any other action that would directly or indirectly have the
same effect as an amendment or termination, or waiver of any right under any
Lock-up Agreement, that would permit any holder of Securities, or any securities
convertible into, or exercisable or exchangeable for, Securities, to make any
short sale of, grant any option for the purchase of, or otherwise transfer or
dispose of, any such Securities or other securities, prior to the expiration of
the 180 days after the date of the Prospectus and (ii) not to consent to any
sale, short sale, grant of an option for the purchase of, or other disposition
or transfer of shares of Securities, or securities convertible into or
exercisable or exchangeable for Securities, subject to a Lock-up Agreement.
(m) In connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent required
by the National Association of Securities Dealers, Inc. (the "NASD") or the NASD
rules from sale, transfer, assignment, pledge or hypothecation for a period of
three months following the date of the effectiveness of the Registration
Statement. The Designated Underwriter will notify the Company as to which
Participants will need to be so restricted. The Company will direct the transfer
agent to place stop transfer instructions upon such securities for such period
of time.
(n) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.
(o) Prior to issuing any press release regarding the operating
results or financial condition with respect to the third fiscal quarter for
fiscal year 2000 or any of the Company's first three fiscal quarters in any of
fiscal years 2001 or 2002, and prior to filing a quarterly report on Form 10-Q
relating to any such fiscal quarters, the Company will retain Ernst & Young LLP,
or other independent public accountants of recognized national standing, who
shall review, in accordance with AICPA Statement on Auditing Standards No. 71,
the Company's unaudited consolidated financial statements at the end of each
such fiscal quarter; provided, however, that the Company's obligation under this
covenant may
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<PAGE> 11
terminate after the third quarter of fiscal year 2001 at the discretion of the
Company's Board of Directors if the Company's Board of Directors determines in
good faith that adequate financial controls are in place.
Furthermore, the Company covenants with the Underwriters that the
Company will comply with all applicable securities and other applicable laws,
rules and regulations in each foreign jurisdiction in which the Directed Shares
are offered in connection with the Directed Share Program.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholder herein, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company and the Selling Stockholder of their
obligations hereunder and to the following additional conditions precedent:
(a) The Representatives shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement,
shall be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and delivery
of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed shortly prior
to such Effective Time), of Ernst & Young LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and
schedules examined by them and included in the Registration Statements comply as
to form in all material respects with the applicable accounting requirements of
the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by
the American Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards No. 71,
Interim Financial Information, on the unaudited financial statements included in
the Registration Statements;
(iii) on the basis of the review referred to in clause
(ii) above, a reading of the latest available interim financial statements of
the Company, inquiries of officials of the Company who have responsibility for
financial and accounting matters and other specified procedures, nothing came to
their attention that caused them to believe that:
(A) the unaudited financial statements included in
the Registration Statements do not comply as to form in
all material respects with the applicable accounting
requirements of the Act and the related published Rules
and Regulations or any material modifications should be
made to such unaudited financial statements for them to
be in conformity with generally accepted accounting
principles;
(B) at the date of the latest available balance
sheet read by such accountants, or at a subsequent
specified date not more than three business days prior
to the date of such letter, there was any change in the
capital stock or any increase in short-term or long-term
debt, total or current liabilities or total
stockholders' deficit, or any decrease in current assets
or total assets of the Company and its consolidated
subsidiaries, as compared with amounts shown on the
latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of the
latest statement of operations included in the
Prospectus to a specified date not more than three
business days prior to the date of such letter, there
were any decreases, as compared with the corresponding
period of the previous year and with the
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period of corresponding length in the previous quarter,
in total revenues, or increases in loss from operations,
comprehensive loss or the total or per share amounts of
basic net loss;
except in all cases set forth in clauses (B) and (C) above for changes,
increases or decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent that such
dollar amounts, percentages and other financial and statistical information are
derived from the general accounting records of the Company and its subsidiaries
subject to the internal controls of the Company's accounting system or are
derived directly from such records by analysis or computation) with the results
obtained from inquiries, a reading of such general accounting records and other
procedures specified in such letter and have found such dollar amounts,
percentages and other financial and statistical information to be in agreement
with such results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and delivery of
this Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration Statement
is subsequent to such execution and delivery, "Registration Statements" shall
mean the Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the
post-effective amendment to be filed shortly prior to its Effective Time, and
(iii) "Prospectus" shall mean the prospectus included in the Registration
Statements.
(b) If the Effective Time of the Initial Registration Statement
is not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by CSFBC.
If the Effective Time of the Additional Registration Statement (if any) is not
prior to the execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of this
Agreement or, if earlier, the time the Prospectus is printed and distributed to
any Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Selling Stockholder, the Company or the
Representatives, shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other), business,
properties or results of operations of the Company or its subsidiaries taken as
one enterprise which, in the judgment of a majority in interest of the
Underwriters including the Representatives, is material and adverse and makes it
impractical or inadvisable to proceed with completion of the public offering or
the sale of and payment for the Offered Securities; (ii) any downgrading in the
rating of any debt securities of the Company by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g) under
the Act), or any public announcement that any such organization has under
surveillance or review its rating of any debt securities of the Company (other
than an announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any material
suspension or material limitation of trading in securities generally on the New
York Stock Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market; (iv) any banking moratorium declared
by U.S. Federal or New York authorities; or (v) any outbreak or escalation of
major hostilities in which the United States is involved, any declaration of war
by Congress or any other substantial national or international calamity or
emergency if, in the
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<PAGE> 13
judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the Offered
Securities.
(d) The Representatives shall have received an opinion, dated
such Closing Date, of GDSVFH, counsel for the Company, to the effect that:
(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct its
business as described in the Prospectus; and the Company is duly qualified to do
business as a foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its business requires
such qualification, except where the failure to be so qualified would not have a
Material Adverse Effect.
(ii) The Offered Securities delivered on such Closing
Date and all other outstanding shares of the capital stock of the Company have
been duly authorized and validly issued and, to such counsel's knowledge, are
fully paid and nonassessable and conform to the description thereof contained in
the Prospectus; and the stockholders of the Company have no preemptive rights
with respect to the Securities;
(iii) Except as disclosed in the Prospectus, there are
no contracts, agreements or understandings known to such counsel between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act;
(iv) The Company is not and, after giving effect to
the offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(v) No consent, approval, authorization or order of,
or filing with, any governmental agency or body or any court is required to be
obtained or made by the Company or the Selling Stockholder for the consummation
of the transactions contemplated by this Agreement or the Custody Agreement in
connection with the issuance or sale of the Offered Securities by the Company,
except such as have been obtained and made under the Act and such as may be
required under state securities laws;
(vi) The execution, delivery and performance of this
Agreement or the Custody Agreement and the consummation of the transaction
herein or therein contemplated will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under, any statute, any
rule, regulation or order of any governmental agency or body or any court having
jurisdiction over the Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument filed as an exhibit to the
Registration Statement to which the Company or any such subsidiary is a party or
by which the Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject, or the charter or
by-laws of the Company or any such subsidiary, and the Company has full power
and authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement;
(vii) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became effective under
the Act as of the date and time (if determinable) specified in such opinion, the
Prospectus either was filed with the Commission pursuant to the subparagraph of
Rule 424(b) specified in such opinion on the date specified therein or was
included in the Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of such
counsel, no stop order suspending the effectiveness of a Registration Statement
or any part thereof has been issued
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<PAGE> 14
and no proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the Prospectus,
and each amendment or supplement thereto, as of their respective effective or
issue dates, complied as to form in all material respects with the requirements
of the Act and the Rules and Regulations; such counsel have no reason to believe
that any part of a Registration Statement or any amendment thereto, as of its
effective date or as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto, as of its issue date or as of
such Closing Date, contained any untrue statement of a material fact or omitted
to state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading; the
descriptions in the Registration Statements and Prospectus of statutes, legal
and governmental proceedings and contracts and other documents are accurate and
fairly present the information required to be shown; and such counsel do not
know of any legal or governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described as required or
of any contracts or documents of a character required to be described in a
Registration Statement or the Prospectus or to be filed as exhibits to a
Registration Statement which are not described and filed as required; it being
understood that such counsel need express no opinion as to the financial
statements or other financial data contained in the Registration Statements or
the Prospectus;
(viii) The statements set forth under the heading
"Description of Capital Stock" in the Prospectus, insofar as such statements
purport to summarize certain provisions of the capital stock of the Company,
provide a fair summary of such provisions; and the statements set forth under
the headings "Risk Factors-We have implemented anti-takeover provisions that
could make it more difficult to acquire us," "Management-Board of
Directors-Director Compensation," "Management-Indemnification,"
"Management-Employee Benefit Plans," "Management-Employment Agreements,
Severance Agreements and Change of Control Arrangements," "Related Party
Transactions" and "Shares Eligible For Future Sale" in the Prospectus, insofar
as such statements constitute a summary of the legal matters, documents or
proceedings referred to therein, have been reviewed by such counsel and fairly
present the information called for with respect to such legal matters, documents
and proceedings in all material respects as required by the Act and the rules
and regulations thereunder;
(ix) This Agreement has been duly authorized, executed
and delivered by the Company;
(x) The execution and delivery of the Merger
Agreement, effecting the reincorporation of the California Corporation under the
laws of the State of Delaware, was duly authorized by all necessary corporate
action on the part of each of the California Corporation and the Company; and
(xi) Based on certain no-action letters of the staff
of the Commission, such counsel believes that it is more likely than not that a
court of law, in considering whether or not the Company's issuance of Securities
to Samsung SDS Co., Ltd. and Dell USA L.P. in a private placement scheduled to
be consummated immediately following the First Closing (the "Private Placement")
should be integrated with the offering contemplated hereby in accordance with
the position of the staff in such no-action letters, would conclude that it is
consistent with the purposes of the Act and the protection of investors for the
Private Placement not to be deemed part of, or integrated with, the offering
contemplated hereby and for the Private Placement, even if consummated
simultaneously with the consummation of such offering, not to require
registration under the Act.
