<PAGE>
As filed with the Securities and Exchange Commission on March , 2000
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
Evolve Software, Inc.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 7372 94-3219745
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
615 Battery St., 4th Floor
San Francisco, CA 94111
(415) 439-4000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
John Bantleman
President & Chief Executive Officer
Evolve Software, Inc.
615 Battery St., 4th Floor
San Francisco, CA 94111
(415) 439-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Barry E. Taylor, Esq. William H. Hinman, Jr., Esq.
Ramsey Hanna, Esq. Shearman & Sterling
Wilson Sonsini Goodrich & Rosati 1550 El Camino Real, Suite 100
Professional Corporation Menlo Park, CA 94025
650 Page Mill Road (650) 330-2200
Palo Alto, CA 94304
(650) 493-9300
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class of Maximum Maximum Amount of
Securities to be Amount to be Offering Price Aggregate Registration
Registered Registered Per Share Offering Price Fee
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $0.01 par
value................. $65,000,000 $17,160
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes shares that the Underwriters have the option to purchase
to cover over-allotments, if any. Estimated solely for the purpose of
computing the amount of the registration fee pursuant to Rule 457 under
the Securities Act of 1933.
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 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EVOLVE SOFTWARE, INC.
CROSS-REFERENCE SHEET
Showing Location in Prospectus of Information
Required by Items of Form S-1
<TABLE>
<CAPTION>
Form S-1 Registration
Statement Heading Heading or Location in Prospectus
--------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Forepart of the Registration Statement;
Cover Page of Prospectus... Outside Front Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Pages of Inside Front Cover Page; Outside Back Cover
Prospectus................. Page
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed Charges.. Prospectus Summary; Risk Factors
4. Use of Proceeds............. Prospectus Summary; Use of Proceeds
5. Determination of Offering
Price...................... Underwriting
6. Dilution.................... Dilution
7. Selling Security Holders.... Not Applicable
8. Plan of Distribution........ Underwriting
9. Description of Securities to Outside Front Cover Page; Prospectus
be Registered.............. Summary; Capitalization; Description of
Capital Stock
10. Interests of Named Experts
and Counsel................ Legal Matters
11. Information with Respect to Inside and Outside Cover Pages; Prospectus
the Registrant............. Summary; Risk Factors; Use of Proceeds;
Dividend Policy; Capitalization; Dilution;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Consolidated Financial Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................ Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 , 2000
Shares
[EVOLVE LOGO]
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of the common stock is expected to be between
$ and $ per share. We have applied to list our common stock on The Nasdaq
Stock Market's National Market under the symbol "EVLV."
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on Page 7.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Evolve
------------- ------------- -------------
<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 and complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston Deutsche Banc Alex. Brown
The date of this prospectus is , 2000.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward- Looking Information...................... 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 34
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 48
Certain Relationships and Related Transactions............................. 59
Principal Stockholders..................................................... 63
Description of Capital Stock............................................... 65
Shares Eligible for Future Sale............................................ 68
Underwriting............................................................... 70
Notice to Canadian Residents............................................... 73
Legal Matters.............................................................. 74
Experts.................................................................... 74
Where You Can Find More Information........................................ 74
Index to 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 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>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in this offering. You should carefully
read the entire prospectus and the risk factors beginning on page 7 before
evaluating an investment in our stock.
Unless otherwise stated, the terms "Evolve", "we" or "us" as used in this
prospectus refer to Evolve Software, Inc.
Evolve Software, Inc.
We are a leading provider of Internet-based end-to-end solutions for
automating professional services organizations. Our ServiceSphere process
automation solution facilitates the management of project opportunities,
professional resources, and service delivery and provides enterprise-wide
visibility of business performance. Our recently launched Services.com offering
extends the capabilities of our ServiceSphere solution to integrate the
internal business processes of services providers and acquirers in an
efficient, collaborative, transactional environment. Our solution combines the
efficiency gains of core business process automation with the benefits of an
online marketplace, creating an ePlatform for the professional services
industry. We have licensed our solution to 23 customers, each of whom has
purchased more than $250,000 in products and services from us, and who
collectively license our solution to manage over 40,000 services professionals.
Our customers include Cambridge Technology Partners, DMR Consulting Group,
Novell, Razorfish, Whittman-Hart, and Zefer.
The US professional services market is projected to generate $2.1 trillion
in revenues in 2000, according to Benchmarking Partners. This market includes
the information technology, management consulting, advertising, media, public
relations, architecture, construction, engineering, financial services, law,
tax, audit, and health care sectors. We believe that the unique nature of the
professional services industry has created an opportunity for the development
and delivery of an ePlatform that is designed to serve members of the service
chain - providers and acquirers of professional services. Unlike product-based
businesses, professional services organizations are inherently virtual,
collaborative and people-centric. This creates complex operational and
management challenges for services organizations, both within their enterprise
and in dealing with other service chain members, which traditional enterprise
software applications have not addressed.
Our ePlatform solution consists of three business process modules that
integrate and automate the core processes that are critical to the operational
effectiveness of services organizations. Our Opportunity Manager module assists
in identifying, managing, and prioritizing project opportunities across the
entire services organization. Our Resource Manager module facilitates
allocation of resources to optimize utilization and resource retention. Our
Delivery Manager module enables flexible and integrated time and expense
tracking, billing and analysis to improve profitability and customer
satisfaction. These modules will be tightly integrated with our Services.com
offering to create an efficient collaborative online transactional environment
that connects providers and acquirers of professional services with other
members of the service chain.
Our objective is to become the leading ePlatform provider for automating the
service chain. The key elements of our strategy include:
. Extending our market position among information technology services
organizations;
. Enhancing our technology leadership;
. Capitalizing on network effects to connect the service chain;
3
<PAGE>
. Expanding our solution acquisition, deployment, and pricing options;
. Increasing the deployment of our solution throughout a customer's
organization; and
. Expanding into new geographic markets and services industries.
We were incorporated in Delaware in February 1995. Our principal executive
offices are located at 615 Battery Street, 4th Floor, San Francisco, CA 94111
and our telephone number is (415) 439-4000.
Evolve, "Evolve. Connect. Thrive.", ServiceSphere, Services.com, "Connecting
the Service Chain", sXML and the Evolve Logo are our trademarks. All other
trademarks or service marks appearing in this prospectus are trademarks or
service marks of the respective companies that own them.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered in this offering...... shares
Common stock outstanding after this shares
offering..................................
Use of proceeds from this offering......... For general corporate purposes,
including working capital, for
repayment of indebtedness and for
potential acquisitions. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol..... EVLV
</TABLE>
The number of shares of common stock outstanding after this offering is
based on the number of shares outstanding as of March 15, 2000 and gives effect
to the conversion of all shares of our preferred stock into common stock upon
the closing of this offering. This number excludes:
. shares of common stock that we may issue upon exercise of options
outstanding as of March 15, 2000 with a weighted average exercise price
of $ ;
. shares of common stock issuable under our active stock plans; and
. shares that we may issue upon exercise of warrants outstanding as
of March 15, 2000 at a weighted average exercise price of $ per share.
----------------
Except as otherwise indicated, the information in this prospectus assumes:
. the conversion of all outstanding shares of preferred stock into an
aggregate of 30,169,986 shares of common stock upon the closing of this
offering and the presentation of preferred stock on an as converted
basis;
. a one for three reverse stock split of our stock effective upon the
closing of this offering;
. no exercise of the underwriters' option to purchase additional
shares after the closing of the offering; and
. the issuance of 3,666,667 shares of our common stock upon completion of
our acquisition of InfoWide, Inc.
5
<PAGE>
Summary Financial Data
(in thousands, except per share data)
The following tables summarize our financial data. You should read the
summary financial data below in conjunction with our financial statements and
the related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," beginning on page 23. The as adjusted
balance sheet data reflect our sale of shares of common stock in this
offering at an assumed initial public offering price of $ per share, after
deducting estimated underwriting discounts, commissions and offering expenses.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
--------------------------- --------------------
1997 1998 1999 1998 1999
------- -------- -------- ----------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................... $ -- $ -- $ 517 $ -- $ 2,087
Gross margin (loss)........ -- -- (118) -- 721
Operating expenses......... 7,907 9,225 11,008 4,253 13,801
Loss from Operations....... (7,907) (9,225) (11,126) (4,253) (13,080)
Net Loss................... (8,093) (10,582) (11,471) (4,688) (12,862)
Basic and diluted loss per
share..................... (6.06) (4.64) (3.60) (1.61) (2.89)
Shares used in computing
basic and diluted loss per
share..................... 1,336 2,282 3,182 2,920 4,448
Pro forma basic and diluted
loss per share............ -- -- (0.78) -- (0.45)
Shares used in computing
pro forma basic and
diluted loss per share.... -- -- 14,799 -- 28,469
</TABLE>
- --------
See Note 1 of Notes to Financial Statements for explanation of determination
of number of shares used in computing per share data.
<TABLE>
<CAPTION>
December 31, 1999
------------------------
Actual As Adjusted
------- ------------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $17,505 $
Restricted Cash...................................... 2,000
Working capital...................................... 16,804
Total assets......................................... 25,792
Long-term debt and capital lease obligations, net of
current portion..................................... 3,954
Total stockholders' equity........................... 12,977
</TABLE>
6
<PAGE>
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the following risks and all other information contained in
this prospectus before purchasing our common stock. The risks and uncertainties
described below are not the only ones we face. Additional risks and
uncertainties that we do not presently know about or that we currently deem
immaterial may also impair our business operations. Any of the following risks
could materially harm our business, financial condition or operating results,
and cause the trading price of our common stock to decline. As a result, you
could lose all or part of your investment.
Risks Related to Our Business
Our business is difficult to evaluate because our operating history is limited.
It is difficult to evaluate our business and our prospects because our
revenue and income potential are unproven. We did not begin selling our first
products until the fourth quarter of 1998 and commenced recognizing product
revenues in the first quarter of 1999. Because of our limited operating
history, there may not be an adequate basis for forecasts of future operating
results. To date, we have encountered the risks frequently encountered by early
stage companies, particularly companies in new and rapidly evolving markets.
Our business strategy may not be successful and we may not be able to
successfully address these risks.
We have incurred losses since inception, and we may not be able to achieve
profitability.
We have incurred net losses and losses from operations since our inception
in 1995, and we may not be able to achieve profitability in the future. As of
December 31, 1999, we had an accumulated deficit of approximately $47.9
million. Since inception, we have funded our business primarily from the sale
of our stock and by borrowing funds, not from cash generated by our business.
We expect to continue to incur significant sales and marketing, research and
development and general and administrative expenses. As a result, we expect to
experience continued losses and negative cash flows from operations. If we do
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis in the future.
Our future operating results may not follow past trends due to many factors,
and any of these could cause our stock price to fall.
We believe that quarter-to-quarter comparisons of our operating results are
not a good indication of future performance. Although our operating results
have generally improved from quarter to quarter in the recent past, our future
operating results may not follow past trends. It is likely that in some future
quarters our operating results may be below the expectations of public market
analysts and investors due to factors beyond our control, and as a result, the
price of our common stock may fall.
Factors that may cause our future operating results to be below expectations
and cause our stock price to fall include:
. The lack of demand for and acceptance of our products, product
enhancements and services;
. The development, introduction, timing and competitive pricing of our
products and services and those of our competitors;
. The expansion and rate of success of our direct sales force and indirect
distribution channels both domestically and internationally;
. The attraction and retention of key personnel, particularly in our
development, sales, services and support groups;
. The budgeting cycles of our customers;
. Our compensation policies that tend to compensate sales personnel more
for achieving annual quotas, typically in the latter half of the fiscal
year; and
7
<PAGE>
. The timing and successful integration of and costs related to
technologies and businesses we may acquire in the future.
We plan to significantly increase our operating expenses to expand our
administration, information technology infrastructure, consulting and training,
maintenance and technical support, research and development and sales and
marketing groups. Our operating expenses are based on our expectations of
future revenues and are relatively fixed in the short term. If revenues fall
below our expectations in any quarter and we are not able to quickly reduce our
spending in response, our operating results would be lower than expected and
our stock price may fall.
We may lose existing customers or be unable to attract new customers if we do
not develop new products or enhance our existing products.
If we are not able to maintain and improve our product line and develop new
products, we may lose existing customers or be unable to attract new customers.
We may not be successful in developing and marketing product enhancements or
new products on a timely or cost-effective basis. These products, if developed,
may not achieve market acceptance.
We have commitments to certain of our customers to develop product
enhancements that address their specific needs. If we fail to deliver these
enhancements on a timely basis, we risk damaging our relationship with these
customers. We have experienced delays in the past in releasing new products and
product enhancements and may experience similar delays in the future. These
delays or problems in the installation or implementation of our new releases
may cause customers to forego purchases of our products to purchase those of
our competitors.
The growth of our business depends on the growth of the market for process
automation solutions for professional services organizations.
All of our historical revenues have been attributable to the sale of
automation solutions for professional services organizations. This is a
relatively new enterprise application solution category, and it is uncertain
whether major services organizations will choose to adopt process automation
systems. While we have devoted significant resources to promoting market
awareness of our products and the problems such products address, we do not
know whether these efforts will be sufficient to support significant growth in
the market for process automation products. Accordingly, the market for our
products may not continue to grow or, even if the market does grow in the
immediate term, that growth may not be sustainable.
Our Services.com offering is unproven and may not achieve customer acceptance.
We believe that our Services.com offering is a key factor in our ability to
extend our solution beyond the enterprise to manage the relationships and
interactions between professional services users, suppliers and subcontractors.
Services.com was announced in February 2000 and has not yet commenced
commercial operation. To date there are no binding customer commitments to use
Services.com, and we cannot be certain that any of our current or future
customers will choose to use Services.com, or that Services.com will contribute
to an expansion of our customer base. Moreover, market demand for eMarketplaces
linking multiple buyers and suppliers is in its nascence, and it is impossible
to predict whether such eMarketplaces will succeed in displacing entrenched
methods of doing business or capture a significant portion of market trade
volumes. Customers may therefore be reluctant to employ Services.com or any
other Evolve solutions that extend beyond the enterprise. Moreover, we cannot
predict whether customers will support our economic model for the
intermediation services offered by Services.com. We currently anticipate
earning a percentage of all service fees generated by service interactions
brokered or managed by Services.com. We cannot be certain that customers will
be willing to incur such transaction fees, or that the fees earned will be
provided an adequate return on the expenditures required to create, launch,
support and promote the service.
8
<PAGE>
In addition, the technology and business models underlying Services.com are
unproven. Without prior operating history, we cannot be sure that our website
infrastructure will be able to adequately support large transaction volumes or
perform critical functions.
If we fail to establish, maintain or expand our relationships with third
parties, our ability to grow revenues could be harmed.
In order to grow our business, we must establish, maintain and strengthen
relationships with third parties, such as information technology (IT)
consultants and systems integrators as implementation partners, hardware and
software vendors as marketing partners and content providers for our
Services.com offering. If these parties do not provide sufficient, high-quality
service or integrate and support our software correctly, our revenues may be
harmed. In addition, these parties may offer products of other companies,
including products that compete with our products. Our contracts with third
parties may not require these parties to devote resources to promoting, selling
and supporting our solutions. Therefore we may have little control over these
third parties. We cannot assure you that we can generate and maintain
relationships that offset the significant time and effort that are necessary to
develop these relationships, or that, even if we are able to develop such
relationships, these parties will perform adequately.
Our services revenues have a substantially lower margin than our software
license revenues, and an increase in services revenues relative to license
revenues could harm our gross margins.
Our Solutions and Subscriptions revenues each consist of fees we charge
customers to license our software as well as fees for services we provide to
customers. Revenues derived from services we provide have substantially lower
gross margins than revenues we derive from licensing our software. The relative
contribution of services we provide to our overall revenues is subject to
significant variation based on the structure and pricing of arrangements we
enter into with customers in the future, and the extent to which our partners
provide implementation, integration, training and maintenance services required
by our customers. An increase in the percentage of total revenues generated by
the services we provide could adversely affect our overall gross margins.
Difficulties with third-party services and technologies could disrupt our
business and undermine our reputation.
Our success in attracting and retaining customers for our Services.com and
Application Service Provider (ASP) offerings and convincing them to increase
their reliance on these solutions depends on our ability to offer customers
reliable, secure and continuous service. This requires that we provide
continuous and error-free access to our systems and network infrastructure. We
rely on third parties to provide key components of our networks and systems.
For instance, we rely on third-party Internet Service Providers to host
applications for customers who purchase our solutions on a subscription basis.
We also rely on third-party communications services providers for the high-
speed connections that link our Web servers and office systems to the Internet.
Many of our systems do not have redundant backup systems capable of mitigating
the effect of service disruptions. Any Internet or communications systems
failure or interruption could result in disruption of our service or loss or
compromise of customer orders and data. Such failures, especially if they are
prolonged or repeated, would make our service less attractive to customers and
tarnish our reputation.
Our markets are highly competitive and competition could harm our ability to
sell products and services and reduce our market share.
Competition could seriously harm our ability to sell additional software
solutions and subscriptions on prices and terms favorable to us. The markets
for our products are intensely competitive and subject to rapidly changing
technology. We currently compete against providers of automation solutions for
professional services organizations, such as Changepoint and Niku. In addition,
we may in the future face competition from new products that include some
professional services automation functionality introduced by providers of
business
9
<PAGE>
consulting services, enterprise application software vendors or electronic
marketplaces. Companies in each of these areas may expand their technologies or
acquire companies to support greater professional services automation
functionality and capabilities. In addition, "in-house" information technology
departments of potential customers have developed or may develop systems that
substitute for some of the functionality of our ePlatform.
Some of our competitors' products may be more effective than our products at
performing particular functions or be more customized for particular customer
needs. Even if these functions are not as well suited to solve our potential
customers' problems, our competitors' software products could discourage
potential customers from purchasing our products. A software product from a
more established vendor that performs these functions, as well as some of the
functions of our software solutions, may be appealing to these vendors'
customers because it would reduce the number of different types of software
necessary to effectively run their business. Further, many of our competitors
may be able to respond more quickly than we can to changes in customer
requirements because they may have larger research and development
organizations.
Some of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly
than we can to new or emerging technologies and changes in customer
requirements. Our competitors have made and may also continue to make strategic
acquisitions or establish cooperative relationships among themselves or with
other software vendors. This may increase the ability of their products to
address the need for software solutions such as ours. Our competitors may also
establish or strengthen cooperative relationships with parties with whom we
have relationships, thereby limiting our success with these parties.
Our operating results may vary significantly due to our lengthy and
unpredictable sales cycles for our products and resistance to adoption of our
software.
Because our products and services have lengthy and unpredictable sales
cycles, it is difficult for us to forecast the timing and recognition of
revenues from sales of our solutions. Since we are unable to control many of
the factors that will influence our customers' buying decisions, lengthy and
unpredictable sales cycles could cause our operating results to be below the
expectations of analysts and investors.
Customers in our target market often take an extended time evaluating our
products before purchasing them. Our products may have an even longer sales
cycle in international markets. During the evaluation period, a variety of
factors, including the introduction of new products or aggressive discounting
by competitors and changes in our customers' budgets and purchasing priorities,
may lead customers to not purchase or scale down orders of our products.
In addition, because we are pioneering a new solution category, we often
must educate our prospective customers regarding the use and benefit of our
solutions, which may cause additional delays during the evaluation and
acceptance process. These companies may be reluctant to abandon investments
they have made in other systems in favor of our solution. In addition, IT
departments of potential customers may resist purchasing our solutions for a
variety of other reasons, particularly the potential displacement of their
historical role in creating and running software and concerns that packaged
software products are not sufficiently customizable for their enterprises.
Our revenues depend on orders from our top customers, and if we fail to
complete one or more orders, our revenues will be reduced.
To date, we have received a significant portion of our revenues from a small
number of large orders from our top customers. For the year ended June 30,
1999, our initial customers, Whittman-Hart, Netscape and Becton Dickinson
accounted for 58%, 32% and 10% of our total revenues, respectively. For the six
months ended December 31, 1999, Novell, Whittman-Hart, Cambridge Technology
Partners and Lante accounted for
10
<PAGE>
31%, 18%, 14% and 10%, of our total revenues, respectively. Our operating
results may be harmed if we are not able to complete one or more substantial
product sales in any future period or attract new customers.
We depend on the continued services of our executive officers, and the loss of
key personnel or any inability to attract and retain additional personnel could
affect our ability to successfully grow our business.
Our future success will depend in large part on our ability to hire and
retain a sufficient number of qualified personnel, particularly in sales,
marketing, research and development, service and support. If we are unable to
do so, this inability could affect our ability to grow our business.
Competition for qualified personnel in high technology is intense, particularly
in the San Francisco Bay Area where our principal offices are located. Our
future success also depends upon the continued service of key engineering,
sales, services and marketing staff. The loss of the services of our key
personnel would harm our operations. None of our key personnel are bound by an
employment agreement, and we do not maintain key person insurance on any of our
employees. Because we, like many other technology companies, rely on stock
options as a component of our employee compensation, if the market price of our
common stock increases or decreases substantially, some current or potential
employees may perceive our equity incentives as less attractive. In that case,
our ability to attract and retain employees may be adversely affected.
Our future success depends upon the continued service of our executive
officers, who are listed in the section entitled "Management," particularly
John Bantleman, our President and Chief Executive Officer. None of our
executive officers are bound by an employment agreement for any specific term.
Our business could be harmed if we lost the services of one or more of our
executive officers or key employees, or if one or more of them decides to join
a competitor or otherwise compete directly or indirectly with us.
Our executive management team has limited experience working together, which
may make it difficult to conduct and grow our business.
Our Chief Operating Officer, our Vice President, Marketing and Business
Development and our Vice President, Marketplace Services have been employed by
us only since November 1999; our Vice President, Worldwide Customer Service has
been employed by us only since December 1999; and our Vice President, Strategy
has been employed by us only since March 2000. Therefore, there has been little
or no opportunity to evaluate the effectiveness of our executive management
team as a combined unit. In addition, we intend to recruit a Chief Financial
Officer, a Vice President of Worldwide Sales and other key executives. The
failure of executive management to function effectively as a team may have an
adverse effect on our ability to develop and market our products, maintain
customer relationships, present a cohesive culture and compete effectively.
Our acquisitions could be difficult to integrate, disrupt our business and
dilute stockholder value.
We intend to make investments in or acquire complementary companies,
products and technologies. For example, we expect to complete our acquisition
of InfoWide, Inc. in March 2000. We have limited organizational experience in
acquiring and integrating business and will need to develop the relevant skills
if we are to be successful in any such endeavor. We could have difficulty in
assimilating the operations of InfoWide or any other company we buy. In
addition, we may be unsuccessful in retaining the key personnel of any acquired
company. Moreover, we currently do not know and cannot predict the accounting
treatment of any such acquisition, in part because we cannot be certain what
accounting regulations, conventions or interpretations may prevail in the
future. If we acquire complementary technologies or products, we could
experience difficulties assimilating the acquired technology or products into
our operations. These difficulties could disrupt our ongoing business, distract
our management and employees and increase our expenses. Furthermore, we may
have to incur debt or issue equity securities to pay for any future
acquisitions, the issuance of which could be dilutive to our existing
stockholders.
11
<PAGE>
If our products do not stay compatible with widely used software programs, our
revenues may be adversely affected.
Our ePlatform must work with widely used software programs. If these
software programs and operating environments do not remain widely used, or we
do not update our software to be compatible with newer versions of these
programs and systems, we may lose customers.
In order to operate our software, it must be installed on both a computer
server running the Microsoft Windows NT or Sun Solaris operating systems and a
computer server running database software from Microsoft or Oracle. If we fail
to obtain access to these software products, we may be unable to build and
enhance our products on schedule.
Our software connects to and uses data from a variety of our customers'
existing software systems, including systems from Oracle and SAP. If we fail to
enhance our software to connect to and use data from new systems of these
products, we may lose potential customers.
The cost and difficulties of implementing our products could significantly harm
our reputation with customers, diminishing our ability to license additional
products to our customers.
Implementation of our ServiceSphere ePlatform may be complex, time consuming
and expensive. Failure by customers to successfully deploy our product or
integrate it with other software systems could damage our reputation with
existing and future customers and reduce future revenues. In many cases, our
customers must interact with, modify or replace significant elements of their
existing computer systems. The costs of our products and services represent
only a portion of the related hardware, software, development, training and
consulting costs. The significant involvement of third parties, including
system integrators, could reduce the control we have over the implementation of
our product and the quality of customer service provided to organizations that
use our solutions.
Our sales are concentrated in the IT services industry and if our customers in
this industry decrease their infrastructure spending, or we fail to penetrate
other industries, our revenues may decline.
We expect to continue to direct our sales and marketing efforts primarily
toward companies in the IT services industry. Sales to customers in the IT
services industry accounted for substantially all of our revenues in fiscal
1999 and in the six months ended December 31, 1999. If we fail to continue
increasing penetration in this industry our operating results may suffer. Given
the high degree of competition and the rapidly changing environment in this
industry, there is no assurance that we will be able to continue sales in this
industry at current levels. In addition, we intend to market our product in
professional services organizations in other industries. Customers in these new
industries are likely to have different requirements and may require us to
change our product design or features, sales methods, support capabilities or
pricing policies. If we fail to successfully address the needs of these
customers, we may experience decreased sales in future periods.
If we lose key licenses we may be required to develop or license alternatives
which may cause delays or reductions in sales or shipments.
We rely on software that we have licensed from third parties, including
Paradigm Software Technologies, Poet Software Corporation and Inprise/Borland
Corporation to perform key functions of our ServiceSphere ePlatform, and we
rely on these and other third parties to support their products for our
development and customer support efforts. These companies could terminate our
licenses if we breach our agreements with them, or they could discontinue
support of the products we license from them. This could result in delays or
reductions of sales or shipments of our ePlatform until alternative software
can be developed or licensed.
12
<PAGE>
If our products contain significant defects or our services are not perceived
as high quality, we could lose potential customers or be subject to damages.
Our products are complex and may contain currently unknown errors, defects
or failures, particularly since new versions are frequently released. In the
past we have discovered software errors in some of our products after
introduction. We may not be able to detect and correct errors before releasing
our products commercially. If our commercial products contain errors, we may:
. need to expend significant resources to locate and correct the error;
. be required to delay introduction of new products or commercial shipment
of products; or
. experience reduced sales and harm to our reputation from dissatisfied
customers.
Our customers also may encounter system configuration problems that require
us to spend additional consulting or support resources to resolve these
problems.
Because our software products are used for critical operational and
decision-making processes by our customers, product defects may also give rise
to product liability claims. Although our license agreements with customers
typically contain provisions designed to limit our exposure, some courts may
not enforce all or part of these limitations. Although we have not experienced
any product liability claims to date, we may encounter these claims in the
future. Product liability claims, whether or not successful, could:
. divert the attention of our management and key personnel from our
business;
. be expensive to defend; and
. result in large damage awards.
We do not have product liability insurance, and even if we obtain product
liability insurance, it may not be adequate to cover all of the expenses
resulting from such a claim. In addition, if our customers do not find our
services to be of high quality, they may elect to use other training,
consulting and product integration firms rather than contract for our services.
If customers are dissatisfied with our services, we may lose revenues.
Our business may suffer if we are not able to protect our intellectual
property.
Our success is dependent on our ability to develop and protect our
proprietary technology and intellectual property rights. We seek to protect our
software, documentation and other written materials primarily through a
combination of patent, trade secret, trademark and copyright laws,
confidentiality procedures and contractual provisions. While we have attempted
to safeguard and maintain our proprietary rights, we do not know whether we
have been or will be completely successful in doing so. Further, our
competitors may independently develop or patent technologies that are
substantially equivalent or superior to ours.
We have two patent applications pending in the United States with respect to
certain aspects of our software. None of these patents have been issued, and
there can be no assurance that any patents will be issued pursuant to these
applications or that, if granted, such patent would survive a legal challenge
to their validity or provide significant protection to us. Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy
aspects of our products or obtain and use information that we regard as
proprietary. Policing unauthorized use of our products is difficult. While we
are unable to determine the extent to which piracy of our software products
exists, software piracy can be expected to be a persistent problem,
particularly in foreign countries where the laws may not protect proprietary
rights as fully as in the United States. We can offer no assurance that our
means of protecting its proprietary rights will be adequate or that our
competitors will not reverse engineer or independently develop similar
technology.
13
<PAGE>
If others claim that we are infringing their intellectual property, we could
incur significant expenses or be prevented from selling our products.
We cannot provide assurance that others will not claim that we are
infringing their intellectual property rights or that we do not in fact
infringe those intellectual property rights. We have not conducted a search for
existing intellectual property registrations and we may be unaware of
intellectual property rights of others that may cover some of our technology.
Any litigation regarding intellectual property rights could be costly and
time-consuming and divert the attention of our management and key personnel
from our business operations. The complexity of the technology involved and the
uncertainty of intellectual property litigation increase these risks. Claims of
intellectual property infringement might also require us to enter into costly
royalty or license agreements.
We may not be able to obtain royalty or license agreements on terms
acceptable to us, or at all. We also may be subject to significant damages or
an injunction against use of our products. A successful claim of patent or
other intellectual property infringement against us would have an immediate
material adverse effect on our business and financial condition.
We have grown very quickly and if we fail to manage our growth, our ability to
generate new revenues and achieve profitability would be harmed.
We have grown significantly since our inception and will need to grow
quickly in the future. Any failure to manage this growth could impede our
ability to increase revenues and achieve profitability. Evolve has increased
its number of employees from 58 at December 31, 1998 to 177 employees as of
March 15, 2000. In order to manage growth effectively, we must:
. hire, train and integrate new personnel;
. continue to augment our management information systems;
. manage our sales and services operations, which are in several locations;
and
. expand and improve our systems and facilities.
We intend to expand operations internationally but we may encounter a number of
problems in doing so which could limit our future growth.
We may not be able to successfully market, sell, deliver and support our
products and services internationally. Our failure to build and manage
effective international operations could limit the future growth of our
business. Entry into international markets will require significant management
attention and financial resources to open international offices and hire
international sales and support personnel. Localizing our products is difficult
and may take longer than we anticipate due to difficulties in translation and
delays we may experience in recruiting and training international staff. In
addition, we currently have no experience in developing local versions of our
products, as well as marketing, selling and supporting our products and
services overseas. Doing business internationally involves greater expense and
many additional risks, particularly:
. unexpected changes in regulatory requirements, taxes, trade laws,
tariffs, intellectual property rights and labor regulations;
. changes in a specific country's or region's political or economic
conditions;
. greater difficulty in establishing, staffing and managing foreign
operations; and
. fluctuating exchange rates.
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<PAGE>
Privacy and security concerns, particularly related to the use of our software
on the Internet, may limit the effectiveness of and reduce the demand for our
products.
Our ePlatform solution relies on the use of confidential and sensitive
customer data that is collected or accessed on the Internet. Our collection and
use of such data for service professional profiling and other purposes may
raise privacy and security concerns. Our customers generally have implemented
security measures to protect customer and personnel data from disclosure or
interception by third parties. However, the security measures may not be
effective against all potential security threats. If a well-publicized breach
of customer data security were to occur, our ePlatform solution may be
perceived as less desirable, impacting our future sales and profitability.
In addition, due to privacy concerns, several legislative initiatives are
pending in the United States that would limit the use of data collection and
customer profiling technologies. The European Union and some European countries
have already adopted some restrictions on the use of personal data. If major
countries or regions adopt legislation or other restrictions on the use of
customer data collection and profiling, our solutions would be less useful to
our customers, and our sales and profits could decrease.
Potential imposition of governmental regulation or taxation on electronic
commerce could limit our growth.
The adoption of new laws or the adaptation of existing laws to the Internet
may decrease the growth in the use of the Internet, which could in turn
decrease the demand for our solutions, increase our cost of doing business or
otherwise have a material adverse impact on our business. Few laws or
regulations currently directly apply to access to commerce on the Internet.
Federal, state, local and foreign governments are considering a number of
legislative and regulatory proposals relating to Internet commerce. As a
result, a number of laws or regulations may be adopted regarding Internet user
privacy, taxation, pricing, quality of products and services, and intellectual
property ownership. How existing laws will be applied to the Internet in areas
such as property ownership, copyright, trademark, trade secret and defamation
is uncertain. The recent growth of Internet commerce has been attributed by
some to the lack of sales and value-added taxes on interstate sales of goods
and services over the Internet. Numerous state and local authorities have
expressed a desire to impose such taxes on sales to businesses in their
jurisdictions. The Internet Tax Freedom Act of 1998 prevents imposition of such
taxes through October 2001. If the federal moratorium on state and local taxes
on Internet sales is not renewed, or if it is terminated before its expiration,
sales of goods and services over the Internet could be subject to multiple
overlapping tax schemes, which could substantially hinder the growth of
Internet-based commerce, including use of our Services.com offering.
If we need additional financing to maintain and expand our business, financing
may not be available on favorable terms, if at all.
We expect to incur net losses before amortization charges for the
foreseeable future. We may need additional funds to expand or meet all of our
operating needs. If we need additional financing, we cannot be certain that it
will be available on favorable terms, if at all. Further, if we issue
additional shares of our capital stock, stockholders will experience additional
dilution, which may be substantial. If we need funds and cannot raise them on
acceptable terms, we may not be able to continue our operations at the current
level or at all.