(e) The Representatives shall have received an opinion, dated
such Closing Date, of Thakker & Thakker, counsel for Selectica Configurators
India Private Limited ("Selectica India"), to the effect that:
(i) Selectica India has been duly incorporated and is
an existing corporation in good standing under the laws of the jurisdiction of
its incorporation, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus; and Selectica India is duly
qualified to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of its
business requires such qualification; all of the
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<PAGE> 15
issued and outstanding capital stock of Selectica India has been duly authorized
and validly issued and is fully paid and nonassessable; and the capital stock of
Selectica India owned by the Company, direct or through subsidiaries, is owned
free from liens, encumbrances and defects; and
(ii) The execution, delivery and performance of this
Agreement and the consummation of the transaction herein contemplated will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order of any
governmental agency or body or any court having jurisdiction over Selectica
India or any of its properties, or any agreement or instrument filed as an
exhibit to the Registration Statement to which Selectica India is a party or by
which Selectica India is bound or to which any of the properties of Selectica
India is subject, or the charter or by-laws of Selectica India.
(f) The Representatives shall have received the opinion dated the
date hereof of GDSVFH, counsel to the Selling Stockholder, to the effect that:
(i) The Selling Stockholder had valid and unencumbered
title to the Offered Securities delivered by the Selling Stockholder on such
Closing Date and had full right, power and authority to sell, assign, transfer
and deliver the Offered Securities delivered by the Selling Stockholder on such
Closing Date hereunder; and the several Underwriters have acquired valid and
unencumbered title to the Offered Securities purchased by them from the Selling
Stockholder on such Closing Date hereunder;
(ii) No consent, approval, authorization or order of,
or filing with, any governmental agency or body or any court is required to be
obtained or made by the Selling Stockholder for the consummation of the
transactions contemplated by the Custody Agreement or this Agreement in
connection with the sale of the Offered Securities sold by the Selling
Stockholder, except such as have been obtained and made under the Act and such
as may be required under state securities laws;
(iii) The execution, delivery and performance of the
Custody Agreement and this Agreement and the consummation of the transactions
therein and herein contemplated will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under, any statute, any
rule, regulation or order of any governmental agency or body or any court having
jurisdiction over the Selling Stockholder or any of his properties or any
agreement or instrument to which the Selling Stockholder is a party or by which
the Selling Stockholder is bound or to which any of the properties of the
Selling Stockholder is subject;
(iv) The Power of Attorney and related Custody
Agreement with respect to the Selling Stockholder has been duly authorized,
executed and delivered by the Selling Stockholder and constitute valid and
legally binding obligations of the Selling Stockholder enforceable in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles; and
(v) This Agreement has been duly authorized, executed
and delivered by the Selling Stockholder.
(g) The Representatives shall have received from Wilson Sonsini
Goodrich & Rosati, counsel for the Underwriters, such opinion or opinions, dated
such Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Selling Stockholder and the Company shall
have furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(h) The Representatives shall have received a certificate, dated
such Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to the
best of their knowledge after reasonable investigation, shall state that: the
representations and warranties of the Company in this Agreement are true and
correct; the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
such Closing Date; no stop order suspending the effectiveness of any
Registration Statement
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<PAGE> 16
has been issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; the Additional Registration Statement (if any)
satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b) was
filed pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent to
the date of the most recent financial statements in the Prospectus, there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole except as set forth in or contemplated by the
Prospectus or as described in such certificate.
(i) The Representatives shall have received a letter, dated such
Closing Date, of Ernst & Young LLP which meets the requirements of subsection
(a) of this Section, except that the specified date referred to in such
subsection will be a date not more than three days prior to such Closing Date
for the purposes of this subsection.
The Selling Stockholder and the Company will furnish the Representatives
with such conformed copies of such opinions, certificates, letters and documents
as the Representatives reasonably request. CSFBC may in its sole discretion
waive on behalf of the Underwriters compliance with any conditions to the
obligations of the Underwriters hereunder, whether in respect of an Optional
Closing Date or otherwise.
7. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each
Underwriter, its partners, directors and officers and each person, if any, who
controls such Underwriter within the meaning of Section 15 of the Act, against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information furnished
by any Underwriter consists of the information described as such in subsection
(c) below.
The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated Underwriter
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act (the "Designated Entities"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in any material prepared by or with the
consent of the Company for distribution to Participants in connection with the
Directed Share Program or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) caused by the failure of any Participant
to pay for and accept delivery of Directed Shares that the Participant agreed to
purchase; or (iii) related to, arising out of, or in connection with the
Directed Share Program, other than losses, claims, damages or liabilities (or
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of the Designated Entities.
(b) The Selling Stockholder will indemnify and hold harmless each
Underwriter, its partners, directors and officers and each person who controls
such Underwriter within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities, joint or several, to which such
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<PAGE> 17
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that the Selling Stockholder will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement in or omission or alleged omission from any of such documents
in reliance upon and in conformity with written information furnished to the
Company by an Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information furnished
by any Underwriter consists of the information described as such in subsection
(c) below; provided, that the liability of the Selling Stockholder pursuant to
this subsection (a) shall be limited to an amount equal to the aggregate gross
proceeds (before deducting expenses) to the Selling Stockholder from the sale of
Securities by the Selling Stockholder.
In addition, the Company and each of the Underwriters agree with the
Selling Stockholder that any claim of such Underwriter against the Selling
Stockholder for indemnification, reimbursement or advancement of expenses
pursuant to this Section 7 (except for any breach of any representation or
warranty in Section 2 hereof) shall first be sought by such Underwriter to be
satisfied in full by the Company and shall be satisfied by the Selling
Stockholder only to the extent that such claim has not been satisfied in full by
the Company for any reason within the 30-day period following the date requested
for payment in accordance with the terms of this Agreement. The Company and the
Selling Stockholder may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible, including, without
limitation, allocating between the Company and the Selling Stockholder the
liability resulting from a breach of the representations and warranties of the
Company and the Selling Stockholder hereunder. The indemnity provided for in
this Section 7 shall be in addition to any liability which the Selling
Stockholder may otherwise have. The Selling Stockholder will, without the prior
written consent of the Representatives, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not any such Representatives or any person who controls any such
Representatives is a party to such claim, action, suit or proceeding), unless
such settlement, compromise or consent includes an unconditional release of all
of the Underwriters and such controlling persons from all liability arising out
of such claim, action, suit or proceeding.
(c) Each Underwriter will severally and not jointly indemnify and
hold harmless the Company, its directors and officers and each person, if any
who controls the Company within the meaning of Section 15 of the Act, and the
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or the Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representatives specifically for use therein, and will reimburse any
legal or other expenses reasonably incurred by the Company and the Selling
Stockholder in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of (i) the following information in the Prospectus furnished on behalf of each
Underwriter: the last paragraph at the bottom of the cover page concerning the
terms of the offering by the Underwriters, the legend concerning over-allotments
and stabilizing on the inside front cover page and the concession and
reallowance figures appearing in the fourth paragraph under the caption
"Underwriting" and the information regarding sales to
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<PAGE> 18
discretionary accounts and stabilizing transactions contained in the seventh and
fourteenth paragraphs, respectively, under the caption "Underwriting"; and (ii)
the following information in the Prospectus furnished on behalf of Thomas Weisel
Partners: the information contained in the thirteenth paragraph under the
caption "Underwriting".
(d) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a), (b) or (c) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a), (b) or (c) above. In case any such action
is brought against any indemnified party and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. Notwithstanding
anything contained herein to the contrary, if indemnity may be sought pursuant
to the last paragraph in Section 7(a) hereof in respect of such action or
proceeding, then in addition to such separate firm for the indemnified parties,
the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for the
Designated Underwriter for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control the Designated Underwriter within the meaning of either Section 15
of the Act or Section 20 of the Exchange Act. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement (i) includes
an unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act by
or on behalf of an indemnified party.
(e) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a), (b) or (c)
above (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholder on the one hand and the
Underwriters on the other from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholder on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholder on the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Stockholder bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Selling Stockholder or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim which is
the subject of this subsection (e). Notwithstanding the provisions of this
subsection (e), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such
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<PAGE> 19
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this
subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholder
under this Section shall be in addition to any liability which the Company and
the Selling Stockholder may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company, to each officer of the Company who has signed a
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company and the Selling Stockholder for
the purchase of such Offered Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing Date, the
non-defaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Offered Securities that such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of shares of
Offered Securities with respect to which such default or defaults occur exceeds
10% of the total number of shares of Offered Securities that the Underwriters
are obligated to purchase on such Closing Date and arrangements satisfactory to
CSFBC, the Company and the Selling Stockholder for the purchase of such Offered
Securities by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholder, except as
provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Selling Stockholder, of the Company or its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, the Selling
Stockholder, the Company or any of their respective representatives, officers or
directors or any controlling person, and will survive delivery of and payment
for the Offered Securities. If this Agreement is terminated pursuant to Section
8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company and the Selling Stockholder shall
remain responsible for the expenses to be paid or reimbursed by them pursuant to
Section 5 and the respective obligations of the Company, the Selling
Stockholder, and the Underwriters pursuant to Section 7 shall remain in effect,
and if any Offered Securities have been purchased hereunder the representations
and warranties in Section 2 and all obligations under Section 5 shall also
remain in effect. If the purchase of the Offered Securities by the Underwriters
is not consummated for any reason other than solely because of the termination
of this Agreement pursuant to Section 8 or the occurrence of any event specified
in clause (iii), (iv) or (v) of Section 6(c), the Company and the Selling
Stockholder will, jointly and severally, reimburse the Underwriters for all
out-of-pocket expenses (including fees and disbursements of counsel) reasonably
incurred by them in connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment
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<PAGE> 20
Banking Department--Transactions Advisory Group, or, if sent to the Company or
the Selling Stockholder, will be mailed, delivered or telegraphed and confirmed
to it at 3 West Plumeria Drive, San Jose, California 95134, Attention: Steve
Bennion; provided, however, that any notice to an Underwriter pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to such
Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective personal representatives
and successors and the officers and directors and controlling persons referred
to in Section 7, and no other person will have any right or obligation
hereunder.
12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with the transactions contemplated by this
Agreement, and any action under this Agreement taken by the Representatives
jointly or by CSFBC will be binding upon all the Underwriters.
[_____________________] will act for the Selling Stockholder in connection with
such transactions, and any action under or in respect of this Agreement taken by
[______________________] will be binding upon the Selling Stockholder.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
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<PAGE> 21
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement among the
Selling Stockholder, the Company and the several Underwriters in accordance with
its terms.
Very truly yours,
----------------------------------
By: Dr. Sanjay Mittal
SELECTICA, INC.
----------------------------------
By:
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY INC.
E*OFFERING CORP.,
Acting on behalf of themselves and as the
Representatives of the several
Underwriters
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By:
-------------------------------------
Title: Managing Director
---------------------------------
<PAGE> 22
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM SECURITIES TOTAL
TO BE SOLD BY NUMBER OF
----------------------- FIRM SECURITIES
SELLING TO BE
UNDERWRITER COMPANY STOCKHOLDER PURCHASED
----------- ------- ----------- ---------
<S> <C> <C> <C>
Credit Suisse First Boston Corporation.......
Thomas Weisel Partners Llc...................
U.S. Bancorp Piper Jaffray Inc...............
E*OFFERING Corp..............................
--------- ----------- ----------
Total................................
========= =========== ==========
</TABLE>
<PAGE> 23
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
FIRM OPTIONAL
SELLING STOCKHOLDER SECURITIES SECURITIES
TO BE TO BE
SOLD SOLD
---------- -----------
<S> <C> <C>
Dr. Sanjay Mittal..................................... 0 150,000
</TABLE>
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS OF
SELECTICA, INC.,
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I OFFICE AND RECORDS................................................................1
Section 1.1 Delaware Office.........................................................1
Section 1.2 Other Offices...........................................................1
Section 1.3 Books and Records.......................................................1
ARTICLE II STOCKHOLDERS.....................................................................1
Section 2.1 Annual Meeting..........................................................1
Section 2.2 Special Meeting.........................................................1
Section 2.3 Place of Meeting........................................................1
Section 2.4 Notice of Meeting.......................................................2
Section 2.5 Quorum and Adjournment..................................................2
Section 2.6 Proxies.................................................................2
Section 2.7 Notice of Stockholder Business and Nominations..........................2
Section 2.8 Procedure for Election of Directors.....................................5
Section 2.9 Inspectors of Elections; Opening and Closing the Polls..................5
Section 2.10 Consent of Stockholders in Lieu of Meeting.............................5
ARTICLE III BOARD OF DIRECTORS..............................................................6
Section 3.1 General Powers..........................................................6
Section 3.2 Number, Tenure and Qualifications.......................................6
Section 3.3 Regular Meetings........................................................6
Section 3.4 Special Meetings........................................................6
Section 3.5 Notice..................................................................6
Section 3.6 Conference Telephone Meetings...........................................7
Section 3.7 Quorum..................................................................7
Section 3.8 Vacancies...............................................................7
Section 3.9 Committee...............................................................7
Section 3.10 Removal................................................................8
ARTICLE IV OFFICERS.........................................................................8
Section 4.1 Elected Officers........................................................8
Section 4.2 Election and Term of Office.............................................8
Section 4.3 Chairman of the Board...................................................8
Section 4.4 President and Chief Executive Officer...................................8
Section 4.5 Secretary...............................................................8
Section 4.6 Treasurer...............................................................9
Section 4.7 Removal.................................................................9
Section 4.8 Vacancies...............................................................9
ARTICLE V STOCK CERTIFICATES AND TRANSFERS..................................................9
Section 5.1 Stock Certificates and Transfers........................................9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI INDEMNIFICATION.................................................................10
Section 6.1 Right to Indemnification...............................................10
Section 6.2 Prepayment of Expenses.................................................10
Section 6.3 Claims.................................................................10
Section 6.4 Nonexclusivity of Rights...............................................11
Section 6.5 Amendment or Repeal....................................................11
Section 6.6 Other Indemnification and Prepayment of Expenses.......................11
ARTICLE VII MISCELLANEOUS PROVISIONS.......................................................11
Section 7.1 Fiscal Year............................................................11
Section 7.2 Dividends..............................................................11
Section 7.3 Seal...................................................................11
Section 7.4 Waiver of Notice.......................................................11
Section 7.5 Audits.................................................................11
Section 7.6 Resignations...........................................................11
Section 7.7 Contracts..............................................................12
Section 7.8 Proxies................................................................12
ARTICLE VIII AMENDMENTS....................................................................12
Section 8.1 Amendments.............................................................12
</TABLE>
<PAGE> 4
ARTICLE I
OFFICES AND RECORDS
Section 1.1 Delaware Office. The registered office of the Corporation
in the State of Delaware shall be located in the City of Dover, County of Kent.
Section 1.2 Other Offices. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
Section 1.3 Books and Records. The books and records of the Corporation
may be kept at the Corporation's headquarters in San Jose, California or at such
other locations outside the State of Delaware as may from time to time be
designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1 Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held at such date, place and/or time as may be fixed by
resolution of the Board of Directors.
Section 2.2 Special Meeting.
A. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least ten
percent (10%) in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
B. Notwithstanding the above provisions of this Section 2.2(A),
effective upon a closing of an initial public offering of the Corporation's
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, a special meeting of the stockholders of the corporation
may be called only by the President, the Chairman of the Board or by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of directors which the Corporation would have if there were no vacancies (the
"Whole Board").
Section 2.3 Place of Meeting. The Board of Directors may designate the
place of meeting for any meeting of the stockholders. If no designation is made
by the Board of Directors, the place of meeting shall be the principal office of
the Corporation.
Section 2.4 Notice of Meeting. Written or printed notice, stating the
place, day and hour of the meeting and the purposes for which the meeting is
called, shall be prepared and delivered by the Corporation not less than ten
days nor more than sixty days before the date of
<PAGE> 5
the meeting, either personally, or by mail, to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with postage thereon prepaid,
addressed to the stockholder at his address as it appears on the stock transfer
books of the Corporation. Such further notice shall be given as may be required
by law. Meetings may be held without notice if all stockholders entitled to vote
are present (except as otherwise provided by law), or if notice is waived by
those not present. Any previously scheduled meeting of the stockholders may be
postponed and (unless the Certificate of Incorporation otherwise provides) any
special meeting of the stockholders may be cancelled, by resolution of the Board
of Directors upon public notice given prior to the time previously scheduled for
such meeting of stockholders.
Section 2.5 Quorum and Adjournment. Except as otherwise provided by law
or by the Certificate of Incorporation, the holders of a majority of the voting
power of the outstanding shares of the Corporation entitled to vote generally in
the election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series voting separately as a
class or series, the holders of a majority of the voting power of the shares of
such class or series shall constitute a quorum for the transaction of such
business. The chairman of the meeting or a majority of the shares of Voting
Stock so represented may adjourn the meeting from time to time, whether or not
there is such a quorum (or, in the case of specified business to be voted on by
a class or series, the chairman or a majority of the shares of such class or
series so represented may adjourn the meeting with respect to such specified
business). No notice of the time and place of adjourned meetings need be given
except as required by law. The stockholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
Section 2.6 Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or as may be permitted by
law, or by his duly authorized attorney-in-fact. Such proxy must be filed with
the Secretary of the Corporation or his representative at or before the time of
the meeting.
Section 2.7 Notice of Stockholder Business and Nominations.