Risks Associated with this Offering
Our securities have no prior market and we cannot assure you that our stock
price will not decline after the offering.
Our common stock has never been sold in a public market. An active trading
market for our common stock may not develop or be sustained after completion of
the offering. The initial public offering price may not be indicative of the
prices that will prevail in the public market after the offering, and the
market price of the common stock could fall below the initial public offering
price. The initial public offering price will be
15
<PAGE>
determined through negotiations between representatives of the underwriters and
us and may not be representative of the price of our common stock after this
offering. The market price of our common stock could fluctuate significantly
after this offering in response to any of the following:
. changes in financial estimates or investment recommendations by
securities analysts following our business;
. quarterly variations in our operating results falling below analysts' or
investors' expectations in any given period;
. general economic and information technology services market conditions;
. changes in economic and capital market conditions for Internet and other
information technology services companies;
. changes in market valuations of, or earnings and other announcements by,
providers of Internet and other information technology services;
. announcements by us or our competitors of new solutions, service
offerings, acquisitions or strategic relationships;
. changes in business or regulatory conditions; and
. trading volume of our common stock.
Many companies' equity securities, including equity securities of Internet
and other technology companies, have experienced extreme price and volume
fluctuations in recent years. Often, these fluctuations are unrelated to the
companies' operating performance. Elevated levels in market prices for
securities, often reached following these companies' initial public offerings,
may not be sustainable and many not bear any relationship to operating
performance. Our common stock may not trade at the same levels as other
Internet stocks, and Internet stocks in general may not sustain their current
market prices. In the past, following periods of market volatility,
stockholders have instituted securities class action litigation. If we were
involved in securities litigation, it could have a substantial cost and divert
resources and the attention of executive management from our business.
We have broad discretion to use the offering proceeds and how we invest these
proceeds may not yield a favorable return.
We intend to use the proceeds from the offering for general corporate
purposes, including working capital and capital expenditures and may use a
portion of the proceeds to acquire other businesses, products or technologies.
Our management may spend the proceeds from the offering in ways with which the
stockholders may not agree. Pending any such uses, we plan to invest the net
proceeds of the offering in investment-grade, interest-bearing securities. We
cannot predict that such investments will yield a favorable return.
Shares eligible for future sale after the offering could cause our stock price
to fall.
If our stockholders sell substantial amounts of our common stock in the
public market following the offering, the market price of our common stock
could fall. Such sales also might make it more difficult for Evolve to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate.
Based upon the number of our shares outstanding as of March 15, 2000, upon
completion of the offering, we will have outstanding shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants after March 15, 2000. Of
these shares, the shares sold in the offering will be freely
tradable. Approximately $50 million shares of common stock will be available
for sale in the public 180 days after the date of this prospectus or
afterwards.
After the offering, the holders of 31,169,986 million shares of common stock
and warrants to purchase common stock, which represent % of our
outstanding stock after completion of the offering, will be
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<PAGE>
entitled to certain rights to have the resale of their shares registered under
the Securities Act of 1933. If these holders, by exercising their registration
rights, cause a large number of securities to be registered and sold in the
public market, such sales could materially and adversely affect the market
price for our common stock. In addition, if we were to include in a
registration statement shares held by these holders pursuant to the exercise of
their registration rights, such sales may impede our ability to raise needed
capital.
Our officers, directors and affiliated entities will have significant control
over us and may approve or reject matters contrary to your vote.
Our executive officers and directors, together with their affiliates, will
beneficially own an aggregate of approximately [ ]% of our outstanding
common stock following the completion of the offering. These stockholders, if
acting together, will be able to significantly influence all matters requiring
approval by our stockholders, including the election of directors and the
approval of mergers or similar transactions even if other stockholders
disagree.
We do not intend to pay dividends and you may not experience a return on
investment without selling shares.
We have never declared or paid any cash dividends on our capital stock.
Therefore, you will not experience a return on your investment in our common
stock without selling your shares since we currently intend on retaining future
earnings to fund our growth and do not expect to pay dividends in the
foreseeable future.
We have implemented anti-takeover provisions that could discourage or prevent a
takeover, even if an acquisition would be beneficial to our stockholders.
Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, 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:
. establishment of a classified board of directors requiring that not all
members of the board may be elected at one time;
. authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. prohibiting cumulative voting in the election of directors, that would
otherwise allow less than a majority of stockholders to elect director
candidates;
. limitation on the ability of stockholders to call special meetings of
stockholders;
. prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
. establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporations Law and the
terms of our stock option plans may discourage, delay or prevent a change in
control of our company.
New investors in our common stock will experience immediate and substantial
dilution.
If you purchase shares of our common stock, you will incur immediate and
substantial dilution in pro forma net tangible book value. You will pay a price
per share that substantially exceeds the value of our assets after subtracting
our liabilities. You will contribute % of the total amount paid to fund us
but will own only % of our outstanding shares. If the holders of outstanding
options or warrants exercise those options or warrants, you will suffer further
dilution.
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<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements in "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and elsewhere. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "could," "expect," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks
outlined under "Risk Factors" beginning on page , that may cause our or our
industry's actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity,
performance or achievements expressed or implied by these forward-looking
statements.
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 we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual future results.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock offered by us at an assumed initial public offering price of
$ per share will be approximately $ million, after deducting
estimated underwriting discounts, commissions and offering expenses. If the
underwriters exercise in full their option to purchase an additional
shares of common stock, we estimate that such net proceeds will be
approximately $ million.
We intend to use the net proceeds of this offering as follows:
. repayment of approximately $3.7 million in outstanding indebtedness;
. regional, national and international sales and marketing activities;
. expanding customer service and operating capabilities;
. continued enhancement of our core technologies and expansion of our
ePlatform;
. development of business infrastructure; and
. the acquisition of complementary businesses, products and technologies.
We expect to use the remainder of the net proceeds for other general
corporate purposes, including working capital and capital expenditures. The
amounts actually expended for such working capital purposes may vary
significantly and will depend on a number of factors, including the amount of
our future revenues and the other factors described under "Risk Factors."
Accordingly, we will retain broad discretion in the allocation of the net
proceeds of this offering. Although we regularly evaluate, in the ordinary
course of business, potential acquisitions of complementary businesses,
products or technologies, other than our pending acquisition of InfoWide, we
have no other specific understandings, commitments or agreements with respect
to any acquisition of or investment in complementary businesses, products or
technologies. Pending such uses, we will invest the net proceeds of this
offering in short-term interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never paid any cash dividends on our capital stock. We currently
intend to retain all of our earnings to finance our operations and do not
anticipate paying cash dividends on our capital stock in the foreseeable
future. We may incur indebtedness in the future that may prohibit or restrict
the payment of dividends.
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<PAGE>
CAPITALIZATION
The table below sets forth the following information:
. our actual capitalization as of December 31, 1999;
. our pro forma capitalization after giving effect to (1) amendments to our
charter to increase the authorized number of shares of common stock; (2)
the conversion of all outstanding shares of our preferred stock into
shares of common stock; and (3) the completion of our acquisition of
InfoWide, Inc.
. our pro forma as adjusted capitalization after giving effect to (1) the
sale by us of shares of common stock being offered at the initial
public offering price of $ per share, less the estimated underwriting
discounts and commissions and estimated offering expenses and
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(unaudited)
(in thousands, except per
share data)
<S> <C> <C> <C>
Long-term obligations.......................... $ 3,954 $ 3,954 $
-------- -------- -----
Stockholders' equity:
Preferred stock, $.01 par value; shares
authorized: 100,000,000 actual, and none pro
forma and pro forma as adjusted; shares
outstanding: 90,529,958 actual, none pro
forma and pro forma as adjusted............. 905 -- --
Common stock: $.01 par value, shares
authorized: 50,000,000 actual, and
120 million pro forma and as adjusted;
14,851,196 shares outstanding actual,
48,694,516 pro forma and shares
pro forma as adjusted ...................... 149 487
Paid-in capital in excess of par value......... 91,818 125,358
Note Receivable from Stockholders.............. (4,499) (4,499)
Unearned compensation.......................... (27,525) (27,525)
Accumulated deficit............................ (47,871) (50,871)
-------- -------- -----
Total stockholders' equity................... 12,977 42,950
-------- -------- -----
Total capitalization......................... $ 16,931 $ 46,904 $
======== ======== =====
</TABLE>
This table excludes the following shares as of December 31, 1999:
. 2,359,018 shares that we may issue upon the exercise of options at a
weighted average exercise price of $.49 per share;
. 2,027,535 shares available for issuance upon the exercise of options that
have been or may be granted under our active stock plans;
. 8,046,831 preferred shares convertible into 3,282,277 common shares, that
we may issue upon the exercise of warrants at a weighted average exercise
price of $.98 per share; and
. 600,000 common shares that we may issue upon the exercise of warrants at
a weighted average exercise price of $2.17 per share.
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DILUTION
If you invest in our common stock, your interest will be diluted by the
difference between the public offering price per share of our common stock and
the pro forma as adjusted net tangible book value per share of our common stock
immediately after this offering. Our pro forma net tangible book value at
December 31, 1999, was approximately $ million, or $ per share of
common stock. Pro forma net tangible book value per share represents total
tangible assets less total liabilities, divided by the pro forma number of
shares of common stock outstanding at December 31, 1999, and assumes the
conversion of our currently outstanding shares of preferred stock into
shares of common stock upon the closing of this offering. Assuming our sale of
shares of common stock at an assumed initial public offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma as adjusted net
tangible book value at December 31, 1999, would have been $ million, or
$ per share. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares in
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $
Pro forma net tangible book value per share at December 31,
1999...................................................... $
Increase per share attributable to new investors...........
Pro forma as adjusted net tangible book value per share after
the offering................................................
------ ------
Dilution per share to new investors.......................... $
======
</TABLE>
The following table shows, on a pro forma as adjusted basis at December 31,
1999, the number of shares of common stock purchased from us, the total
consideration paid to us and the average price paid per share by existing
stockholders and by new investors purchasing common stock in this offering,
after adjustment for:
. the conversion of our currently outstanding shares of preferred stock
into common stock; and
. our sale of shares of common stock at an assumed initial public
offering price of $ per share, before deducting estimated
underwriting discounts and commissions and estimated offering expenses
payable by us.
<TABLE>
<CAPTION>
Total
Shares Purchased Consideration
---------------- ---------------- Average Price
Number Percent Amount Percent Per Share
-------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ $
New investors................
-------- ----- -------- ----- --------
Total...................... 100.0% 100.0%
===== =====
</TABLE>
This discussion assumes no exercise of any stock options or warrants
outstanding as of December 31, 1999. At that date, there were 2,359,018 shares
that we may issue upon the exercise of outstanding options at a weighted
average exercise price of $.49 per share and 3,282,277 shares of common stock
that we may issue upon the exercise of outstanding warrants at a weighted
average exercise price of $.98 per share and 600,000 common shares that we may
issue upon the exercise of outstanding warrants at a weighted average price of
$2.17. If holders exercise these outstanding options or warrants, there will be
further dilution of per share to new investors. Additionally, there were
2,027,535 shares available for issuance upon the exercise of options that have
been or may be granted under our active stock plans after December 31, 1999,
and in January 2000, our active stock plans were amended to allow us to issue
an additional 4,125,000 shares.
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<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected financial data with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page and our financial statements and related notes beginning
on page F-1. The statement of operations data for the years ended June 30,
1997, 1998 and 1999 and the six-month period ended December 31, 1999 and the
balance sheet data at June 30, 1998 and 1999 and as of December 31, 1999, are
derived from the financial statements and notes audited by
PricewaterhouseCoopers LLP appearing elsewhere in this prospectus. The
statement of operations data for the years ended June 30, 1995 and 1996 are
derived from audited financial statements not appearing in this prospectus.
Historical results are not necessarily indicative of results that may be
expected for any future period. Our results of operations for the six months
ended December 31, 1999, are not necessarily indicative of the results we may
achieve for the entire year.
<TABLE>
<CAPTION>
Inception Six Months Ended
through Year Ended June 30, Dec. 31,
June 30, ------------------------------------ --------------------
1995 1996 1997 1998 1999 1998 1999
--------- ------- ------- -------- -------- ----------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ -- $ -- $ -- $ 517 $ -- $ 2,087
Cost of revenues........ -- -- -- 635 -- 1,366
----- ------- ------- -------- -------- ------- --------
Gross margin (loss)..... -- -- -- -- (118) -- 721
Operating expenses
Research and
development........... 219 2,354 4,341 6,138 5,057 2,183 3,392
Sales and marketing.... 1 628 1,194 1,253 3,876 1,253 4,880
General and
administrative........ 224 1,445 2,372 1,834 1,857 817 1,657
Stock-based charges.... -- -- -- -- 218 3,872
----- ------- ------- -------- -------- ------- --------
Total operating
expenses............ 444 4,427 7,907 9,225 11,008 4,253 13,801
----- ------- ------- -------- -------- ------- --------
Operating loss.......... (444) (4,427) (7,907) (9,225) (11,126) (4,253) (13,080)
Other income (expense),
net.................... 4 3 (186) (1,357) (345) (435) 218
----- ------- ------- -------- -------- ------- --------
Net loss................ $(440) $(4,424) $(8,093) $(10,582) $(11,471) $(4,688) $(12,862)
===== ======= ======= ======== ======== ======= ========
Basic and diluted loss
per share.............. -- $(19.32) $ (6.06) $ (4.64) $ (3.60) $ (1.61) $ (2.89)
Shares used in computing
basic and diluted loss
per share.............. -- 229 1,336 2,282 3,182 2,920 4,448
Pro forma basic and
diluted loss per
share.................. -- -- -- -- $ (0.78) -- $ (0.45)
Shares used in computing
pro forma basic and
diluted loss per
share.................. -- -- -- -- 14,799 -- 28,469
</TABLE>
<TABLE>
<CAPTION>
June 30,
-------------------------------------- December 31,
1995 1996 1997 1998 1999 1999
---- ------ ------- -------- ------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............. $294 $5,881 $10,702 $ 2,076 $ 2,840 $17,505
Restricted cash.......... -- -- -- -- -- 2,000
Working capital.......... 119 5,022 9,997 1,180 1,000 16,804
Total assets............. 472 7,175 12,673 3,075 4,087 25,792
Long-term debt and
capital lease
obligations, net of
current portion......... -- 547 13,384 14,235 3,899 3,954
Total stockholders'
(deficit) equity........ 268 5,669 (1,526) (12,194) (3,155) 12,977
</TABLE>
See note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing basic and diluted loss
per share data.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with our financial statements and
related notes. This discussion and analysis contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including but not limited to, those discussed in
"Risk Factors" starting on page 7 and elsewhere in this prospectus.
Overview
We are a leading provider of Internet-based end-to-end platforms for
automating the professional service organization. We license ServiceSphere, our
ePlatform solution, directly to services organizations and provide related
implementation, integration, training and maintenance services.
Evolve was founded in February 1995. From our inception through December
1998 our activities, funded by the capital we raised, consisted primarily of
building our business infrastructure, recruiting personnel and developing our
software and service offerings. Our ServiceSphere ePlatform was first made
commercially available in March 1999. We recognized our first revenues from our
ServiceSphere ePlatform during the quarter ended March 31, 1999. Our revenues
increased during each sequential quarter for the remainder of 1999. We have
incurred substantial losses since inception and we anticipate that we will
continue to incur operating losses as we make the investments necessary to
expand our business. Our accumulated deficit at December 31, 1999, was $47.9
million.
Our headcount increased from 58 employees at January 1, 1999, to 177
employees at March 15, 2000, as we continued to invest in developing our
technology and building a direct sales force, a marketing group and a
professional services organization. Specifically, in the six months ended March
15, 2000, we expanded the depth of our management team with the addition of a
Chief Operating Officer, a Vice President of Marketing and Business
Development, a Vice President of Marketplace Services, a Vice President of
Worldwide Customer Service, and a Vice President of Strategy. Our
infrastructure expenditures also increased significantly in 1999, as we
expanded our facilities and enhanced our information systems.
Sources of Revenue and Revenue Recognition
We generate revenues primarily from the sale of our ServiceSphere ePlatform
solutions and subscriptions. We began recognizing revenues from sales of our
ePlatform during the quarter ended March 31, 1999. Through December 31, 1999,
all of our ePlatform revenues were derived from sales within the United States
through our direct sales force. We classify our ePlatform revenues as either
"Solutions revenues" or "Subscriptions revenues" to reflect the way in which we
operate our business and the way in which we position our software and services
to our customers.