A. Annual Meeting of Stockholders.
(1) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders: (a) pursuant
to the Corporation's notice of meeting delivered pursuant to Section 2.4 of
these Bylaws; (b) by or at the direction of the Chairman of the Board or the
Board of Directors; or (c) by any stockholder of the Corporation who is entitled
to vote at the meeting, who has complied with the notice procedures set forth in
clauses (2) and (3) of this paragraph (A) of this Bylaw and who was a
stockholder of record at the time such notice was delivered to the Secretary of
the Corporation.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to a clause (c) of
paragraph (A)(1) of this Bylaw, the stockholder must have given timely notice
thereof in writing to the Secretary of the
2
<PAGE> 6
Corporation and such other business must otherwise be a proper matter for
stockholder action. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not less
than seventy days nor more than ninety days prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than twenty days, or delayed
by more than seventy days, from such anniversary date, notice by the stockholder
to be timely must be so delivered not earlier than the ninetieth day prior to
such annual meeting and not later than the close of business on the later of the
seventieth day prior to such annual meeting or the ten day following the day on
which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder,
including such person's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected; (b) as to any other business
that the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner and (ii) the class and number of shares of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least eighty days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Bylaw shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
B. Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting pursuant to Section
2.4 of these Bylaws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Bylaw and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. In the event
the Corporation calls a special meeting of
3
<PAGE> 7
stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as are specified in the Corporation's
Notice of Meeting, if the stockholder's notice as required by paragraph (A)(2)
of this Bylaw shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the ninetieth day prior to such
special meeting and not later than the close of business on the later of the
seventieth day prior to such special meeting or the tenth day following the day
on which public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
C. General.
(1) Only persons who are nominated in accordance with
the procedures set forth in this Bylaw shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Bylaw and, if any proposed nomination or business is not in compliance
with this Bylaw, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Bylaw, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Bylaw, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 2.8 Procedure for Election of Directors. Election of
directors at all meetings of the stockholders at which directors are to be
elected shall be by written ballot, and, except as otherwise set forth in the
Certificate of Incorporation with respect to the right of the holders of any
series of Preferred Stock or any other series or class of stock to elect
additional directors under specified circumstances, a plurality of the votes
cast thereat shall elect directors. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, all matters other than the
election of directors submitted to the stockholders at any meeting shall be
decided by the affirmative vote of a majority of the voting power of the
outstanding Voting Stock present in person or represented by proxy at the
meeting and entitled to vote thereon.
4
<PAGE> 8
Section 2.9 Inspectors of Elections; Opening and Closing the Polls.
A. The Board of Directors by resolution shall appoint one or
more inspectors, which inspector or inspectors may include individuals who serve
the Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are unable to act, at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by the General Corporation Law of the State of
Delaware.
B. The chairman of the meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting.
Section 2.10 Consent of Stockholders in Lieu of Meeting.
A. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Any written consent may be
revoked by a writing received by the Secretary of the Corporation prior to the
time that written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.
B. Notwithstanding the above provisions of this Section 2.10(A),
effective upon a closing of an initial public offering of the Corporation's
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, the stockholders of the Corporation may not take action by
written consent without a meeting but must take any such actions at a duly
called annual or special meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by law, by
5
<PAGE> 9
the Certificate of Incorporation or by these Bylaws required to be exercised or
done by the stockholders.
Section 3.2 Number, Tenure and Qualifications. Subject to the rights of
the holders of any series of Preferred Stock, or any other series or class of
stock as set forth in the Certificate of Incorporation, to elect directors under
specified circumstances, the number of directors shall initially be seven and
shall be fixed from time to time thereafter by a majority of the Board of
Directors.
Section 3.3 Regular Meetings. A regular meeting of the Board of
Directors shall be held without notice other than this Bylaw immediately after,
and at the same place as, each annual meeting of stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without notice other than such resolution.
Section 3.4 Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
Section 3.5 Notice. Notice of any special meeting shall be given to
each director at his business or residence in writing or by telegram or by
telephone communication. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least five days before such meeting. If by telegram, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph company at least twenty-four hours before such meeting. If by
facsimile transmission, such notice shall be transmitted at least twenty-four
hours before such meeting. If by telephone, the notice shall be given at least
twelve hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting, except for
amendments to these Bylaws as provided under Section 8.1 of Article VIII hereof.
A meeting may be held at any time without notice if all the directors are
present (except as otherwise provided by law) or if those not present waive
notice of the meeting in writing, either before or after such meeting.
Section 3.6 Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 3.7 Quorum. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
6
<PAGE> 10
Section 3.8 Vacancies. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth in
the Certificate of Incorporation, to elect additional directors under specified
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the Board of Directors, and directors so chosen shall hold office for
a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
Section 3.9 Committee.
A. The Board of Directors may designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of the
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it.
B. Unless the Board of Directors otherwise provides, each
committee designated by the Board of Directors may make, alter and repeal rules
for the conduct of its business. In the absence of such rules each committee
shall conduct its business in the same manner as the Board of Directors conducts
its business pursuant to these Bylaws.
Section 3.10 Removal. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth in
the Certificate of Incorporation, to elect additional directors under specified
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, with or without cause, only by the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66 2/3 %) of the
voting power of the then outstanding Voting Stock, voting together as a single
class.
ARTICLE IV
OFFICERS
Section 4.1 Elected Officers. The elected officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary, a
Treasurer, and such other officers as the Board of Directors from time to time
may deem proper. The Chairman of the Board shall be chosen
7
<PAGE> 11
from the directors. All officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such officers shall also
have powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 4.2 Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
4.7 of these Bylaws, each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign.
Section 4.3 Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board.
Section 4.4 President and Chief Executive Officer. The President and
Chief Executive Officer shall be the general manager of the Corporation, subject
to the control of the Board of Directors, and as such shall preside at all
meetings of shareholders, shall have general supervision of the affairs of the
Corporation, shall sign or countersign or authorize another officer to sign all
certificates, contracts, and other instruments of the Corporation as authorized
by the Board of Directors, shall make reports to the Board of Directors and
shareholders, and shall perform all such other duties as are incident to such
office or are properly required by the Board of Directors. If the Board of
Directors creates the office of Chief Executive Officer as a separate office
from President, the President shall be the chief operating officer of the
corporation and shall be subject to the general supervision, direction, and
control of the Chief Executive Officer unless the Board of Directors provides
otherwise.
Section 4.5 Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors and all other notices
required by law or by these Bylaws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman of the Board or the President, or by the Board of Directors,
upon whose request the meeting is called as provided in these Bylaws. He shall
record all the proceedings of the meetings of the Board of Directors, any
committees thereof and the stockholders of the Corporation in a book to be kept
for that purpose, and shall perform such other duties as may be assigned to him
by the Board of Directors, the Chairman of the Board or the President. He shall
have custody of the seal of the Corporation and shall affix the same to all
instruments requiring it, when authorized by the Board of Directors, the
Chairman of the Board or the President, and attest to the same.
Section 4.6 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate receipts and
disbursements in books belonging to the Corporation. The Treasurer shall deposit
all moneys and other valuables in the name and to the credit of the Corporation
in such depositaries as may be designated by the Board of Directors. The
Treasurer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors the Chairman of the Board, or the President, taking proper
vouchers for such disbursements. The Treasurer shall render to the Chairman of
the Board, the President and the Board of Directors, whenever requested, an
account of all his transactions as Treasurer and of the
8
<PAGE> 12
financial condition of the Corporation. If required by the Board of Directors,
the Treasurer shall give the Corporation a bond for the faithful discharge of
his duties in such amount and with such surety as the Board of Directors shall
prescribe.
Section 4.7 Removal. Any officer elected by the Board of Directors may
be removed by the Board of Directors whenever, in their judgment, the best
interests of the Corporation would be served thereby. No elected officer shall
have any contractual rights against the Corporation for compensation by virtue
of such election beyond the date of the election of his successor, his death,
his resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or an employee plan.
Section 4.8 Vacancies. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1 Stock Certificates and Transfers.
A. The interest of each stockholder of the Corporation shall be
evidenced by certificates for shares of stock in such form as the appropriate
officers of the Corporation may from time to time prescribe. The shares of the
stock of the Corporation shall be transferred on the books of the Corporation by
the holder thereof in person or by his attorney, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require.
B. The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Right to Indemnification. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person (an "Indemnitee") who
was or is made or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he, or a person for
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whom he is the legal representative, is or was a director or officer of the
Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including
attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the
preceding sentence, except as otherwise provided in Section 6.3, the Corporation
shall be required to indemnify an Indemnitee in connection with a proceeding (or
part thereof) commenced by such Indemnitee only if the commencement of such
proceeding (or part thereof) by the Indemnitee was authorized by the Board of
Directors of the Corporation.
Section 6.2 Prepayment of Expenses. The Corporation shall pay the
expenses (including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VI or otherwise.
Section 6.3 Claims. If a claim for indemnification or payment of
expenses under this Article VI is not paid in full within sixty days after a
written claim therefor by the Indemnitee has been received by the Corporation,
the Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall have the burden
of proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
Section 6.4 Nonexclusivity of Rights. The rights conferred on any
Indemnitee by this Article VI shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise.
Section 6.5 Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any Indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
Section 6.6 Other Indemnification and Prepayment of Expenses. This
Article VI shall not limit the right of the Corporation, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to persons
other than Indemnitees when and as authorized by appropriate corporate action.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Fiscal Year. The fiscal year of the Corporation shall begin
on the first day of April and end on the thirty-first day of March of each year.