Solutions revenues consist of fees for licensing our ServiceSphere ePlatform
and for providing the implementation, integration, training and consulting
services associated with the initial deployment of the ePlatform. Customers pay
a one-time license fee for our software based on the number of software modules
licensed and the number of professional "resources" (typically employees or
contractors of the customer) managed. Customers are charged additional license
fees to increase the number of professional resources managed on our ePlatform
or to purchase additional software modules. Implementation services included in
our Solutions revenues typically consist of evaluating our customers' business
practices and organizational structure, converting and integrating legacy
databases and information systems, installing the software systems and training
our customers' staff. Some customers also request consulting services to
develop and install interfaces between our ePlatform and legacy third party
enterprise software applications. These services have typically been performed
by our internal professional services organization on primarily a fixed fee
basis. We
23
<PAGE>
intend to extend our service partnerships by encouraging certain customers to
purchase some of these services from other professional services organizations
with which we have business relationships. We believe this trend will have a
positive impact on our gross margins by decreasing the percentage of our
professional services revenues compared to our software license revenues. A
future component of our Solutions revenues will be the transactional fees we
expect to derive from our Services.com offering.
Subscriptions revenues consist of fees derived from:
. Maintenance agreements that entitle customers to software upgrades and
technical support over a stated term, generally twelve months. In many
cases, maintenance services for an initial term of twelve months or more
have been bundled together with fees classified as Solutions revenues. In
subsequent years, customers pay separately for maintenance, normally at
the beginning of the maintenance period.
. Application service provider (ASP) agreements, under which we host our
ePlatform solutions on behalf of customers on servers we own and
maintain. We offer access to the customer via the Internet and charge a
monthly fee for this service. We began selling ASP-based services in the
quarter ended December 31, 1999, and we expect to derive an increasing
proportion of our revenues from our ASP offering in the future.
. Software subscription agreements that involve commitments to deliver
additional software releases and enhancements to the customer over the
life of the agreement. Revenues generated by software subscription
agreements are recognized ratably over the term of the agreement.
We recognize revenues in accordance with the provisions of American
Institute of Certified Public Accounts (AICPA) Statement of Position (SOP) 97-
2, "Software Revenue Recognition." This was amended by SOP 98-4, "Deferral of
the Effective Date of Certain Provisions of SOP 97-2" and SOP 98-9,
"Modification of SOP 97-2 With Respect to Certain Transactions." Under SOP 97-2
as amended, we recognize revenues when all of the following conditions are met:
. we have signed a non-cancelable agreement with the customer;
. we have delivered the software product to the customer or made it
available to the customer on our ASP hosting facilities;
. the amount of fees to be paid by the customer is fixed or determinable;
and
. we believe that collection of these fees is probable.
We do not have vendor specific objective evidence of fair value for the
implementation integration and training services included in our typical
customer license agreements, as these services to date have never been sold
separately. Accordingly, our Solutions revenues, including implementation,
integration and training services and license fees, are recognized ratably on a
straight line basis over the period during which the services are provided,
which is generally between six and nine months.
We have vendor specific objective evidence of fair value for the maintenance
services we provide based on the renewal rates for maintenance in future years
as specified in most of our customer contracts. As a result, we defer the
maintenance revenues at the outset of the customer arrangement and recognize
them ratably over the period during which the maintenance is to be provided,
which normally commences on the date the software is delivered.
For ASP software arrangements we do not have vendor specific objective
evidence of fair value for the elements of the contract. Accordingly, fees from
such arrangements will be recognized on a monthly basis as the hosting service
is provided.
We account for software subscription arrangements where, as part of the
contract with the customer, we agree to deliver to the customer additional
software releases in the future, as subscriptions for no extra charge. All the
revenues from these customers is recognized ratably over the term of the
contract. Additionally, in
24
<PAGE>
software arrangements where the amount of fees to be paid by the customer is
deemed not to be fixed or determinable, due to extended payment terms, we
recognize revenues when the fees become due and payable by the customer.
We anticipate that in the future we will derive revenues from our
Services.com offering, which will collect fees based on the value of the
transactions conducted on the network. These transaction fees will be
recognized when the services are ordered on the network and as they are
provided.
Cost of Revenues, Operating Expenses and Other Expenses
Cost of Revenues
Our cost of revenues includes the costs of our Solutions and Subscriptions
revenues. The cost of our Solutions revenues consists principally of payroll
related costs for employees and consultants involved in providing services for
implementation, training and consulting. The cost of our Solutions revenues
also includes royalties due to third parties for integrated technology, the
printing costs of product documentation, software media and shipping costs. The
cost of our Subscriptions revenues consists primarily of the payroll related
costs for employees involved in providing support services to customers under
maintenance contracts as well as payroll costs for employees and consultants
involved in providing services for implementation, training and consulting for
customers under subscription. The gross margin associated with our Solutions
revenues may fluctuate based on the ratio of the licenses to services in our
software arrangements with customers.
Operating Expenses
Our operating expenses consist of three general categories: research and
development, sales and marketing and general and administrative. In addition,
our operating expenses include two non-cash categories: stock-based charges and
amortization of goodwill and other intangible assets. We classify all charges
to these operating expense categories based on the nature of the expenditures.
Although each of these categories includes expenses that are unique to the
category type, there are expenditures that are typically included in each of
these categories, such as salaries, employee benefits, travel and entertainment
expense and third party professional fees. In addition, certain common costs
such as communication, rent, depreciation for office furniture and equipment
and facilities costs are allocated to each of the functional areas based on
headcount. The sales and marketing category includes expenditures specific to
that category such as sales commissions, public relations and advertising,
trade shows and marketing collateral materials. Software development costs
incurred prior to the establishment of technological feasibility are included
in research and development costs as incurred. We expect that all three
categories of operating expenses will continue to increase in future quarters
as we hire and make the investments necessary to expand our business
In connection with the granting of stock options and the sales of restricted
stock to our employees and the granting of equity instruments to non-employees
for services rendered, we recorded deferred stock-based charges totaling
approximately $31 million as of December 31, 1999. This amount represents the
difference between the exercise or purchase price at which the stock options
were granted or the restricted stock was issued, and the deemed fair value of
our common stock for accounting purposes on the date of grant or issuance. This
amount is included as a component of stockholders' equity and, in accordance
with the method described in Financial Accounting Standards Board
Interpretation No. 28, is being amortized on an accelerated basis by charges to
operations over the vesting period of the options and restricted stock, which
is generally four years. This resulted in an expense of $218,000 for the year
ended June 30, 1999, and an expense of $3.2 million for the six months ended
December 31, 1999. The remaining unamortized and unearned stock-based
compensation at December 31, 1999, will be amortized as follows: $8.7 million
for the six months ending June 30, 2000; $11.5 million for the year ending June
30, 2001; $4.8 million for the year ending June 30, 2002; $1.9 million for the
year ending June 30, 2003 and $133,000 for the year ending June 30, 2004. We
expect to record additional significant stock-based compensation for stock
options granted and restricted stock issued subsequent to December 31, 1999.
25
<PAGE>
Acquisition of InfoWide, Inc.
On March 9, 2000, we signed a definitive agreement to acquire InfoWide,
Inc., a private software company that has developed an Internet-based solution
for recording and billing time and expenses. We will issue 3.7 million shares
of our common stock to the stockholders of InfoWide as purchase consideration.
The acquisition will be accounted for as a purchase. We expect to record
approximately $30.4 million in goodwill, purchased technology and other
intangible assets upon completion of this transaction.
Quarterly Results of Operations
The following table sets forth, for the periods presented, certain quarterly
financial results for the five quarters ended December 31, 1999. The
information for each of these quarters is unaudited and has been prepared on
the same basis as our audited financial statements appearing elsewhere in this
prospectus. In the opinion of management, all necessary adjustments, consisting
only of normal nonrecurring adjustments, have been included to present fairly
the unaudited quarterly results when read in conjunction with our financial
statements and related notes included elsewhere in this prospectus. We have
experienced and expect to continue to experience fluctuations in operating
results from quarter to quarter. Historical operating results are not
necessarily indicative of the results that may be expected for any future
period.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------
Dec. Mar. June Sept. Dec.
31, 31, 30, 30, 31,
1998 1999 1999 1999 1999
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data
Revenues
Solutions...................... $ -- $ 37 $ 113 $ 338 $ 1,079
Subscriptions.................. -- 179 188 195 475
------- ------- ------- ------- -------
Total........................ -- 217 301 533 1,554
Cost of revenues
Solutions...................... -- 140 105 185 459
Subscriptions.................. -- 188 202 461 261
------- ------- ------- ------- -------
Total........................ -- 328 307 646 720
Gross margin (loss).......... -- (112) (6) (113) 834
Operating expenses:
Research and development....... 1,098 1,347 1,527 1,649 1,743
Sales and marketing............ 741 1,169 1,454 1,959 2,921
General and administrative..... 518 501 539 667 990
Stock-based charges............ -- 75 143 816 3,056
------- ------- ------- ------- -------
Total operating expenses..... 2,357 3,092 3,663 5,091 8,710
------- ------- ------- ------- -------
Operating loss................... (2,357) (3,204) (3,669) (5,204) (7,876)
Non-operating revenue and
expenses
Interest income................ 27 107 108 47 363
Interest expense............... (404) (97) (99) (96) (93)
Other income (expense)......... 17 32 39 (1) (2)
------- ------- ------- ------- -------
Total........................ (360) 42 48 (50) 268
Net loss..................... $(2,717) $(3,162) $(3,621) $(5,254) $(7,608)
======= ======= ======= ======= =======
</TABLE>
26
<PAGE>
Revenues
Our total quarterly revenues increased from $217,000 for the quarter ended
March 31, 1999, to $1.6 million for the quarter ended December 31, 1999. This
revenue growth is attributable to increased sales of our Solutions offerings.
Our initial customer, Whittman-Hart, accounted for 69%, 50%, 28% and 15% of
total revenues during the quarters ended March 31, 1999, June 30, 1999,
September 30, 1999, and December 31, 1999. We did not recognize any revenues in
the quarter ended December 31, 1998 because our solution was first made
commercially available during the quarter ended March 31, 1999.
Cost of Revenues
Our total cost of revenues will fluctuate quarter to quarter depending on
the number of customer implementations underway, which affects the amount of
service and consulting resources assigned to our customers. We began
implementing our first customer solutions during the quarter ended March 31,
1999. Cost of Solutions revenues consists primarily of payroll related costs
for employees and consultants involved in providing services for
implementation, training and consulting and, to a lesser extent, licenses fees
paid to third parties under technology license arrangements. The improvement in
Solutions gross profit over the course of 1999 was the result of a greater
number of customer solutions being recognized ratably in each quarter. We
expect future costs of Solutions revenues to fluctuate as we continue to
aggressively invest in building our professional services organization.
Cost of Subscriptions revenues consists primarily of payroll related costs
for employees involved in providing support services to customers under
maintenance contracts as well as payroll related costs for employees and
consultants involved in providing services for implementation, training and
consulting for customers under software subscription agreements. The costs of
Subscriptions revenues increased significantly during the quarter ended
September 30, 1999, due to the use of third party resources in assisting in
their implementation.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of personnel and related costs associated with our product
development efforts including fees paid to third parties for consulting
services. Research and development expenses increased sequentially on a
quarterly basis from $1.1 million for the quarter ended December 31, 1998 to
$1.7 million for the quarter ended December 31, 1999. The increase in research
and development expenses are attributable to an increase in the number of
personnel, including engineering services, from 34 at December 31, 1998, to 39
at December 31, 1999, consulting expenses associated with the implementation of
several engineering projects and the use of contractors to supplement our
staff. We believe that investments in product development are essential to our
future success and expect that the absolute dollar amount of research and
development expenses will increase in future periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
employee salaries, benefits and commissions, and the costs of advertising,
website development, trade shows, seminars, promotional materials and other
sales and marketing programs. Sales and marketing expenses increased in each
quarter from $741,000 for the quarter ended December 31, 1998 to $2.9 million
for the quarter ended December 31, 1999. The increase in sales and marketing
expenses was primarily attributable to the building of an internal direct sales
team and the corresponding sales infrastructure. Our first commercial solution
was released during the quarter ended March 31, 1999, and our personnel in
sales and marketing increased from 12 employees as of December 31, 1998, to 30
as of December 31, 1999. We expect that the absolute dollar amount of sales and
marketing expenses will continue to increase due to the planned growth of our
sales force, including the establishment of additional domestic and
international sales offices and due to expected additional increases in
marketing programs including advertising, public relations, website development
and other brand and promotional activities.
27
<PAGE>
General and Administrative. General and administrative expenses consist
primarily of employee salaries and related expenses for executive, finance and
administrative personnel including information systems and recruiters. General
and administrative expenses increased from $518,000 in the quarter ended
December 31, 1998, to $990,000 in the quarter ended December 31, 1999. The
increase in general and administrative expenses was primarily attributable to
an increase in the number of executive, finance and administrative employees
from 11 as of December 31, 1998, to 20 as of December 31, 1999. We expect
general and administrative expenses to increase in absolute dollars in future
periods.
Stock-Based Charges. Stock-based charges consists of amortization of
deferred non-cash compensation in connection with stock option grants and sales
of restricted stock to our employees at exercise or sales prices below the
deemed accounting fair market value of our common stock and compensation
related to equity instruments issued to non-employees for services rendered. We
have recorded stock-based compensation charges of $75,000 in the quarter ended
March 31, 1999, $143,000 in the quarter ended June 30, 1999, $816,000 in the
quarter ended September 30, 1999, and $3.1 million in the quarter ended
December 31, 1999. Included in the stock-based charges for the quarter ended
September 30, 1999, is $651,000 related to the issuance of warrants to a
related party.
Interest Income and Interest Expense
Interest income fluctuated during the five quarters shown primarily as a
result of changes in our average cash balances. We closed significant preferred
financing rounds during the quarters ended December 31, 1998 and September 30,
1999. This resulted in higher average cash balances in the following quarters.
Interest expense for the four quarters ended December 31, 1999, is primarily
attributable to interest on equipment leases and nonconvertible notes.
Fluctuations in Quarterly Operating Results
We believe that quarter-to-quarter comparisons of our operating results are
not a good indication of future performance. Although our operating results
have generally improved from quarter to quarter in the recent past, our future
operating results may not follow past trends. It is likely that in some future
quarters our operating results may be below the expectation of public market
analysts and investors due to factors beyond our control, and as a result, the
price of our common stock may fall. Factors that may cause our future operating
results to be below expectations and cause our stock price to fall include:
. The demand for and acceptance of our products, product enhancements and
services;
. The introduction, timing and competitive pricing of our products and
services and those of our competitors;
. The expansion and rate of success of our direct sales force and indirect
distribution channels both domestically and internationally;
. The attraction and retention of key personnel, particularly in our
development, sales, services and support groups;
. Client calendar year budgeting cycles;
. Our compensation policies that tend to compensate sales personnel more
for achieving annual quotas, typically in the latter half of the fiscal
year; and
. The timing and successful integration of and costs related to
technologies and businesses we may acquire in the future.
28
<PAGE>
Results of Operations
Six Months Ended December 31, 1998 and 1999
Revenues
Total revenues were $2.1 million for the six months ended December 31, 1999.
We did not generate any revenues for the six months ended December 31, 1998.
This growth in revenues reflects the beginning of commercial sales of our
ePlatform in the first quarter of 1999, and the subsequent growth of our sales.
For the six months ended December 31, 1999, Novell, Whittman-Hart, Cambridge
Technology Partners and Lante accounted for 31%, 18%, 14% and 10%, of our total
revenues, respectively.
Solutions revenues, which comprise fees for licenses and related services,
were $1.4 million, or 68% of total revenues for the six months ended December
31, 1999. Subscriptions revenues, which comprise fees for maintenance and
software subscriptions, were $670,000, or 32% of total revenues for the six
months ended December 31, 1999.
Cost Of Revenues
Total cost of revenues were $1.4 million for the six months ended December
31, 1999. There were no costs of revenues for the six months ended December 31,
1998, as we did not commence selling our solution until the first quarter of
1999.
Cost of Solutions revenues was $644,000 for the six months ended December
31, 1999, which consisted primarily of payroll related costs for employees and
consultants involved in providing services for implementation, training and
consulting and, to a lesser extent, license fees paid to third parties under
technology license arrangements. The cost of Subscriptions revenues was
$722,000 for the six months ended December 31, 1999, which represented
primarily payroll related costs for employees and third-party consultants
involved in providing support services to customers under maintenance contracts
and software subscription contracts.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of personnel and related costs associated with our product
development efforts. Research and development expenses increased to $3.4
million for the six months ended December 31, 1999, from $2.2 million for the
six months ended December 31, 1998. The increase was primarily due to an
increase in the number of employees engaged in research and development from 34
employees as of December 31, 1998, to 39 employees as of December 31, 1999. We
believe that investments in product development are essential to our future
success and expect that the absolute dollar amount of research and development
expenses will increase in future periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
employee salaries, benefits and commissions, and the costs of advertising,
public relations, website development, trade shows, seminars, promotional
materials and other sales and marketing programs. Sales and marketing expenses
increased to $4.9 million for the six months ended December 31, 1999, from $1.3
million for the six months ended December 31, 1998. The increase in sales and
marketing expenses was primarily attributable to an increase in the number of
direct sales, pre-sales support and marketing employees from 12 as of December
31, 1998 to 30 as of December 31, 1999. We expect that the absolute dollar
amount of sales and marketing expenses will continue to increase due to the
planned growth of our sales force, including the establishment of sales offices
in additional domestic and international locations. In addition, we commenced a
marketing campaign in January 2000 that will lead to increases in advertising
and marketing expenditures and other promotional activities.
General and Administrative. General and administrative expenses consist
primarily of employee salaries and related expenses for executive, finance and
administrative personnel. General and administrative expenses
29
<PAGE>
increased to $1.7 million for the six months ended December 31, 1999, from
$817,000 for the six months ended December 31, 1998. The increase in general
and administrative expenses was primarily attributable to an increase in the
number of executive, finance and administrative employees from 11 as of
December 31, 1998 to 20 as of December 31, 1999. We expect general and
administrative expenses to increase in absolute dollars in future periods.
Stock-Based Charges. Stock-based charges consist of amortization of deferred
compensation in connection with stock option grants and sales of restricted
stock to our employees at exercise or sales prices below the deemed fair market
value of our common stock, and compensation related to equity instruments
issued to non-employees for services rendered. We recorded stock-based
compensation expense of $3.2 million for the six months ended December 31,
1999. We issued warrants to a related party that resulted in a charge of
$651,000 in the quarter ended September 30, 1999.
Interest Income and Interest Expense
Interest income for the six months ended December 31, 1999, was $410,000
compared to $62,000 for the same period in the prior year. The increase was
attributable primarily to the completion of a private equity funding round in
September 1999. Interest expense for the six months ended December 31, 1999,
was $189,000 compared $501,000 for the same period in the prior year. This was
largely a result of the conversion of certain convertible debt instruments to
preferred stock during the six months ended June 30, 1999.
Income Taxes
From inception through December 31, 1999, we incurred net losses for federal
and state tax purposes and have not recognized any tax provision or benefit. As
of December 31, 1999, we had $29.0 million of federal and state net operating
loss carry-forwards to offset future taxable income. The federal net operating
loss carry-forwards begin to expire on varying dates through 2019 and the state
net operating loss carry-forwards on varying dates through 2004. Given our
limited operating history, our losses incurred to date and the difficulty in
accurately forecasting our future results, we do not believe that the
realization of the related deferred income tax asset meets the criteria
required by generally accepted accounting principles. Therefore, we have
recorded a 100% valuation allowance against the deferred income tax asset.
Years Ended June 30, 1998 and 1999
Revenues
Our total revenues were $517,000 for the year ended June 30, 1999, generated
by the first commercial sales of our ServiceSphere ePlatform solution. Revenues
comprised $150,000 of Solutions revenues and $367,000 of Subscriptions revenues
for the year ended June 30, 1999. For the year ended June 30, 1999, Solutions
revenues and Subscriptions revenues accounted for 29% and 71% of total
revenues, respectively. Whittman-Hart, Netscape and Becton Dickinson, at 58%,
32% and 10% of total revenues, respectively, accounted for all our revenues
during the period. We did not recognize any revenues in the year ended June 30,
1998.
Cost of Revenues
Cost of revenues was $635,000 for the year ended June 30, 1999. Cost of
Solutions revenues was $245,000 and the cost of Subscriptions revenues was
$390,000 for the year ended June 30, 1999. We did not have any cost of revenues
in the year ended June 30, 1998.
30
<PAGE>
Operating Expenses
Research and Development. Research and development expenses decreased to
$5.1 million for the year ended June 30, 1999, from $6.1 million for the year
ended June 30, 1998. The decrease in research and development expenses was
related primarily to a restructuring in our engineering efforts as we
discontinued the development a client-server based software architecture and
concentrated our efforts on developing our Internet-based ePlatform.
Sales and Marketing. Sales and marketing expenses increased to $3.9 million
for the year ended June 30, 1999, from $1.3 million for the year ended June 30,
1998. The increase in sales and marketing expenses resulted primarily from
building our direct sales force and investing in our sales and marketing
infrastructure, which involved significant personnel-related expenses,
recruiting fees, travel expenses and related facility and equipment costs.
General and Administrative. General and administrative expenses increased to
$1.9 million for the year ended June 30, 1999, from $1.8 million for the year
ended June 30, 1998. The increase in general and administrative expenses
resulted primarily from the addition of executive, finance and administrative
personnel to support the growth of our business.
Stock-Based Charges. We recorded stock-based charges of $218,000 for the
year ended June 30, 1999, related to stock transactions with employees. We did
not have stock-based charges in the year ended June 30, 1998.
Interest Income and Interest Expense
Interest income decreased to $277,000 for the year ended June 30, 1999, from
$420,000 for the year ended June 30, 1998 as a result of the decline in our
average cash position. We had cash and cash equivalents balances of $2.8
million as of June 30, 1999, compared to $2.1 million as of June 30, 1998.
Interest expense decreased to $697,000 for the year ended June 30, 1999, from
$1.8 million for the year-ended June 30, 1998. This was largely a result of the
conversion of certain convertible debt instruments to preferred stock during
the year ended June 30, 1999.
Years Ended June 30, 1997 and 1998
Revenues and Cost of Revenues
We do not have any revenues or cost of revenues, for the years ended June
30, 1997 and 1998 as we did not commence selling our solutions until the first
quarter of 1999.
Operating Expenses
Research and development expenses were $6.1 million and $4.3 million for the
years ended June 30, 1998 and 1997, respectively. The increase in this expense
category was due to an increase in personnel costs associated with our
engineering efforts. Sales and marketing expenses increased to $1.3 million for
the year ended June 30, 1998 from $1.2 million for the year ended June 30,
1997. General and administrative expenses were $1.8 million and $2.4 million
for the years ended June 30, 1998 and 1997, respectively, as our headcount
decreased from 14 to 8 persons.
Interest Income and Interest Expense
Interest income increased from $310,000 for the year ended June 30, 1997 to
$420,000 for the year ended June 30, 1998. Interest expense increased from
$495,000 in the year ended June 30, 1997 to $1.8 million for the year ended
June 30, 1998, due primarily to the issuance of $12.7 million in convertible
debt instruments during the year ended June 30, 1998.
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<PAGE>
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of common and preferred stock, with net proceeds totaling approximately
$56.8 million. We have also raised $12.7 million in funding through the
issuance of convertible debt instruments, of which $3.5 million in principal
remains outstanding as debt and is now non-convertible. As of December 31,
1999, we had $17.5 million in cash and cash equivalents, which excludes $2
million of restricted cash held as security for our operating lease
commitments.
Net cash used in operating activities totaled $5.4 million for the six
months ended December 31, 1999. Net cash used in operating activities for the
three years in the period ended June 30, 1999, 1998 and 1997 was $8.3 million,
$ 8.3 million and $7.2 million, respectively. Cash used in operating activities
for each period resulted primarily from net losses in those periods and, to a
lesser extent, changes in working capital such as an increase in deferred
revenues at June 30, 1999, and December 31, 1999, of approximately $2.0 million
and $3.4 million respectively.
Net cash used in investing activities since our inception in February 1995
through December 31, 1999, has totaled approximately $5.2 million, of which
$4.9 million occurred in the six months ended December 31, 1999. Investing
activities in the six months ended December 31, 1999, consist primarily of the
purchase of short-term investments of $2.3 million, and a restricted
certificate of deposit for $2.0 million used to secure a letter of credit for
our new corporate headquarters.
Net cash provided by financing activities totaled $24.9 million for the six
months ended December 31, 1999. Net cash provided by financing activities for
the years ended June 30, 1999 and 1997 was $9.1 million and $12.2 million
respectively. Net cash generated from financing activities consists primarily
of net proceeds from our sales of preferred stock or the proceeds from the
issuance of convertible debt. For the year ended June 30, 1998, net cash used
in financing activities was $307,000, that primarily represented the payments
of our capital lease obligations.
We also have a $1.9 million equipment lease line with Phoenix Growth
Capital. Under the equipment lease line, we are entitled to lease equipment
with payment terms extending over 36 months. The ability to lease new equipment
expired on March 15, 2000, and our current borrowings of $694,000 bear interest
rates in the range of 10% to 16%. We intend to seek additional equipment lease
financings in the future.
We signed a lease for new headquarters facilities in November 1999. Lease
payments under the agreement are expected to commence in June 2000 and continue
for seven years, resulting in aggregate lease expenses of approximately
$338,000 per quarter. We also expect to incur commitments for capital
expenditures in 2000 of approximately $4.0 million related to the build-out of
this facility.
We anticipate a substantial increase in our capital expenditures and lease
commitments consistent with anticipated growth in operations, infrastructure
and personnel, including possible acquisitions. We believe that our current
cash and cash equivalents, together with the proceeds of this offering, will be
sufficient to meet our anticipated liquidity needs for working capital and
capital expenditures for at least 12 months. If we require additional capital
resources to grow our business internally or to acquire complementary
technologies and businesses at any time in the future, we may seek to sell
additional equity or debt securities or secure an additional bank line of
credit. The sale of additional equity or convertible debt securities could
result in additional dilution to our stockholders. We cannot provide assurance
that any financing arrangements will be available in amounts or on terms
acceptable to us in the future.
Qualitative and Quantitative Disclosure about Market Risk
The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the risk factors section of this
prospectus.
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<PAGE>
Foreign Currency Exchange Rate Risk
To date, all of our recognized revenues have been denominated in U.S.
dollars and from customers in the United States, and we have had no exposure to
foreign currency exchange rate changes. We expect, however, that future
Solutions and Subscriptions revenues may also be derived from international
markets and may be denominated in the currency of the applicable market. As a
result, our operating results may become subject to significant fluctuations
based upon changes in the exchange rates of certain currencies in relation to
the U.S. dollar. Furthermore, to the extent that we engage in international
sales denominated in U.S. dollars, an increase in the value of the U.S. dollar
relative to foreign currencies could make our products less competitive in
international markets. Although we intend to monitor our exposure to currency
fluctuations, and, when appropriate, may use financial hedging techniques in
the future to minimize the effect of these fluctuations, we cannot assure you
that exchange rate fluctuations will not adversely affect our financial results
in the future.
Interest Rate Risk
As of December 31, 1999, we had $21.8 million of cash and highly liquid
short-term investments. Declines of interest rates over time would reduce our
interest income from our short-term investments. As of December 31, 1999, we
had total short term and long term debt outstanding of $245,000 and $4.0
million, respectively, which accrued interest at the prime rate. Therefore, we
are subject to exposure to interest rate risk for these borrowings based on
fluctuations in the prime rate.
Equity Risk
We do not own any equity securities. Therefore, we are not subject to any
direct equity price risk.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," that requires companies to
record derivative financial instruments on their balance sheets as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative instrument and whether it qualifies for hedge accounting. The
key criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash flows.
In June 1999, the FASB issued SFAS No. 137, "Accounting For Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133," that amends SFAS No. 133 to be effective for all fiscal
quarters or all fiscal years beginning after June 15, 2000.
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<PAGE>
BUSINESS
Overview
We are a leading provider of Internet-based end-to-end solutions for
automating professional services organizations. Our ServiceSphere process
automation solution facilitates the management of project opportunities,
professional resources, and service delivery, and provides enterprise-wide
visibility of business performance. Our recently launched Services.com offering
extends the capabilities of our ServiceSphere solution to integrate the
internal business processes of services providers and acquirers in an
efficient, collaborative, transactional environment. Our solution combines the
efficiency gains of core business process automation with the benefits of an
online marketplace, creating an ePlatform for the professional services
industry. We have licensed our solution to 23 customers, each of whom has
purchased more than $250,000 in products and services from us, and who
collectively license our solution to manage over 40,000 services professionals.
Our customers include Cambridge Technology Partners, DMR Consulting Group,
Novell, Razorfish, Whittman-Hart, and Zefer.
Industry Background
Growth of the Internet as a Business Communication, Collaboration and
Transactional Medium
The Internet has emerged as the fastest-growing communications,
collaboration, and transactional medium in history. Its rapid and broad
acceptance is enabling new opportunities to streamline complex business
processes and to conduct transactions more efficiently. Forrester Research
estimates that 93% of firms will conduct business on the Internet by 2002 and
that business-to-business eCommerce will grow from $406 billion in 2000 to $2.7
trillion in 2004.
Businesses worldwide invest heavily in information technology to manage and
streamline their operations. A number of business process automation solutions
have been developed that incorporate limited Internet functionality to
facilitate communications and data entry and retrieval from remote locations.
These business process automation solutions, or eProcess solutions, have
typically focused on automating relatively simple, linear, product-based
processes such as manufacturing and sales force management. Businesses also
look to Internet-based systems to facilitate external communications and
transactions with suppliers, customers and partners. More recently, Internet-
based marketplaces, or eMarketplaces, have emerged to aggregate and facilitate
commercial transactions between multiple buyers and suppliers of various
products and services. For relatively simple product procurement transactions,
eMarketplaces have allowed companies to realize efficiency gains by providing
broad access to product and pricing information and by reducing many of the
administrative costs of transacting with other businesses.
A new breed of end-to-end Internet-based business platforms, or ePlatforms,
is now beginning to emerge, combining the business process efficiency gains of
eProcess solutions with the transactional capabilities of eMarketplaces.
Because they integrate disparate and disconnected processes both within and
between businesses, these ePlatforms solutions are well positioned to address
the challenges of industries characterized by product and service
customization, complex business processes, collaborative design, production and
fulfillment workflows, and significant dependence on information exchange.
The Global Services Market
The professional services industry, which according to Benchmarking Partners
is projected to generate revenues of over $2.1 trillion in the United States in
2000, represents one of the largest segments of the global economy. This market
includes the information technology, management consulting, advertising, media,
public relations, architecture, construction, engineering, financial services,
law, tax, audit, and health care sectors. In addition, major manufacturing and
product companies often have include large internal service organizations.
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We believe that professional services firms and the companies they serve are
under increasing competitive and operational pressure due to the following
trends:
. emergence of the Internet as a vehicle for service delivery;
. growing complexity of professional services projects;
. increasingly sophisticated, more demanding services acquirers;
. increasingly competitive market for skilled services professionals;
. increased acceptance of project outsourcing; and
. economic globalization.
We believe the professional services industry is unique in a number of ways.
Unlike product-oriented industries producing homogeneous products using
standard components and processes, professional services organizations create
information-based deliverables using human resources with unique knowledge,
skills, abilities and availability. The process of providing professional
services requires extensive collaboration between services providers and
clients in the definition of project needs and in the sourcing, delivery and
acceptance of services. Perhaps most importantly, professional services firms
are increasingly "virtual" organizations, delivering services through a
complex, dynamic network of resources and providers.
Professional Services Organizations are not Optimally Managed
Services organizations have invested in enterprise resource planning (ERP)
applications and other enterprise software applications to automate back-office
business processes such as benefits management, payroll administration and
general ledger accounting. However, they have found that traditional enterprise
applications are difficult to adapt to the specific requirements of services
organizations. Traditional enterprise applications cannot capture the unique
and changing characteristics of the professionals that are a services
organization's core resource. Traditional ERP applications can manage and
execute simple purchase and sale transactions, but cannot support the
inherently collaborative nature of service project definition and delivery.
Moreover, traditional applications have not been architected to address the
complex and distributed processes that connect managers, employees and
contractors within the virtual services organization.
As a result, these basic processes generally continue to be performed
manually, with spreadsheets, phones and email being the principal tools used.
Some professional services organizations have attempted to internally develop
systems to manage the complexities of their operations. While providing modest
efficiency gains, these nonintegrated, function-specific systems have often
failed to meet the challenges of large and growing organizations with diverse,
dynamic, and distributed business process needs. These systems are often
cumbersome and inflexible and are only capable of managing isolated processes
within the service chain. The lack of effective process automation solutions
often results in misallocated resources, high overhead costs, missed revenue
opportunities and dissatisfaction among clients, partners and employees.
The Opportunity for an ePlatform to Automate and Connect the Service Chain
We believe that the unique nature of the professional services industry has
created an opportunity for the creation and delivery of ePlatforms that are
specifically designed to serve services acquirers, providers and professionals.
According to Forrester Research, service-related business-to-business
electronic commerce will grow from approximately $22 billion in 1999 to
approximately $220 billion in 2003, representing a compound annual growth rate
of 78%. By automating and connecting the business processes of services
organizations and their customers, ePlatforms enable real-time collaboration
and transactions across the service chain, resulting in significant improvement
in operating margins. According to research conducted by Benchmarking Partners,
an integrated end-to-end solution for managing the service chain can yield over
a $30 million net present value for a firm of 1000 professionals over three
years.