Section 7.2 Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Certificate of
Incorporation.
Section 7.3 Seal. The corporate seal shall have inscribed the name of
the Corporation thereon and shall be in such form as may be approved from time
to time by the Board of Directors.
Section 7.4 Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the General Corporation Law of the State of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders of the Board of Directors need be
specified in any waiver of notice of such meeting.
Section 7.5 Audits. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be made annually.
Section 7.6 Resignations. Any director or any officer, whether elected
or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the President or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman of the Board, the President, or
the Secretary or at such later date as is stated therein. No formal action shall
be required of the Board of Directors or the stockholders to make any such
resignation effective.
Section 7.7 Contracts. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, any contracts or other instruments
may be executed and delivered in the name and on the behalf of the Corporation
by such officer or officers of the Corporation as the Board of Directors may
from time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chairman of the Board, the President
or any Vice President may execute bonds, contracts, deeds, leases and other
instruments to be made or executed for or on behalf of the Corporation. Subject
to any restrictions imposed by the Board of Directors or the Chairman of the
Board, the President or any Vice President of the Corporation may delegate
contractual powers to others under his jurisdiction, it being understood,
however, that any such delegation of power shall not relieve such officer of
responsibility with respect to the exercise of such delegated power.
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Section 7.8 Proxies. Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman of the Board, the President or any Vice
President may from time to time appoint any attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to cast
the votes which the Corporation may be entitled to cast as the holder of stock
or other securities in any other corporation or other entity, any of whose stock
or other securities may be held by the Corporation, at meetings of the holders
of the stock and other securities of such other corporation or other entity, or
to consent in writing, in the name of the Corporation as such holder, to any
action by such other corporation or other entity, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
Section 8.1 Amendments. These Bylaws may be amended, altered, added to,
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a notice
given no less than twenty-four hours prior to the meeting; provided, however,
that, notwithstanding any other provisions of these Bylaws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of the
stock required by law, the Certificate of Incorporation or these Bylaws, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required in order for stockholders to
alter, amend or repeal any provision of these Bylaws or to adopt any additional
bylaw.
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CERTIFICATE OF SECRETARY OF
SELECTICA, INC.
The undersigned, Stephen Bennion, hereby certifies that he is the duly
elected and acting Secretary of Selectica, Inc., a Delaware corporation (the
"Corporation"), and that the Amended and Restated Bylaws attached hereto
constitute the Bylaws of said Corporation as duly adopted by the Directors on
February 10, 2000.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this 29th day of February, 2000.
/s/ STEPHEN BENNION
Stephen Bennion
Secretary
<PAGE> 1
EXHIBIT 10.19
SELECTICA, INC.
INTERNATIONAL VALUE ADDED RESELLER AGREEMENT
Agreement #:
------------------------
Effective Date: Jan. 12, 2000
------------------------
THIS AGREEMENT is made and entered into effect as of the date shown above, by
and between Selectica, Inc. ("SELECTICA"), with its principal offices at 2880
Zanker Road, Suite 101, San Jose, CA 95134.
and Company ("VAR"): SAMSUNG SDS CO., LTD.
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with its principal offices located at 707-19 Yoksam-Dong, Kangnam-Go
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Seoul, Korea, 135-080
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Telephone Number: 82-2-3429-3425
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Fax Number: 82-2-3429-411
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Company Contact Name: Weon K. Lee
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Company Contact Email Address: [email protected]
----------------------------------------
RECITALS
The parties to this Agreement wish to enter into a non-exclusive,
non-transferable agreement pursuant to which VAR will purchase and/or market
certain of the proprietary Products ("the Products") developed and manufactured
by SELECTICA. Therefore, in consideration of the mutual covenants and
conditions contained in this Agreement, SELECTICA and VAR agree as follows:
1. APPOINTMENT
1.1 SELECTICA appoints VAR, and VAR accepts appointment as an authorized,
non-exclusive Value Added Reseller of the Products listed on EXHIBIT B hereto
(the "Products"). This appointment authorizes VAR to distribute Products
directly to end-user customers only within the Territory. For purposes of this
Agreement, "Territory" shall mean Korea. VAR must obtain prior written consent
from Selectica for any distribution outside of the Territory. VAR can recommend
resellers in Korea to resell Selectica products. Selectica may approve a
reseller if it meets certain criteria (e.g., such potential resellers do not
represent competitive products/companies and have the expertise to resell and
support Selectica products). If Selectica approves such reseller, VAR may
execute a reseller agreement directly with the reseller with terms and
conditions no less restrictive than those contained in this Agreement. VAR may
not execute any reseller agreements with any reseller not previously approved in
writing by Selectica.
1.2 Although SELECTICA may, from time to time, publish suggested list prices
of the Products, VAR has the right to determine its own resale prices
unilaterally. No SELECTICA representative has any authority to require VAR to
charge a particular resale price for the Products or to otherwise inhibit VAR's
pricing discretion. VAR will promptly report any attempt to do so to
SELECTICA's management in writing.
1.3 SELECTICA reserves the right, during the term of this Agreement and
thereafter, to market products that are the same as or similar to those products
that are the subject of this Agreement, in the same geographical areas serviced
by VAR, either directly or indirectly through independent agents, dealers,
developers, distributors, value added resellers, system integrators and Original
Equipment Manufacturers' without obligation or liability to VAR.
2. LICENSE GRANT
As part of the appointment under Section 1.1, and subject to the terms and
conditions of this Agreement, Selectica grants VAR (i) a nonexclusive,
non-transferable license to use and distribute internally the Products for
internal testing and development purposes and for demonstration and support of
End Users (the "End-User License");
[*] - CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE> 2
(ii) an exclusive, non-transferable license to distribute and sub-license the
Products directly or indirectly through VAR's distribution channel to End Users
in the Territory pursuant to the terms and conditions of an End User license
agreement that contains terms and conditions substantially similar to those set
forth in the End Use Agreement which is attached as Exhibit C (hereinafter the
"End User Agreement").
3. FEES AND PAYMENT TERMS
3.1 Products Fees. VAR shall pay Selectica, for the Products that VAR is
purchasing pursuant to this Agreement the amount set forth in Exhibit B. Such
fees for the purchase of the Products set forth in Exhibit B shall be
non-refundable.
3.2 Internal Use License. VAR shall pay Selectica, for each of the Products
that it uses or distributes for internal purposes within the scope of the
rights set forth in Section 5(a)(i) of this Agreement, the amounts set forth in
Exhibit G.
3.3 Payment Terms. The payments to Selectica from VAR for the Products listed
on Exhibit B and the Internal Use License shall be paid upon the execution of
this Agreement.
3.4 Taxes, Fees, and Documentation. VAR agrees to pay, and to indemnify and
hold Selectica harmless from, any sales, use, excise, import or export, value
added or similar tax, not based on Selectica's net income, as well as the
collection or withholding thereof, including penalties and interest, and all
government permit or license fees and all customs, duty, tariff and similar
fees levied upon the delivery of the Products and other deliverables, and any
costs associated with the collection of any of the foregoing items. VAR shall
be responsible for obtaining, at its expense, all required import licenses,
permits or other governmental orders. If a resale certificate or other
certificate, document or other evidence of exemption or payment or withholding
of taxes by VAR is required in order to exempt the distribution or licensing of
the Products from any such liability or to enable Selectica to claim any tax
exemption, credit, or other benefit, VAR will promptly furnish such certificate
or document to Selectica.
4. VAR RESPONSIBILITIES
In consideration for being appointed an authorized VAR of the Products, VAR
assumes the following responsibilities:
4.1 Maintain a sufficient number of trained and knowledgeable sales personnel
who are able to explain in detail the differences between the Products and
competitive products, and who can effectively market the Products and provide
support for the Products to all of the VAR's end-user customers.
4.2 Make reasonable efforts to maintain at lest one SELECTICA certified
technical resource on staff at all times.
4.3 Upon end-user customer request at the point of sale, explain and
demonstrate the Products and instruct the customer on the setup and
installation.
4.4 Display, demonstrate, and represent the Products fairly and make no
representations concerning SELECTICA or its products that are false, misleading
or inconsistent with those representations set forth in the promotional or
other materials that are supplied by SELECTICA.
4.5 Assure that the Products are sold to end-user customers only in complete
and appropriate packaging which includes an SELECTICA warranty and limitation
of liability statements, license agreement and/or other materials as specified
by SELECTICA. VAR shall require each End-User to execute the End User Agreement
attached hereto as Exhibit C.
4.6 Promptly report to SELECTICA all suspected defects in the Products.
4.7 Prevent the unauthorized reverse engineering, decompilation and reverse
analysis of the products by VAR personnel and agents and use reasonable efforts
to prevent unauthorized reverse engineering decompilation and
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reverse analysis by VAR customers. VAR agrees that if, for any reason, it comes
into possession of any source code, or portion thereof, for any Selectica
product, not generally provided by Selectica as a part of the Software Product,
it will immediately deliver all copies of such source code to Selectica.
4.8 Provide SELECTICA with monthly sales history and quarterly sales forecasts
of the Products.
4.9 Employ the level of energy, skills, and resources necessary to market the
Products actively.
4.10 Pay SELECTICA the fees set forth in Exhibit B to this Agreement and
maintain a satisfactory overall credit rating.