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The professional services market is especially suited for ePlatform
solutions because services providers and services acquirers share many
identical core business processes for managing service opportunities, resources
and delivery. Internal services organizations such as information technology
departments find that the challenges of balancing project demand against
resource availability, managing internal and external services resources, and
accurately assessing the financial impact of projects are the same as those
faced by large professional services firms. In an attempt to address these
challenges, many services acquirers are beginning to be required by their
"customers" - other departments within the organization - to implement the same
business practices as leading services providers. We believe the similarity in
the processes of both acquirers and providers creates a significant opportunity
for a single ePlatform solution to automate the entire service chain and
successfully meet the needs of all market participants.
We believe that an effective ePlatform for the professional services
industry must provide:
. an architecture that is designed to capture the inherently virtual,
collaborative, and people-centric characteristics of the service chain;
. a set of application modules integrating core service business processes;
. an ability to rapidly deploy the solution across the enterprise;
. integration with existing back-office information systems;
. analysis of key performance indicators and industry benchmarks for
professional services providers;
. ability for a highly distributed and mobile workforce to access the
ePlatform locally or remotely through multiple Internet access devices;
. an online marketplace that facilitates efficient transactions across the
service chain;
. the ability to deploy in either self-hosted or ASP models; and
. a collaborative and integrated online environment that connects the
service chains of multiple participants.
The Evolve Solution
We are a leading provider of Internet-based end-to-end solutions for
automating professional services organizations. Our ePlatform solution,
ServiceSphere, integrates the core processes that are critical to professional
services organizations: managing project opportunities, professional resources
and service delivery. By integrating these processes, ServiceSphere provides
enterprise-wide visibility of business performance resulting in enhanced
revenue opportunities, increased operational efficiency and improved
productivity. Through Services.com, we intend to extend the capabilities of our
ePlatform solution to integrate the internal business processes of providers
and acquirers with an efficient, collaborative, transactional environment.
We believe our ServiceSphere ePlatform provides the following benefits to
businesses across the service chain:
Increased Operational Efficiency. ServiceSphere is designed to allow our
customers to achieve significant cost savings and productivity enhancements by
offering the ability to view and manage all of the core processes involved in
providing services across their entire organization. Our solution is accessible
to professionals and managers throughout a services organization, allowing them
to communicate and collaborate throughout a project. Using our solution,
services providers can rapidly match service professionals with projects to
balance supply and demand for personnel resources within the extended
enterprise. Our ServiceSphere technology also automates and improves workflow
processes and monitors key project metrics to provide enterprise-wide
visibility of business performance.
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Real-time Communication and Collaboration Across the Service Chain. Our
solution allows for the real-time, collaborative sale, management, and delivery
of services through a dynamic and complex network of resources and providers.
By connecting not only the internal professional services organization, but
also the entire service chain to our solution, we allow our customers to
leverage the Internet to communicate in real-time about changes in project
requirements and timing, as well as resource characteristics and availability.
Improved Retention of Service Professionals. By providing professionals with
real-time access and input into their skill profiles, staffing preferences and
assignments schedules, we believe ServiceSphere helps close the gap between
professional development and project staffing needs, improving service
professionals' levels of satisfaction and retention. Improving retention of
service professionals reduces recruitment and training expenses, protects key
knowledge assets and can have a significant impact on operating results of
services providers.
Expanded Qualified Revenue Opportunities. We believe our ePlatform enables
service providers to expand their revenue opportunities. Our Services.com
network aims to create an efficient environment in which service providers can
effectively market to a much larger base of prospective customers. Our
ePlatform provides tools that significantly reduce the complexity inherent in
assessing and matching resource capabilities and available revenue
opportunities.
Enhanced Client Satisfaction. Our solution improves client satisfaction by
more effectively matching client needs with the most knowledgeable and
experienced available resources for their project. In addition, ServiceSphere
facilitates the timely completion of projects by enabling project managers to
collaborate with the provider team and the client and make better decisions
more quickly. We believe that collaborative management is essential to
increasing client satisfaction and generating repeat business.
The Evolve Strategy
Our objective is to become the leading ePlatform provider for automating the
service chain. We intend to achieve our goal by gaining broad market acceptance
for our ePlatform and building the largest network of service chain
participants engaging in Internet-based professional services transactions.
Key elements of our strategy include:
Extend Market Position Among IT Services Organizations and Leverage
Leadership into Other Vertical Markets. We currently target our solution
primarily at professional services organizations specializing in IT consulting.
We chose to initially target the IT services market because of its large size
and because IT services professionals face particularly complex collaboration
and transactional processes in selling, managing, and delivering their
services. We intend to build on our existing customer base to further penetrate
the IT services sector. We also intend to leverage our market position as well
as our core competencies and technologies, to target other vertical industries
such as management consulting and advertising.
Capitalize on Technology Leadership and Expand Product Offerings. We have
acquired substantial domain expertise in developing solutions addressing the
core business process automation needs of the professional services industry,
and we have implemented a technical architecture that meets the need of
professional services organizations for flexible and scalable solutions and
that can rapidly be configured to meet these needs. The ServiceSphere
architecture is designed for rapid and cost-effective implementation and
configuration without source code adaptations. We will continue to enhance our
technology and expand our service offerings to meet the evolving needs of our
customers and promote broad market adoption and increased usage of our
ePlatform solution. We expect to devote significant resources to building,
expanding and continuing to tightly integrate our ePlatform functionality, as
well as enhancing integration with complementary systems.
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Leverage Network Effects to Connect the Extended Service Chain. We believe
that our ePlatform solution creates significant network efficiencies, leading
to increased benefits to each service chain participant as our network grows.
We expect that organizations currently using our ePlatform will encourage the
other participants in their services chain to join our network and adopt our
ePlatform solution to enhance collaboration and transaction efficiency. We
ultimately will expand our network across vertical markets in adjacent
industries. The benefits of joining our network will become increasingly
compelling as the number of organizations connected to the platform increases.
Encourage Continued Adoption of Our ePlatform Through Expanded Acquisition,
Deployment and Pricing Options. We make our platform accessible to a broad
range of businesses by providing a range of acquisition and deployment options,
all based on the same technology platform and using our scalable value-based
pricing model. In addition to our self-hosted, licensed acquisition and
deployment model, we intend to promote use of our ServiceSphere solution on an
ASP subscription basis, whereby we manage and maintain the systems hosting the
application on behalf of the customer, and make the ePlatform available to the
customer via the Internet. We believe that this market strategy will enhance
our ability to build the largest Internet-based network of professional
services organizations.
Leverage our Installed Base to Increase Sales of Complementary Services and
Increase Penetration of Customer Organizations. We intend to leverage the
success of existing deployments to encourage adoption of ServiceSphere across
additional workgroups and divisions within our customers' organizations. We
also will continue to encourage customers to deploy additional software modules
and extend their use of ServiceSphere to begin sourcing and providing services
through Services.com.
Expand Globally. We believe that the Internet provides a platform to
integrate the fragmented nature of many international markets for professional
services. Further, we believe that our existing domain knowledge and
technologies can be applied to professional service markets worldwide. We
intend to capitalize on our domain expertise and on our experience in assisting
our customers with overseas implementations of our solutions to aggressively
expand internationally. We plan to establish additional sales offices, create
an international sales force, and form strategic international partnerships.
Products and Services
Our ePlatform solution helps professional services organizations improve the
effectiveness of their internal operations and connects them to their clients,
partners and suppliers. Our ePlatform captures the inherently virtual,
collaborative, and people-centric characteristics of the service chain by
employing the universal accessibility of the Internet, an intuitive interface,
and applications functionality encapsulating our extensive domain expertise.
Our highly configurable rules engine allows the platform to be deployed by a
wide variety of customers supporting different business practices with no
source code changes. This enables us to address the different needs of a
diverse base of customers ranging from small emerging service firms to large
complex global services organizations across a variety of vertical markets.
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ServiceSphere
ServiceSphere is a proven, scalable and robust solution that can be deployed
on a self-hosted as well as on an ASP basis. The ServiceSphere ePlatform
automates and integrates the key processes that are critical to professional
services operational effectiveness. ServiceSphere comprises the following
modules:
<TABLE>
<CAPTION>
Module Feature Benefits
- --------------------------------------------------------------------------------
<C> <C> <S>
Opportunity Manager . Track opportunity from . Reduces the time to
qualification through identify and close a
service engagement qualified opportunity
[graphic depicting integrated . Model project specifications . Leverages experience
ePlatform modules] and create pricing proposals base to rapidly
create, price and
configure projects
. Review and manage . Improves managerial
opportunity pipelines visibility, enabling
strategic enterprise-
wide decision making
. Incorporate internal and . Focuses sales
competitive benchmarks into activities on highly
the project selection probable engagements
process
- --------------------------------------------------------------------------------
Resource Manager . Match resource profiles and . Enables collaborative
availability with project team building,
requirements building dynamic
teams that adapt to
changing customer
requirements
[graphic depicting integrated . Monitor and review . Optimizes resource
ePlatform modules] organization wide capacity utilization
plan
. Share and evaluate partner . Optimizes resource
resources and projects allocation across a
network of service
providers
. Develop, manage and evaluate . Facilitates personal
resource skills, development,
qualifications and increasing job
preferences satisfaction
improving resource
retention
- --------------------------------------------------------------------------------
Delivery Manager . Capture, review and approve . Improves accuracy and
time and expenses reduces cost of
tracking projects
[graphic depicting integrated . Monitor and review projects . Facilitates improved
ePlatform modules] with customers and partners customer interaction
and satisfaction
. Generate invoices using . Increases billing
multiple billing methods accuracy and payment
efficiency
. Provide sophisticated . Optimizes financial
financial analysis and performance
reporting across the service
chain
</TABLE>
Services.com
Services.com, which we introduced in February 2000, will be a significant
extension of the Evolve ePlatform. Services.com is an online, collaborative
transactional environment that connects providers and acquirers of professional
services, providing efficiencies and cost savings to both.
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The key functions offered by Services.com will include:
. Collaborative Commerce - Services providers will be able to more
effectively market their capabilities and to respond to requests for
proposals posted by services acquirers. Services acquirers will be able
to define and communicate their business requirements to all network
participants or to a qualified group of services providers. Services.com
will allow participants to connect and interact in real time to integrate
the management of project opportunities, professional resources and
services delivery in an efficient transactional environment.
. Content - Services.com will offer access to relevant information to
support services acquisition and provision decisions, including analyst
and user-generated ratings; business news, market and investment
research; and reports on best practices, methodologies and industry
trends.
Services.com is accessible to professional services organizations over the
Internet, and can be used independently of our ePlatform. The tools and
features of Services.com will be optimized to integrate with our ServiceSphere
application modules. This functionality allows organizations that have
implemented our ePlatform to seamlessly and securely interact and transact with
other network participants. We believe our ePlatform will allow service chain
participants to build more flexible and collaborative business relationships.
Professional Services
As of March 15, 2000, our professional services organization consisted of 63
employees. We provide implementation consulting, technical support, end-user
training, and change management to ensure our customers receive the guidance
and support they need to implement and operate our ePlatform solutions. Our
professional services organization has developed implementation methodologies
that allow our customers to rapidly configure and deploy our ePlatform to
support their unique business practices.
In addition to professional services, we offer 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. We
bundle maintenance services with our ASP offering in a single monthly
subscription fee. Customers receiving maintenance services also receive product
upgrades as they are released throughout the life of the maintenance contracts.
Customers
Our current customers include both eBusiness consultants and the services
organizations of traditional software and hardware companies. As of March 15,
2000, we had licensed our solution to 23 customers, each of whom had purchased
more than $250,000 in products and services and who have collectively used our
solutions to manage over 40,000 professionals:
<TABLE>
<S> <C>
Banyan Systems Portal Software
Becton Dickinson Razorfish
Cambridge Technology Partners R.R. Donnelley & Sons
Computer Task Group Scient
DMR Consulting Group ThoughtWorks
Ericsson Whittman-Hart & US Web/CKS
Exodus Communications Xcelerate
Groundswell XOR
Lante Xpedior
Mainspring Communications Xuma Technologies
Netscape Communications Zefer
Novell
</TABLE>
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The following are case studies of certain Evolve customers who have deployed
our ePlatform to automate their service chain:
Exodus Communications
Exodus is a leading provider of complex Internet hosting for enterprises
with mission-critical Internet operations. Exodus was looking for a solution to
manage its professional services organization as well as its relationships with
its outside services provider partners. Our Opportunity Manager and Resource
Manager modules were selected because the applications can be hosted and
because Exodus concluded that Evolve's ePlatform offers more extensive features
and functionality than competing offerings. By using our ePlatform, Exodus
expects to be able to manage its workforce more effectively and streamline and
optimize interactions with its services provider partners.
Novell
Novell is a leading worldwide provider of Net services software that is
rapidly scaling its professional services organization to provide customers
with comprehensive education, consulting and technical support programs.
ServiceSphere was evaluated to help achieve the company's strategic goal to
grow its global services resources by 500% in 2000. Novell has purchased all
three modules of our ePlatform. This ensures that they have the tools to keep
up with the challenges of building, scaling and integrating a large
professional services organization within a traditionally product-oriented
enterprise. The first two modules were implemented around the world in less
than three months. Plans are underway to deploy the third module worldwide in
2000.
Scient
Scient is leading a new category of professional services called systems
innovation and is focused on building highly scalable, innovative eBusiness
systems that help companies go to market rapidly and build competitive
differentiation. Scient selected Evolve to provide a solution to support the
growth of its professional services. Scient is using our Resource Manager,
including connectors to its PeopleSoft human resource system and other systems,
to assist in its efforts to build project teams efficiently and to streamline
operations in its dynamic environment.
Whittman-Hart & USWeb/CKS
Whittman-Hart & USWeb/CKS is a leading global Internet professional services
firm that helps clients perform, strengthening the integration of their
business models, brands, systems and processes. Whittman-Hart & USWeb/CKS have
more than 8,500 employees in 13 countries worldwide. Whittman-Hart chose our
ePlatform because they believed our solution could scale to address the
mission-critical processes of a $1 billion services firm. Whittman-Hart also
needed a solution that would integrate effectively with its other enterprise
applications that were simultaneously deployed--human resources, financial,
knowledge management and recruiting. Today, Evolve is used to manage more than
3,300 professionals at Whittman-Hart.
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Technology
[LOGO TO COME]
At the core of our ePlatform solution is a highly adaptable, scalable,
multi-tier, distributed, Internet-based architecture. Our architecture includes
the following components:
ePlatform Server
Our Java-based ePlatform application server includes the Opportunity,
Resource and Delivery modules that employ extensive professional services
domain knowledge . When deployed together, these modules provide a fully
integrated, end-to-end service chain automation solution. Alternatively,
companies can deploy these modules individually on an as-needed basis. Some of
these key features of the server include:
. The option of running multiple application servers to provide scalability
for large sophisticated organizations;
. Patent-pending resource matching algorithms that reduce the time taken to
staff projects.
. A flexible object-based design allowing rapid incorporation of new
features and functionality; and
. Java-based portability which provides flexibility to support multiple
operating environments.
Our ePlatform includes the following functionality:
Presentation Interface
We have the flexibility to provide access to a broad set of users by
employing different presentation interfaces:
. Internet Browser - an ease-of-use interface that allows services
organizations to manage and share information through a secure intranet
or Internet connection;
. Java Client - a more functionally sophisticated interface for power-users
needing to work quickly with complex queries and dashboards providing
highly graphical presentation of management data; and
. Handheld Devices - an interface for mobile access to time and expense
entry through popular personal digital assistants such as Palm devices.
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Our architecture is designed to quickly develop and introduce new
presentation interfaces that leverage new and emerging access technologies.
sXML
Our ePlatform employs XML (eXtensible Mark-up Language), a common
information exchange standard for electronic commerce. We are in the process of
developing Services XML (sXML), an advanced version of the XML standard
optimized for exchanging information on service opportunities, resources and
delivery.
Analytics Engine
We have the ability to report on key data through a sophisticated analytics
engine. These reports are available through our browser-based report center,
which provides views of the entire service chain, such as opportunity and
revenue pipelines, utilization and profitability analysis, and resource supply
and demand planning.
Application Connectors
Our system provides connectors that support common industry standards and
technologies such as JDBC (Java DataBase Connectivity); ODBC (Open DataBase
Connectivity); SQL (Structured Query Language) and Java. These connectors allow
for integration with:
. External databases;
. Third party reporting tools that complement our built-in browser-based
report center capabilities; and
. Other enterprise applications such as financial, human resource and sales
force automation systems.
Business Rules Repository
Our ePlatform is designed to capture and store business information, rules
and standards in a single, centralized repository that can be accessed by all
functional modules. This centralized information structure allows for rapid
initial deployment and also facilitates adaptation to changes in the customer's
organization and processes without source code modifications. We believe this
architecture will allow us to more easily extend our solution to other vertical
industries beyond IT.
Security Controller
Our integrated security and administration features store profiles and
access rules within a centralized repository. Customers can specify individual
access rules for employees based on their position within their organization as
well as for customers, partners and other external parties. Our systems
supports the Lightweight Directory Access Protocol (LDAP) security standard for
universal sign-on and authentication functions.
Workflow Manager
Our platform incorporates an integrated messaging system that notifies users
when actions, information or approvals are required. This system helps to
streamline approval processes, monitor resources and facilitate collaboration
among project team participants.
Research and Development
We believe that the introduction of new and enhanced products will be a key
factor for future success. As part of our efforts to generate ideas for
enhancing our existing products and for developing new ones, we maintain an
ongoing dialogue with our customers who are facing new professional services
automation
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challenges. We have devoted and expect to continue to devote significant
resources to developing new and enhanced products, including the ServiceSphere
ePlatform and Services.com offering.
Our research and development expenses were $5.1 million and $3.4 million in
fiscal 1999 and the six months ended December 31, 1999. We expect the research
and development expenses will increase in absolute dollars and may increase as
a percentage of revenues in future periods as we hire additional research and
development personnel to develop our products and services. We expect that we
will have to respond quickly to rapid technological change, changing customer
needs, frequent product introductions and evolving industry standards that may
render existing products and services obsolete. We currently have a number of
product development initiatives underway, but we cannot be certain that any
enhanced or new products will be embraced by existing or new customers.
Sales and Marketing
We sell our solutions through our direct sales organization which includes
personnel in the metropolitan areas of Atlanta, Boston, Chicago, Dallas, New
York and San Francisco. In the future, we intend to enhance our market presence
through alliances with systems integrators and service partners.
In selling our products, we typically approach both business users and
information technology professionals with an integrated team from our sales and
professional services organizations. Initial sales activities typically include
a demonstration of our product capabilities followed by one or more detailed
technical reviews. Our sales process requires that we work closely with
targeted customers to identify short-term professional services automation
needs and long-term goals. Our sales team, which includes both sales and
technical professionals, then works with the customer to develop a proposal to
address these needs. In many cases, we collaborate with our customers' senior
management team, including the chief executive officer, chief information
officer, chief operating officer and chief financial officer. The level of
customer analysis and financial commitment required for many of our product
implementations has caused our sales cycle to range from two to nine months.
We use a variety of marketing programs to build market awareness of our
company, our brand name and our products, as well as to attract potential
customers. These programs include advertising, our own market research, product
and strategy updates with industry analysts, public relations activities,
direct mail programs, telemarketing and telesales, seminars, trade shows,
speaking engagements and Web-based marketing. Our marketing organization also
produces marketing materials in support of sales to prospective customers that
include brochures, data sheets, white papers, presentations and demonstrations.
We plan to continue to expand our marketing organization and marketing budget
to broaden our market presence. We also seek to establish relationships and
alliances with major industry vendors that will add value to our products and
enhance our market presence.
Intellectual Property and Proprietary Rights
Our success is dependent on our ability to develop and protect our
proprietary technology and intellectual property rights. We seek to protect our
software, documentation and other written materials primarily through a
combination of patent, trade secret, trademark and copyright laws,
confidentiality procedures and contractual provisions. For example, we license
rather than sell our software and require licensees to enter into license
agreements that impose certain restrictions on the licensees' ability to
utilize the software. In addition, we seek to avoid disclosure of our trade
secrets, by, among other things, requiring persons with access to our
proprietary information to execute confidentiality agreements with us and by
restricting access to our source code.
We have two patent applications pending in the United States with respect to
certain aspects of our software. None of these patents have been issued, and
there can be no assurance that any patents will be issued pursuant to these
applications or that, if granted, such patent would survive a legal challenge
to its validity or
44
<PAGE>
provide significant protection to us. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or obtain and use information that we regard as proprietary. Policing
unauthorized use of our products is difficult. While we are unable to determine
the extent to which piracy of our software products exists, software piracy can
be expected to be a persistent problem, particularly in foreign countries where
the laws may not protect proprietary rights as fully as in the United States.
We can offer no assurance that our means of protecting our proprietary rights
will be adequate or that our competitors will not independently develop similar
technology.
It is also possible that third parties will claim that we have infringed
their current or future products or technologies. We expect that enterprise
applications software developers will increasingly be subject to infringement
claims as the number of products in different industry segments overlap. Any
claims, with or without merit, could be time-consuming, result in costly
litigation, prevent product shipment, cause delays, or require us to enter into
royalty or licensing agreements, any of which could harm our business. Patent
litigation in particular has complex technical issues and inherent
uncertainties. In the event an infringement claim against us was successful and
we could not obtain a license on acceptable terms or license a substitute
technology or redesign to avoid infringement, our business could be harmed.
We rely on software that we have licensed from Paradigm Software
Technologies, Poet Software and Inprise/ Borland to perform key functions of
our ServiceSphere ePlatform. These companies could discontinue their support of
these products, or they could terminate our licenses if we breach our
agreements with them. This could result in delays or reductions of sales or
shipments of our ePlatform until alternative software could be developed or
licensed.
We indemnify some of our customers against claims that our products infringe
upon the intellectual property rights of others. We could incur substantial
costs in defending our company and our customers against infringement claims.
In the event of a claim of infringement, we or our customers may be required to
obtain one or more licenses from third parties. We cannot assure you that such
licenses could be obtained from third parties at a reasonable cost, or at all.
Defense of any lawsuit or failure to obtain any such required license could
have a material adverse effect on our business.
Competition
Competition could seriously harm our ability to sell additional software and
maintenance and support renewals on prices and terms favorable to us. The
markets for our products are intensely competitive and subject to rapidly
changing technology. We currently compete against other providers of automation
solutions for professional services organizations such as Changepoint and Niku.
In addition, we may in the future face competition from providers of enterprise
application software, or electronic marketplaces. Companies in each of these
areas may expand their technologies or acquire companies to support greater
professional service automation functionality and capability. In addition, "in
house" information technology departments of potential customers have developed
or may develop systems that substitute for some of the functionality of our
ePlatform.
Some of our competitors' products may be more effective than our products at
performing particular functions or be more customized for particular needs.
Even if these functions are more limited than those provided by our products,
our competitors' software products could discourage potential customers from
purchasing our products. A software product that performs these functions, as
well as some of the functions of our solutions, may be appealing to some
customers because it would reduce the number of different types of software
necessary to effectively run their business. Further, our competitors may be
able to respond more quickly than we can to changes in customer requirements.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly
than we can to new or emerging technologies and changes in customer
requirements. Our
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competitors have made and may also continue to make strategic acquisitions or
establish cooperative relationships among themselves or with other software
vendors. They may also establish or strengthen cooperative relationships with
our current or future partners, thereby limiting our ability to promote our
products through these partners and limiting the number of consultants
available to implement our software.
We believe that the primary competitive factors in our market include:
. a critical mass of prominent referenceable customers that have
successfully implemented the solutions;
. an underlying software infrastructure that fully encapsulates the
virtual, collaborative, and people-centric characteristics of the service
chain;
. an eMarketplace that integrates with process automation functionality;
. product quality, performance, features, functionality, and usability;
. customer service and support; and
. ease of integration with customers' business processes.
We believe our current products compete favorably with respect to these
factors, although our market is relatively new and evolving rapidly. We may not
be able to maintain our competitiveness in the face of significant competition.
Employees
As of March 15, 2000, Evolve had a total of 177 employees. Of these
employees:
. 44 were engaged in sales and marketing
. 42 were in research and development
. 63 were in professional services and customer support
. 28 in finance, administration and corporate operations
In addition, as of March 15, 2000, we also employed an additional 22 full-
time consultants in our research and development organization.
Our future performance depends in significant part on our continuing ability
to attract, train and retain highly qualified technical, sales, service,
marketing, managerial and administrative personnel. None of our employees is
represented by a labor union. We have not experienced any work stoppages and
considers our relations with our employees to be good.
Facilities
We currently lease approximately 25,000 square feet of office space for our
headquarters in one building in San Francisco, California. In November 1999, we
entered into a lease for a new 50,000 square foot corporate headquarters
facility in Emeryville, California, which we intend to occupy commencing in
June 2000. In connection with the relocation of our corporate headquarters, we
expect to incur capital expenditures of approximately $4 million in the fourth
quarter of fiscal 2000 and the first quarter of fiscal 2001. We also lease
sales offices near Atlanta, Boston, Chicago, Dallas, and New York. We believe
that our facilities are adequate for our current needs. We may need to locate
additional space to meet our needs in the future.
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Legal Proceedings
From time to time, we may become involved in litigation relating to
additional claims arising from our ordinary course of business. In January
2000, PeopleSoft, Inc. filed an action in the California Superior Court
alleging certain claims arising out of our employment of former employees of
PeopleSoft, and seeking an injunction to preclude additional hiring of
PeopleSoft employees. We believe PeopleSoft's claims are without merit, and we
are in the process of contesting these claims. This litigation, whether or not
determined or settled in the Company's favor, may be costly and may divert the
efforts and attention of the Company's management from normal business
operations. We believe that there are no other claims or actions pending or
threatened against us, the ultimate disposition of which would have a material
adverse effect on us.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, and their ages as of March 15, 2000
are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
John P. Bantleman........ 40 President, Chief Executive Officer and Director
James J. Bozzini......... 33 Chief Operating Officer
Marc C. Ferrie........... 36 Senior Vice President, Engineering
Vice President, Marketing and Business
Mark L. Davis............ 38 Development
J. Russell DeLeon........ 34 Vice President, Finance and Administration,
General Counsel, Corporate Secretary and
Treasurer
Kurt M. Heikkinen........ 32 Vice President, Worldwide Customer Service
Jeff A. McClure.......... 34 Vice President, Marketplace Services
Anil K. Gupta............ 39 Vice President, Strategy
John R. Oltman(1)(2)..... 54 Chairman of the Board
Jeffrey M. Drazan(1)(2).. 41 Director
Judith H. Hamilton(1).... 55 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
John P. Bantleman has served as President since October 1997, and as Chief
Executive Officer and as Director since November 1998. Prior to joining Evolve,
Mr. Bantleman served as Executive Vice President of Marketing and Product
Management at Logic Works from October 1996 to May 1997, a provider of
development tools for enterprise-wide client-server and data warehouse
applications. From 1982 to 1996, he was employed by LBMS, where he served as
President and Chief Executive Officer after serving in various other management
positions. Mr. Bantleman holds a B.S. degree in Computer Science from City
University, London, England.
James J. Bozzini has served as Chief Operating Officer since November 1999.
From 1991 to 1999, Mr. Bozzini held various executive positions at PeopleSoft,
Inc., including Senior Vice President of Worldwide Services Operations from
January 1998 to July 1999 and Vice President, Customer Services from December
1995 until December 1997. From 1991 to 1995, he held various executive
positions at PeopleSoft, including Vice President of Professional Services and
Director of European Operations. From 1988 to 1991, he held various positions
at Andersen Consulting. Mr. Bozzini holds a B.S. in Business from California
State University, Chico.
Marc C. Ferrie has served as Senior Vice President, Engineering since
January 1998. Prior to joining Evolve, Mr. Ferrie served from July 1997 to
December 1997 as President and Vice President of Engineering of Omnis Software.
From 1988 to 1997, he was employed at Ingres Corporation, where he held various
positions, including Vice President of Engineering from January 1995 to June
1997, Vice President of Product Management from 1993 to 1995, and Vice
President of Customer Services for France from 1990 to 1993. Mr. Ferrie holds
an M.S. degree in Computer Science and Artificial Intelligence from the
University of Rene Descartes Paris V, and an M.S. degree in Sociology from the
University La Sorbonne, Paris, France.
Mark L. Davis has served as Vice President, Marketing and Business
Development since November 1999. Prior to joining Evolve, Mr. Davis served as
Vice President of Marketing, Alliances, and Customer Service at ConvergeNet
Technologies, Inc. from January 1999 through the company's acquisition by Dell
Computer in November 1999. From January 1998 to January 1999, he was a Vice
President of Marketing at Storage Technology Corporation, a $2.3 billion
enterprise storage company. From 1991 to 1998, Mr. Davis held various
management positions at Sun Microsystems, Inc., including Group Manager,
Outbound Marketing and Acting Director of Marketing from May 1997 to January
1998; Manager, Marketing Strategy and Programs from
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January 1996 to May 1997; and Product Line Manager from February 1995 to
January 1996. Mr. Davis holds an M.B.A., with honors, from Dartmouth College's
Amos Tuck School of Business, and B.S. and B.A. degrees, with honors, in
Computer Science and Business Administration from Trinity University.
J. Russell DeLeon joined Evolve as Vice President, General Counsel and
Corporate Secretary in May 1995, and was appointed Treasurer in October 1997,
and Vice President, Finance and Administration in November 1998. Prior to
joining Evolve, Mr. DeLeon worked as an associate in the business, corporate
finance and intellectual property groups at Morrison & Foerster, an
international law firm. Mr. DeLeon, a member of the State Bar of California,
holds a B.A. degree in Philosophy from UC Berkeley and a J.D. from Harvard Law
School.
Kurt M. Heikkinen has served as Vice President, Worldwide Customer Service
since December 1999. Prior to joining Evolve, Mr. Heikkinen held various
positions at PeopleSoft, Inc. From August 1999 to November 1999, he served as
General Manager of the Human Resource Management Solutions ("HRMS") product
division; from October 1997 until August 1999 he served as Vice President,
Global Support Services; from July 1996 until October 1997 he served as
Development Manager, Asia Pacific HRMS; and from March 1994 until July 1996 he
was a Senior Account Manager. Mr. Heikkinen holds a B.S. degree from the
University of Wisconsin, Milwaukee.
Jeff A. McClure has served as Vice President, Marketplace Services since
February 2000. He joined Evolve as Director of ASP operations in November 1999.
From 1996 to 1999, Mr. McClure served in executive positions at PeopleSoft,
Inc. From April 1999 until November 1999, he was Vice President, Advantage
Programs and Services. From June 1998 until April 1999, he was Vice President,
Product Knowledge Services, and from October 1996 through June 1999, he was
Director, Service Alliances. Before PeopleSoft, Mr. McClure served as a
principal in a financial systems consultancy, and before that he served in
various roles at Apple Computer, Inc., including Business Solutions Evangelist.
Mr. McClure holds a B.S. in Business Administration from California State
University, Chico.
Anil K. Gupta joined Evolve as Vice President, Strategy in March 2000. Mr.
Gupta served as Vice President, Marketing of Broadbase Software, Inc. from
August 1999 to March 2000. From January 1999 to August 1999, Mr. Gupta served
as Vice President of Marketing at Niku Corporation. From May 1995 to December
1998, Mr. Gupta held various marketing positions at Baan N.V., including Vice
President of Marketing for the Baan Supply Chain Solutions. From June 1993 to
May 1995, Mr. Gupta served as Director of Industry Marketing at Oracle
Corporation. Mr. Gupta holds a B.S. degree in Electrical Engineering from The
Birla Institute of Technology and Science in Pilani, India and an M.B.A. degree
from Santa Clara University.
John R. Oltman has served on our Board of Directors since August 1999, and
has served as Chairman of the Board of Directors since November 1999. Mr.
Oltman has been President of JRO Consulting, Inc. since 1995, in which role he
serves as director, advisor and investor in leading technology companies and
investment firms. Mr. Oltman also currently serves as the Vice-Chairman of
Lante Corporation and Chairman of XOR, Inc. Mr. Oltman also serves as a
director for Exult, Inc., Alysis Technologies, Inc., InaCom Corp. and Premier
Systems Integrators, Inc. From February 1996 through August 1997, Mr. Oltman
served as Chairman and senior member of the Executive Committee of TSW
International, a global leader in asset care software and services. From July
1991 to November 1995, Mr. Oltman served as the Chairman and Chief Executive
Officer of SHL Systemhouse, a large provider of client/server systems
integration and technology outsourcing. Before joining SHL Systemhouse, Mr.
Oltman was managing partner for Andersen Consulting's Chicago Consulting Group.
Mr. Oltman holds a B.S. degree from the University of Illinois and an M.B.A.
degree from Northwestern University's Kellogg School of Management.
Jeffrey M. Drazan has served on our Board of Directors since November 1998.