4.11 Comply with all applicable laws and regulations in performing under this
Agreement.
4.12 In connection with any VAR proposals or agreements to supply the Products
or User Documentation to governments (or agencies thereof), VAR will take all
reasonable steps in making such proposals and agreements to ensure that
Selectica's Intellectual Property Rights in such Products and User Documentation
receive the maximum protection available from such governments for commercial
computer software and related documentation developed at private expense. The
provisions of this Section shall not be construed to expand the scope of VAR's
rights set forth in Section 5(a), nor to require VAR to seek or obtain
registrations of any kind whatsoever, in any portion of the Exclusive or
Nonexclusive Territories, to protect the Intellectual Property Rights of
Selectica.
5. SUPPORT AND MAINTENANCE
5.1 Support: Pursuant to VAR being in compliance with the requirements as
detailed in Section 4, SELECTICA shall, during the term of this Agreement and
during SELECTICA's support business hours (5:00 AM - 5:00 PM PST), provide
technical support through appropriate communications mechanisms (telephone, fax,
electronic mail, or web services) to the designated support contact or backup
support contact of the VAR. Both designated support contact and backup support
contact are required to be trained by SELECTICA or its designee and maintain
certification as SELECTICA Certified Developer. VAR will submit in writing the
names of designated and backup support contacts. VAR will receive free of charge
technical information on the development of solutions, software problem
analysis, and responses to technical issues as they pertain to the operation of
SELECTICA's Products.
5.2 Maintenance to VAR: VAR will receive minor upgrades, updates, software
problem fixes, periodic reports on software problems, and other maintenance
support for the products purchased for the Internal Use License under the VAR
program as long as VAR is current with maintenance fees. VAR shall pay a minimum
annual maintenance fee at an amount as shown in EXHIBIT A for all term years
except year one. All maintenance fees received from VAR (not directly from
end-user) for VAR's end-user customers' annual maintenance shall be credited
against VAR's annual program maintenance fee. The annual program maintenance fee
only covers the development system(s) associated with the VAR Program as listed
in EXHIBIT A. Any additional products purchased by VAR for internal use will be
charged a separate maintenance fee as defined in Exhibit A. Such maintenance
fees will be included with each product order, prorated based on the upcoming
anniversary date of this Agreement. Renewal maintenance fees will be billed
annually on the anniversary date of this Agreement. The maintenance fees must be
kept current in order to remain in the VAR Program.
5.3 Maintenance to End User: VAR shall pay SELECTICA certain maintenance fees as
defined in EXHIBIT A for all products purchased by end-users where VAR is
providing first line support. VAR is required to provide first level support for
year one for each customer, at a minimum. SELECTICA agrees to provide second
line support to VAR provided that VAR is current with respect to maintenance
fees as defined in section 5.2. VAR will receive minor upgrades, updates,
software problem fixes, periodic reports on software problems, and other
maintenance support for the products that VAR is then entitled to pass on to
end-users. The annual maintenance fee covers only the Products VAR is licensed
to resell. First year maintenance fees are required for each customer and are
paid at the time of initial order. Subsequent renewal will be on each
anniversary of the maintenance effective date. The maintenance effective date is
defined as the date that SELECTICA ships product to VAR for a given customer.
For year two and onward, SELECTICA agrees to contract with end-user for
maintenance and support, if requested.
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by VAR or end-user. In such cases, end-user will be billed SELECTICA's standard
maintenance and support fee as detailed in EXHIBIT A. Selectica shall have no
obligation to support: (i) altered or damaged Software or any portion of
Software incorporated with or into other software; (ii) Software that is not the
then current release or immediately previous sequential release which is aged
six (6) months or more since the issuance of the successive release; (iii)
Software problems caused by Company's negligence, abuse or misapplication, use
of Software other than as specified in Selectica user manual or other causes
beyond the control of Selectica; or (iv) Software installed on any hardware that
is not supported by Selectica. Selectica shall have no liability for any changes
in Company's hardware, which may be necessary to use Software due to a
workaround or maintenance release.
5.4 Updates and Maintenance Fixes: During the Agreement's term, SELECTICA will
furnish to VAR within a reasonable time after publication one copy of updates
and corrections to the Products VAR is authorized to resell. Such corrections
are collectively referred to herein as "Updates and/or Maintenance Fixes".
Updates and Maintenance Fixes do not include any releases or updates with a
change in the version number to the left of the decimal point or any release,
update or upgrade that has been customized for use by any particular user or
which is made solely to adopt or reflect trade dress of any third party.
5.5 Product Exchange: VAR shall be entitled to exchange any of the Products it
is purchasing pursuant to this Agreement to the other Products in this
Agreement.
6. TERM AND RENEWAL
6.1 The term of this Agreement shall be a single Contract Period commencing on
the Effective Date set forth above and terminating one (1) year thereafter,
unless renewed as provided below or unless terminated sooner in accordance with
the provisions of this Agreement.
6.2 This appointment as a VAR for SELECTICA's Products shall be automatically
renewable for successive twelve-month (12-month) periods unless written notice
by either party of its intent not to renew at least thirty (30) days before the
expiration date.
7. TERMINATION
7.1 If SELECTICA in its judgment finds VAR deficient in meeting VAR's
responsibilities or obligations under the terms of this Agreement, SELECTICA
will provide written notice of such deficiencies and establish a reasonable
period of time, not to exceed thirty (30) days, in which VAR must remedy such
deficiencies. In the event VAR does not correct the deficiencies, SELECTICA can,
at its option, terminate this Agreement. No waiver by SELECTICA of any
deficiencies in one or more instances shall constitute a waiver of SELECTICA's
right to terminate this Agreement in a subsequent instance.
7.2 Notwithstanding any other provisions of this agreement, and without
requirement for SELECTICA to reimburse VAR for any fees, SELECTICA may terminate
this Agreement immediately upon delivery of Notice of Termination to VAR if the
VAR:
a. Transfers control or ownership of all or part of the VAR, whether
directly, indirectly, voluntarily or involuntarily;
b. Submits to SELECTICA at any time prior to or during the term of this
Agreement a report, financial statement, tax return, or other information
in which VAR knowingly submits false or misleading information.
c. Fails or refuses to comply with the provisions of this Agreement, even
if such failures or refusals are corrected after notice thereof is
delivered to VAR; or
d. Sells the Products to non-end-user customers, or otherwise violates
the Grant of Rights in Section 1.
7.3 In the event of termination or expiration of this Agreement due to VAR's
default, VAR shall immediately discontinue use of SELECTICA's name and marks,
and shall within thirty (30) days of the effective termination
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expiration date settle all accounts, pay all outstanding bills, and return to
SELECTICA all confidential and proprietary information obtained from SELECTICA
pursuant to this Agreement.
7.4 In the event of a material default under this Agreement by SELECTICA, VAR
will provide written notice of such default and establish a reasonable period
of time, not to exceed thirty (30) days, in which VAR must remedy such
deficiencies. In the event VAR does not correct the deficiencies, VAR can, at
its option, terminate this Agreement.
8. ANNOUNCEMENT
8.1 VAR agrees that upon both parties signatures below, SELECTICA may
publicize the relationship established by this Agreement.
9. INDEMNIFICATION
9.1 Except as limited in Section 9.2, SELECTICA shall defend at its expense any
action brought against VAR to the extent the action is based on a claim that
use of any Products furnished to VAR under this Agreement infringes any United
States patent or copyright. SELECTICA will indemnify VAR against any costs,
damages or fees finally awarded against VAR in such an action, provided that
VAR notifies SELECTICA promptly, in writing, of the claim, and grants SELECTICA
sole authority to defend or settle the claim, and also provides SELECTICA with
all reasonable information, assistance, and authority necessary to enable
SELECTICA to do so. SELECTICA shall have the right to substitute a new Product
that is non-infringing provided that the performance of the new product is
substantially equivalent to the licensed Product that was originally delivered
to VAR.
9.2 SELECTICA shall have no liability under Section 9.1 for claims and/or
actions based on: (a) the use of other than the most current version of the
Products, if the claim or action could have been avoided by use of the most
current version of the Products; (b) the purchase or obtaining of the Products
from a dealer, distributor, or VAR not authorized by SELECTICA; or (c) the
modification of the Products by the VAR or a third party.
9.3 The indemnification by SELECTICA in Section 9.1 above shall not extend to
claims that arise solely from the work that VAR performs in integrating the
Products with other Products or in the marketing of the Products pursuant to
this Agreement. VAR agrees that, as to the content of such work VAR, at its own
expense, shall indemnify, defend and hold SELECTICA harmless from and against
any and all awards, judgments, expenses, damages, costs (including reasonable
attorney's fees) and losses resulting from any claim, action, suit or
proceeding threatened or instituted against SELECTICA based on a claim that the
integrated and combined Products and the use thereof, constitutes an
infringement upon or misappropriation of any patent, copyright, trade secret or
other proprietary right. Except with the written consent of SELECTICA, VAR will
not consent to the entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof, the giving to SELECTICA a
full and final release from all liability or which limits or adversely affects
the rights of SELECTICA to carry on or conducts its business, then or into the
future.
9.4 VAR agrees to indemnify and hold Selectica harmless from any claims,
suits, proceedings, losses, liabilities, damages, costs and expenses
(inclusive of Selectica's reasonable attorneys' fees) made against or incurred
by Selectica as a result of (i) negligence or misrepresentation by VAR or its
representatives, (ii) any error or omission on the part of VAR or
representatives of VAR or (iii) any action by VAR which affects Selectica's
Intellectual Property Rights (iv) any claims for compensation asserted by VAR's
employees. VAR shall be solely responsible for, and shall indemnify and hold
Selectica harmless from, any claims, warranties or representations made by VAR
or VAR's employees or agents. VAR will defend, indemnify, and hold harmless
Selectica and its successors, agents, officers, directors, and employees from
and against any violation of any laws or regulations by VAR or any of its
agents, officers, directors, employees, or customers.
10. WARRANTY
10.1 SELECTICA warrants to VAR that each SELECTICA Product purchased from
SELECTICA or from a dealer, distributor, or VAR authorized by SELECTICA will be
free from material errors or defects in material and
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workmanship and will perform in substantial compliance with SELECTICA's
published specifications for ninety (90) days after shipment of the Products by
SELECTICA to VAR. This limited warranty is contingent upon proper use of the
Products and does not cover any Products that have been modified or misused.
10.2 SELECTICA shall accept the return from VAR of any Products not meeting the
requirements of Section 10.1 if it is returned to SELECTICA within the warranty
period with a written description of the claimed defect, along with information
regarding its purchase, including dated proof of purchase, provided VAR obtains
a prior Return Material Authorization (RMA) number from SELECTICA for the return
and ships the return to the destination specified by SELECTICA, freight prepaid,
with the RMA number clearly marked on the outside of the shipping container. At
its option SELECTICA will either repair or replace the defective Products and
return it to VAR with freight charges, shipping, handling, duty, and taxes
prepaid, or apply the price paid therefor by VAR as a credit to future purchases
of Products.
10.3 A SELECTICA warranty statement and limitation of liability statements is
provided with each SELECTICA product intended for sale to end-user customers.
VAR is not authorized to make any other warranty commitment, whether written or
verbal, on SELECTICA's behalf. A copy of the applicable end-user warranty or
limitation of liability statements will be furnished to VAR separately.
10.4 SELECTICA's Disclaimer of Warranty. THE LICENSED SELECTICA PRODUCTS AND
RELATED DOCUMENTATION ARE PROVIDED "AS IS". SELECTICA MAKES AND VAR AND VAR'S
END-USER CUSTOMERS RECEIVE NO WARRANTIES ON THE LICENSED SELECTICA PRODUCTS AND
RELATED DOCUMENTATION, EXPRESS, IMPLIED, STATUTORY, OR IN ANY OTHER PROVISION OF
THIS AGREEMENT OR COMMUNICATION WITH VAR AND VAR'S END-USER CUSTOMERS. SELECTICA
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. SELECTICA DOES NOT WARRANTY THAT THE OPERATION OF THE
LICENSED SELECTICA PRODUCTS WILL BE UNINTERRUPTED OR ERROR FREE.
10.5 Notwithstanding anything to the contrary contained herein, except as
expressly set forth, SELECTICA shall not, under any circumstances, be liable to
VAR or VAR's end-user customers for consequential, incidental, or special
damages, including but not limited to lost profits, even if SELECTICA has been
apprised of the likelihood of such damages occurring.
11. TRADEMARKS AND RELATED MATTERS
11.1 VAR may refer to itself during the term of this Agreement as a "Selectica
Certified Value Added Reseller", solely in connection with the Products
purchased under this Agreement.
11.2 VAR agrees that it will not use the terms "SELECTICA," "SELECTICA, INC.",
"SELECTICA INTERNET SELLING SYSTEM", "SELECTICA ISS", or the SELECTICA logo, or
any similar terms or logos as a trading designation or in any other way, except
to indicate that VAR is authorized by SELECTICA to market the Products.
11.3 VAR agrees that it will not remove, conceal, or change any trademark,
service mark, trade name, or logo from the Products or associated documentation
provided by SELECTICA. VAR agrees that it will not affix any trademarks or
service marks of SELECTICA or any similar terms to any other goods, use the same
in connection with any services, or use the same in VAR's business or company
name.
11.4 VAR agrees to notify SELECTICA promptly of any use of SELECTICA's names or
marks or any similar marks by any third party.
11.5 Unless prior written consent is obtained from SELECTICA, VAR shall not
copy or modify any manuals, documentation or other materials provided by
SELECTICA under this Agreement.
11.6 The permission granted relative to all SELECTICA trademarks shall terminate
with the expiration or termination of this Agreement. Upon such expiration or
termination, VAR shall immediately cease referring to
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itself as an Authorized Selectica Value Added Reseller and shall immediately
cease using trade names and trademarks of SELECTICA.
12. YEAR 2000 COMPLIANCE WARRANTY
SELECTICA represents and warrants that the Software as delivered will operate
prior to, during, and after, the calendar year 2000 A.D. without error relating
to date data, specifically including but not limited to any error relating to
calculations, sorting, interpretation, processing or acceptance of date data
which represents or references different centuries or more than one century,
provided that all hardware, firmware and other software used in conjunction with
the Software properly exchanges accurate and properly formatted date data with
the Software. The Year 2000 Compliance Warranty set forth in this Section shall
begin as of the date of this Agreement and end on the date after January 1,
2000, subsequent to which the Software has operated without a breach of the Year
2000 Compliance Warranty for a consecutive six month period (the "Year 2000
Warranty Period"). If the Software fails to comply with the warranty set forth
in this Section 12. SELECTICA will use reasonable commercial efforts to correct
the noncompliance, provided that VAR notifies SELECTICA of the noncompliance
within the Year 2000 Warranty Period, and SELECTICA is able to reproduce the
noncompliance as communicated by VAR to SELECTICA. If after the expenditure of
reasonable efforts, SELECTICA is unable to correct any such noncompliance,
SELECTICA may refund to VAR all or an equitable portion of the license fee paid
by VAR to SELECTICA for such Software in full satisfaction of VAR's claims
relating to such noncompliance upon VAR's return of said Software.
13. GENERAL
13.1 This Agreement is not assignable by VAR without the prior written consent
of SELECTICA. Any attempt to assign any of the rights, duties, or obligations of
this Agreement without such consent is void.
13.2 VAR and SELECTICA hereby agree that any Confidential Information about the
Products or relating to VAR's or SELECTICA's product development or business
activities received under this Agreement, whether for internal use or otherwise,
and whether provided verbally, in writing, or in any other medium, is and shall
be treated as the confidential property of VAR or SELECTICA, as the case may be
(except such information as is previously known to VAR or SELECTICA without an
obligation of confidentiality or is publicly disclosed by the parties seeking to
maintain its confidentiality). VAR and SELECTICA will notify each other by
identifying and marking all materials as Company Confidential or Confidential
Information. VAR and SELECTICA shall hold such Confidential Information in
strictest confidence and shall exercise and shall obligate all of its employees
to exercise a high degree of care to safeguard the confidentiality of the
Confidential Information during the term of this Agreement and three (3) years
thereafter.
13.3 The entire Agreement between the parties is incorporated in this Agreement
and its exhibits, and it supersedes and merges all prior discussions and
agreements between the parties relating to the subject matter hereof. This
Agreement can be modified only by a written amendment duly signed by persons
authorized to sign agreements on behalf of VAR and SELECTICA and shall not be
supplemented or modified by any course of dealing or trade usage. Variance from
or addition to the terms and conditions of this Agreement in any order or other
written notification from VAR will be of no effect. The term "Agreement" as
used herein includes any applicable exhibits or future written amendments made
in accordance herewith.
13.4 Nothing contained in this Agreement shall be construed as creating a joint
venture, partnership or employment relationship between SELECTICA and VAR, it
being understood that SELECTICA and VAR are independent contractors vis-a-vis
one another. Except as specified herein, no party shall have the right, power or
implied authority to create any obligation or duty, express or implied, on
behalf of any other party hereto.
13.5 Any obligations or duties that by their nature extend beyond the expiration
or termination of this Agreement shall survive any expiration or termination of
this Agreement and shall remain in effect.
7
<PAGE> 8
13.6 If any provision of this Agreement is held to be invalid, illegal, or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby, and VAR shall
negotiate in good faith with SELECTICA to amend this Agreement in order to make
such provision enforceable.
13.7 Except for the obligation to pay money properly due and owing, neither
party shall be responsible for damages or be deemed in default by reason of
delays in performance due to strikes, lockouts, accidents, Acts of God, or
other causes beyond the party's reasonable control.
13.8 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of California, without regard to conflict of laws
principles or the U.N. Convention on Contracts for the International Sale of
Goods. Any dispute or claim arising out of or in relation to this Agreement, or
the interpretation, making, performance, breach or termination thereof, shall
be finally settled by binding arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce as presently in force
("Rules") and by three (3) arbitrators appointed in accordance with said Rules.
Judgment on the award rendered may be entered in any court having jurisdiction
thereof. The place of arbitration shall be San Francisco, California, U.S.A.
Any monetary award shall be in U.S. dollars and the arbitration shall be
conducted in the English language. The parties may apply to any court of
competent jurisdiction for temporary or permanent injunctive relief, without
breach of this Section 12.8 and without any abridgment of the powers of the
arbitrator.
13.9 For purposes of this Agreement, and for all notices and correspondence
hereunder, the addresses of the respective parties have been set out at the
beginning of this Agreement, and no change of address shall be binding upon the
other party until written notice thereof is received by such party at the
address shown herein. All notices shall be effective upon receipt if delivered
by courier service or sent by telegram, and five days after mailing if sent by
registered mail.
13.10 Neither this Agreement nor any of its exhibits will become effective
until accepted by SELECTICA at its offices in San Jose, California.
8
<PAGE> 9
VAR acknowledges that VAR has read this Agreement, understands it, and agrees
to be bound by its terms and conditions. Further, VAR agrees that this
statement is the complete and exclusive statement of the agreement between the
parties, and that this statement supersedes any prior agreements, verbal or
written, and any other communications between the parties relating to the
subject matter of this Agreement.
In Witness whereof, the parties have executed this Agreement by their duly
authorized representatives.
SELECTICA, INC. SAMSUNG SDS CO., LTD.
("SELECTICA") ("VAR")
By: /s/ STEPHEN BENNION By: /s/ JOO WON PARK
------------------------- -------------------------
Print name: Stephen Bennion Print name: Joo Won Park
------------------------- -------------------------
Title: Vice President/CFO Title: Managing Director/CFO
------------------------- -------------------------
Date: Jan. 12, 2000 Date: Jan. 12, 2000
------------------------- -------------------------
9
<PAGE> 10
EXHIBIT A
VAR PROGRAM AND NON-REFUNDABLE FEES
I. DEVELOPMENT SYSTEM
VAR agrees to pay the following non-refundable program fee.
VAR PROGRAM NAME NON-REFUNDABLE FEE
CERTIFIED INTERNET SELLING SYSTEM VAR $0.0
a) ACE Studio Integrated Modeling Environment (One User) Quantity 1
b) ACE Enterprise - Dual CPU Server Quantity 1
c) ACE Quoter - Dual CPU Server Quantity 1
II. CONSULTING SERVICES
VAR may purchase up to 10 days of SELECTICA consulting services at a 20%
discount from the current published prices, subject to scheduling and
availability of consultants for a period of ninety (90) days from the Effective
Date of this Agreement. VAR will be responsible for any travel expenses
incurred.
Selectica agrees not to exceed the following expenses for Selectica consultants
working onsite on VAR projects:
Expense Items Amount
------------- ------
Air Fare $[*]/person
Hotel $[*]/day/person
Food $[*]/day/person
Communication $[*]/day/person
Taxi $[*]/day/person
Total $[*]/week/person
III. TRAINING
VAR must have, at a minimum, one employee successfully complete the training
course(s) for the selected program(s) within sixty (60) days of the effective
date of the Agreement. Selectica will provide training for four (4) of VAR's
employees free of charge subsequent to each new release of the Products.
Selectica agrees to also conduct presales training to the VAR sales team upon
major product releases. Such training shall take place at Selectica's premises
and shall be at a time mutually agreed upon.
VAR shall receive a 20% discount from current published prices on all
additional public training courses which VAR attends. The VAR will receive a
20% discount for customer students enrolled in SELECTICA Training by VAR.
Classes are subject to availability.
IV. LICENSING ADDITIONAL OR NEW PLATFORMS, DATABASES OR OPERATING SYSTEMS
From time to time SELECTICA may add new platforms, databases and/or operating
systems. SELECTICA may choose to make these new product offerings available to
VAR for an additional fee per platform, database and/or operating system.
[*] - CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
10
<PAGE> 11
V. VAR MAINTENANCE FEES
VAR will be charged a minimum annual maintenance fee of $[*] per VAR program
for all term years except year one. Year one maintenance is included in with
the initial non-refundable program fee. Renewal maintenance fees will be
billed annually on the anniversary date of this Agreement. The maintenance fees
must be kept current in order to remain in the Program.
VAR shall pay a maintenance fee of [*]% of the list price of any additional
products purchased by VAR.
VI. END-USER MAINTENANCE FEES
VAR shall pay SELECTICA a maintenance fee equal to [*]% of the suggested retail
price of the deployment licenses purchased by end-user customers.
In cases where end-user customers or VAR prefers to contract directly with
SELECTICA for maintenance following year one, such customers shall pay
SELECTICA's standard maintenance fee of [*]% of the suggested retail price for
deployment licenses.
[*] - CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
11
<PAGE> 12
EXHIBIT B
PURCHASED PRODUCTS
<TABLE>
<CAPTION>
ACE MODULES LIST UNIT PRICE DISC. UNIT PRICE NUMBER OF UNITS TOTAL COST
<S> <C> <C> <C> <C> <C> <C>
ENTERPRISE
2 CPU $ [*] $ [*] 13 $ [*]
4 CPU $ [*] $ [*] 4 $ [*]
TEST & DEV. $ [*] $ [*] 4 $ [*]
QUOTER
2 CPU $ [*] $ [*] 13 $ [*]
4 CPU $ [*] $ [*] 2 $ [*]
TEST & DEV. $ [*] $ [*] 4 $ [*]
SERVER MGR $ [*] $ [*] 4 $ [*]
TEST & DEV. $ [*] $ [*] 2 $ [*]
STUDIO $ [*] $ [*] 27 $ [*]
$ [*]
TOTAL DISCOUNTED $ [*]
PURCHASE PRICE
(DUE UPON
SIGNING)
</TABLE>
[*] - CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
12
<PAGE> 13
EXHIBIT C
Form of End-User License Agreement
13
<PAGE> 14
AMENDMENT TO
INTERNATIONAL VALUE ADDED RESELLER AGREEMENT BETWEEN
SELECTICA, INC. AND SAMSUNG SDS
This Amendment ("Amendment") to the International Value Added Reseller
Agreement between Selectica, Inc. ("SELECTICA") and Samsung SDS ("Customer")
dated January 12, 2000 (the "Agreement") is made as of this 29th day of
February 2000 by and among SELECTICA and Customer.
RECITAL
On January 12, 2000, SELECTICA and Customer entered into the Agreement by
which Customer was to act as a value added reseller of certain of SELECTICA's
products. The parties to the Agreement now wish to terminate the Agreement and
forfeit all rights pursuant to the Agreement.
AGREEMENT
In consideration of the mutual release of obligations pursuant to the
Agreement and in consideration of the execution of Amendment #1 to the Major
Account License Agreement between SELECTICA and Samsung SDS dated as of the
date hereof, the parties hereto mutually agree as follows:
1. TERMINATION. The parties hereto hereby agree that the Agreement shall
be terminated in its entirety and no provisions of such agreement shall survive
such termination and that the Agreement is hereby amended to provide for
immediate termination and that any provisions to the contrary of the Agreement
are hereby to be stricken in their entirety.
2. WAIVER. The parties hereto hereby agree that they are waiving any
rights they possess pursuant to the Agreement and are hereby releasing the
other party of any obligations due under the Agreement.
1
<PAGE> 15
This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to the
Agreement to be duly signed and authorized.
SAMSUNG SDS
By: /s/ JOO WON PARK
------------------------------
Name: JOO WON PARK
------------------------------
Title: Director of Team
------------------------------
Address: 707-19 YOKSAN-DONG KANGNAN-JU
------------------------------
SEOUL, KOREA 135-080
------------------------------
SELECTICA, INC.
By: /s/ STEPHEN BENNION
------------------------------
Name: STEPHEN BENNION
------------------------------
Title: VP/CEO
------------------------------
Address: 3 WEST PLUMERIA DRIVE
------------------------------
San Jose, CA 95134
------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 26, 2000 (except Note 14, as to which the date
is February 14, 2000) in Amendment No. 4 the Registration Statement (Form S-1
No. 333-92545) and related Prospectus of Selectica, Inc. for the registration of
4,600,000 shares of its common stock.
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
San Jose, California
March 2, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-START> APR-01-1998 APR-01-1999
<PERIOD-END> MAR-31-1999 DEC-31-1999
<CASH> 0 14,123,645
<SECURITIES> 0 0
<RECEIVABLES> 1,756,307 3,851,739
<ALLOWANCES> 104,000 254,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,818,761 18,322,878
<PP&E> 1,289,338 4,639,472
<DEPRECIATION> 276,869 990,099
<TOTAL-ASSETS> 3,193,326 27,119,596
<CURRENT-LIABILITIES> 2,457,800 7,772,145
<BONDS> 0 0
0 0
1,356 1,971
<COMMON> 624 819
<OTHER-SE> 733,546 19,344,661
<TOTAL-LIABILITY-AND-EQUITY> 3,193,326 27,119,596
<SALES> 1,656,015 5,180,625
<TOTAL-REVENUES> 3,444,482 9,139,582
<CGS> 183,715 258,828
<TOTAL-COSTS> 1,367,243 5,498,987
<OTHER-EXPENSES> 9,712,672 16,326,637
<LOSS-PROVISION> 74,250 150,000
<INTEREST-EXPENSE> 28,856 59,856
<INCOME-PRETAX> (7,536,901) (12,366,603)
<INCOME-TAX> 0 50,000
<INCOME-CONTINUING> (7,536,901) (12,416,603)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,536,901) (13,341,917)
<EPS-BASIC> (1.58) (2.53)
<EPS-DILUTED> (1.58) (2.53)
</TABLE>