Mr. Drazan has been a General Partner of Sierra Ventures since 1984. Prior to
joining Sierra Ventures, Mr. Drazan was employed by AT&T, where he held various
management positions within the operating divisions of AT&T Long Lines,
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AT&T Information Systems, and Bell Laboratories. He currently serves on the
Board of Directors of Vertel Corporation, a telecommunications software vendor,
Fairmarket, an auction services company and other private companies. Mr. Drazan
holds an M.B.A. from New York University's Graduate School of Business
Administration and a B.S. Degree in Engineering from Princeton University.
Judith H. Hamilton has served on our Board of Directors since March 1999.
Ms. Hamilton has served as President and Chief Executive Officer of Classroom
Connect since January 1999. Prior to this, she served as President and Chief
Executive Officer of First Floor, Inc. from April 1996 to July 1998. Ms.
Hamilton also served as President and Chief Executive Officer of Dataquest,
Inc. from July 1992 to March 1996. She currently serves on the Board of
Directors of R.R. Donnelley & Sons Company, a financial printing services
company, Software.com, Inc., an Internet messaging software developer, and
Lante Corporation, a consulting firm. Ms. Hamilton holds a B.A. Degree in
History and Political Science from Indiana University and has completed post-
graduate studies in International Relations at Boston University in Heidelberg,
Germany as well as Executive Management at the UCLA Graduate School of
Management.
Board of Directors
Our Board of Directors currently consists of four members. Each director
holds office until his or her term expires or until his or her successor is
duly elected and qualified. Upon completion of this offering, our amended and
restated certificate of incorporation and bylaws will provide for a classified
Board of Directors. In accordance with the terms of our certificate, our Board
of Directors will be divided into three classes whose terms will expire at
different times. The three classes will be comprised of the following
directors:
. Class I consists of Jeffrey M. Drazan, who will serve until the annual
meeting of stockholders to be held in 2001;
. Class II consists of John R. Oltman, who will serve until the annual
meeting of stockholders to be held in 2002; and
. Class III consists of John P. Bantleman and Judith H. Hamilton, who will
serve until the annual meeting of stockholders to be held in 2003.
At each annual meeting of stockholders beginning with the 2001 annual
meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election and until their successors have been duly
elected and qualified. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of an equal number of directors.
Committees of the Board of Directors
Audit Committee
The audit committee consists of Jeffrey M. Drazan, John R. Oltman and Judith
H. Hamilton. The audit committee reviews our internal accounting procedures,
consults with and reviews the services provided by our independent accountants
and makes recommendations to the Board of Directors regarding the selection of
independent accountants.
Compensation Committee
The compensation committee consists of Jeffrey M. Drazan and John R. Oltman.
The compensation committee reviews and recommends to the Board of Directors the
salaries, incentive compensation and benefits of our officers and employees and
administers our stock plans and employee benefit plans.
The Board of Directors selects the directors who will serve as members of
these committees and may reduce or enlarge the size of the committees or change
the scope of their responsibilities. The Board of
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Directors has no current plans to take any of these actions. The rules of The
Nasdaq Stock Market's National Market, on which our common stock is listed,
require us to maintain an audit committee consisting of at least two directors
who are not employees of Evolve.
Compensation Committee Interlocks and Insider Participation
Our Board of Directors established the compensation committee in December
1998. Prior to establishing the compensation committee, our Board of Directors
as a whole performed the functions delegated to the compensation committee. No
member of our compensation committee has served as a member of the Board of
Directors or compensation committee of any entity that has one or more
executive officers serving as a member of our Board of Directors or
compensation committee. Since the formation of the compensation committee, none
of its members has been our officer or employee.
Employee directors, which currently includes only John P. Bantleman, are
eligible to participate in our 2000 Employee Stock Purchase Plan.
Director Compensation
Our Board of Directors will be reimbursed for expenses incurred in attending
any meeting of the Board of Directors or any committee thereof. We have adopted
a policy whereby each new non-employee director will receive a grant of options
to purchase 166,667 shares of our common stock on the date on which such person
becomes a director. The options will vest over four (4) years. Twenty-five
percent (25%) of the shares subject to such options will vest on the first
anniversary of the date on which the person becomes a director, and 1/48th of
the total number of shares vesting each month thereafter. Our directors may
also be given the opportunity from time to time to purchase shares of our
common stock pursuant to restricted stock purchase agreements.
Executive Compensation
The following Summary Compensation Table sets forth all compensation paid or
accrued during our fiscal year ended June 30, 1999, to our President and Chief
Executive Officer, and each of our other most highly compensated officers whose
compensation exceeded $100,000 for the period. In accordance with the rules of
the SEC, the compensation described in this table does not include perquisites
and other personal benefits received by the executive officers named in the
table below that do not exceed the lesser of $50,000 or 10% of the total salary
and bonus reported for these officers. Since the end of our 1999 fiscal year,
we have added several additional executive officers. For a list of our current
executive officers and certain members of our senior management, see "--
Executive Officers and Directors" above.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------- ------------
Restricted
Stock All Other
Name and Principal Position Salary ($) Bonus ($) Awards (#) Compensation
- --------------------------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
John P. Bantleman.............. 187,500 135,520 1,366,667(1) --
President, Chief Executive
Officer
Marc C. Ferrie................. 162,500 35,363 633,333(2) --
Senior Vice President,
Engineering
J. Russell DeLeon.............. 105,000 25,613 183,500(3) --
Vice President, Finance and
Administration, General
Counsel, Corporate Secretary
and Treasurer
</TABLE>
51
<PAGE>
- --------
(1) As of June 30, 1999, Mr. Bantleman had purchased, in aggregate, 1,666,667
shares of restricted stock that had a value of $250,000 (based on a value
of $0.15 per share, the fair market value of our common stock at the end of
fiscal 1999 as determined in good faith by our Board of Directors). On
February 1, 1999, Mr. Bantleman purchased 1,366,667 shares of restricted
stock for $205,000, which shares are scheduled to vest over a four-year
period in equal amounts on the 15th day of each month commencing December
15, 1998. On January 31,1998, Mr. Bantleman purchased 300,000 shares of
restricted stock for $270,000. Dividends were not paid on any of the
restricted stock during fiscal 1999.
(2) As of June 30, 1999, Mr. Ferrie had purchased, in aggregate, 633,333 shares
of restricted stock that had a value of $95,000 (based on a value of $0.15
per share, the fair market value of our common stock at the end of fiscal
1999 as determined in good faith by our Board of Directors), which shares
were purchased on February 1, 1999, and are scheduled to vest over a four-
year period in equal amounts on the 15th day of each month commencing
December 15, 1998. Dividends were not paid on any of the restricted stock
during fiscal 1999.
(3) As of June 30, 1999, Mr. DeLeon had purchased, in aggregate, 246,000 shares
of restricted stock that had a value of $36,900 (based on a value of $0.15
per share, the fair market value of our common stock at the end of fiscal
1999, as determined in good faith by our Board of Directors). On February
1, 1999, Mr. DeLeon purchased 183,500 shares of restricted stock for
$27,525, which shares are scheduled to vest over a four-year period in
equal amounts on the 15th day of each month commencing December 15, 1998.
On May 15, 1995, Mr. DeLeon purchased 62,500 shares of restricted stock for
$9,375. Dividends were not paid on any of the restricted stock during
fiscal 1999.
Stock Option Grants in Fiscal 1999
No stock options were granted to the executive officers named in the table
above during the fiscal year ended June 30, 1999.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth for the named executive officers exercisable
and unexercisable options held by them as of June 30, 1999. The named executive
officers did not exercise any options during the fiscal year ended June 30,
1999. All options granted to these executive officers in the last fiscal year
were granted under the 1995 Stock Option Plan, as amended. All options were
granted at a fair market value as determined by our Board of Directors on the
date of grant.
The "Value of Unexercised In-the-Money Options at June 30, 1999" is based on
a value of $0.15 per share, the fair market value of our common stock as of
June 30, 1999, as determined in good faith by our Board of Directors, less the
per share exercise price, multiplied by the number of shares issued upon
exercise of the option. As of June 30, 1999, none of the unexercised options
were "In-the-Money."
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at June 30, 1999 In-the-Money Options at
Acquired on (#) June 30, 1999 ($)
Exercise Value -------------------------- -------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John P. Bantleman....... -- -- -- -- -- --
Marc C. Ferrie.......... -- -- 100,000(1) -- -- --
J. Russell DeLeon....... -- -- 34,167 -- -- --
</TABLE>
- --------
(1) These options were immediately exercisable pursuant to a right of early
exercise; however, as a condition of exercise, the optionee must enter into
a restricted stock purchase agreement granting us the right to repurchase
any unvested portion of the shares issuable by such exercise at their cost
in the event of the optionee's termination of employment.
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<PAGE>
Employee Benefit Plans
2000 Stock Plan
As of the date of this prospectus, no options or stock purchase rights have
been granted under the 2000 Stock Plan. The 2000 Stock Plan provides for the
grant of incentive stock options to employees, including officers and employee
directors, and for the grant of non-statutory stock options and stock purchase
rights to employees, directors and consultants.
The total number of shares of common stock currently reserved for issuance
under the 2000 Stock Plan equals 3,000,000 shares, which includes:
. the shares of common stock that have been reserved but unissued under the
1995 Stock Option Plan, as amended, as of the effective date of the
offering (as of March 15, 2000, there were 114,319 shares reserved but
unissued under the 1995 Stock Option Plan, as amended); and
. any shares returned to the 1995 Stock Option Plan, as amended, as a
result of termination of options under the 1995 Stock Option Plan, as
amended.
A number of shares will be added to the 2000 Stock Plan on an annual basis
equal to the lesser of: (i) the aggregate number of shares issued in the
previous year, or (ii) a lesser amount determined by our Board of Directors.
Unless terminated sooner, the 2000 Stock Plan will terminate automatically
ten years from the effective date of this offering.
The administrator of our 2000 Stock Plan has the power to determine:
. the terms of the options or stock purchase rights granted, including the
exercise price of the options or stock purchase rights;
. the number of shares subject to each option or stock purchase right;
. the vesting schedule of each option or stock purchase right; and
. the form of consideration payable upon the exercise of each option or
stock purchase right.
Options and stock purchase rights granted under our 2000 Stock Plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by the optionee.
Options granted under the 2000 Stock Plan must generally be exercised within
three months after the end of optionee's status as an employee, director or
consultant of Evolve, or within twelve months after such optionee's termination
by death or disability, but not later than the expiration of the option's term.
In the case of stock purchase rights, unless the administrator determines
otherwise, the restricted stock purchase agreement grants Evolve a repurchase
option, exercisable for any unvested stock purchase rights, upon the voluntary
or involuntary termination of the purchaser's employment or consulting
relationship with Evolve for any reason, including death or disability. The
purchase price for shares repurchased pursuant to the restricted stock purchase
agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to Evolve. The repurchase
option lapses at a rate determined by the administrator.
The exercise price of all incentive stock options granted under the 2000
Stock Plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of nonstatutory stock options and
stock purchase rights granted under the 2000 Stock Plan is determined by the
administrator, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section
162(m) of the Internal Revenue Code, the exercise price must be at least equal
to the fair market value of our common stock on the date of grant. With respect
to any participant who owns stock
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possessing more than 10% of the voting power of all classes of our outstanding
capital stock, the exercise price of any incentive stock option granted must be
at least equal to 110% of the fair market value on the grant date and the term
of such incentive stock option must not exceed five years. The term of all
other options granted under the 2000 Stock Plan may not exceed ten years.
The 2000 Stock Plan provides that if we merge with or into another
corporation, or sell substantially all of our assets, each option and stock
purchase right must be assumed or an equivalent option or stock purchase right
substituted for by the successor corporation. If the outstanding options and
stock purchase rights are not assumed or substituted for by the successor
corporation, the optionees shall become fully vested in and have the right to
exercise such options or stock purchase rights. If an option or stock purchase
right becomes fully vested and exercisable in the event of a merger or sale of
assets, the administrator must notify the optionee that the option or stock
purchase right is fully exercisable for a period of 15 days from the date of
the notice, and the option or stock purchase right will terminate upon the
expiration of the 15 day period.
2000 Employee Stock Purchase Plan
A total of 2,000,000 shares of common stock have been reserved for issuance
under our 2000 Employee Stock Purchase Plan, plus annual increases equal to the
lesser of (i) the aggregate number of shares issued pursuant to the 2000
Employee Stock Purchase Plan in the previous year, or (ii) a lesser amount
determined by our Board. As of the date of this prospectus, no shares had been
granted under our 2000 Employee Stock Purchase Plan.
The plan, which is intended to qualify under Section 423 of the Internal
Revenue Code, will be implemented by a series of overlapping offering periods
of 24 months' duration, with new offering periods, other than the first
offering period, commencing on or about January 1 and July 1 of each year. Each
offering period will consist of four consecutive purchase periods of
approximately six months' duration, at the end of which, an automatic purchase
will be made for participants. The initial offering period is expected to
commence on the date of this offering and end on December 31, 2001. The initial
purchase period is expected to begin on the date of this offering and end on
June 30, 2000. Participants generally may not purchase more than 1,000 shares,
or such other number of shares established by the committee or our board of
directors, on any purchase date or purchase stock having a value measured at
the beginning of the offering period greater than $25,000 in any calendar year.
Employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, any employee who (i) immediately
after grant owns stock possessing 5% or more of the total combined voting power
or value of all classes of our capital stock, or (ii) whose rights to purchase
stock under all of our employee stock purchase plans accrues at a rate that
exceeds $25,000 worth of stock for each calendar year may not be granted an
option to purchase stock under this plan. The 2000 Employee Stock Purchase Plan
permits participants to purchase common stock through payroll deductions of up
to 15% of the participant's base compensation.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 2000 Employee Stock Purchase Plan is generally 85% of the
lower of the fair market value of the common stock (i) at the beginning of the
offering period or (ii) at the end of the purchase period. Participants may end
their participation at any time during an offering period, and they will be
paid their payroll deductions to date. Participation ends automatically upon
termination of employment with us.
In the event the fair market value at the end of a purchase period is less
than the fair market value at the beginning of the offering period, the
participants will be withdrawn from the current offering period following
exercise and automatically re-enrolled in a new offering period. The new
offering period will use the lower fair market value as of the first date of
the new offering period to determine the purchase price for future purchase
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periods. Participants may end their participation at any time during an
offering period, and they will be paid their payroll deductions to date.
Participation ends automatically upon termination of employment with us.
Rights granted under the 2000 Employee Stock Purchase Plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the plan. The 2000 Employee Stock
Purchase Plan provides that, in the event of our merger with or into another
corporation or a sale of substantially all our assets, each outstanding option
may be assumed or substituted for by the successor corporation. If the
successor corporation refuses to assume or substitute for the outstanding
options, the offering period then in progress will be shortened and a new
exercise date will be set. The new exercise date will be set prior to the
proposed date of the merger or sale of assets.
The Compensation Committee has the authority to amend or terminate the
purchase plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the purchase plan. The Compensation Committee
has the exclusive authority to interpret and apply the provisions of the
purchase plan. The 2000 Employee Stock Purchase Plan will terminate
automatically in 2010, unless terminated earlier.
1995 Stock Option Plan, as Amended
Our 1995 Stock Option Plan, as amended, was adopted by our Board of
Directors and by our stockholders in 1995, and it was amended in 1996, 1998,
1999 and 2000. As of March 15, 2000, we had reserved a total of 10,000,000
shares of our common stock for issuance under the plan. The 1995 Stock Option
Plan, as amended, provides for the granting to our employees of incentive stock
options within the meaning of Section 422 of the United States tax code, and
for the granting to employees, including officers and directors, non-employee
directors and consultants of non-statutory stock options. No further grants
will be made under the 1995 Stock Option Plan following completion of this
offering.
Options granted under our 1995 Stock Option Plan, as amended, are not
generally transferable by the optionee, and each option is exercisable during
the lifetime of the optionee only by the optionee. Options granted under the
1995 Stock Option Plan, as amended, must generally be exercised within three
months of the end of optionee's status as our employee or consultant, or within
twelve months after his or her termination by death or disability, but in no
event later than the expiration of the option's ten year term.
Options granted under our 1995 Stock Option Plan, as amended, will
accelerate and become fully vested in the event we are acquired, unless the
successor corporation assumes or substitutes other options in their place.
401(k) Plan
In April 1996, we adopted a 401(k) plan to provide eligible employees with a
tax preferential savings and investment program. Eligible participants may
elect to reduce their current compensation up to the lesser of 15% of eligible
compensation or the statutorily prescribed annual limit, currently $10,000, and
have such reduction contributed to the 401(k) plan. At the direction of each
participant, the trustee of the 401(k) plan invests the assets of the 401(k)
plan in selected investment options. Contributions by participants to the
401(k) plan, and income earned on plan contributions, are generally not taxable
to the participants until withdrawn.
Change of Control, Severance and Employee Arrangements
In February 2000, we entered into restricted stock purchase agreements with
each of Messrs. DeLeon, Heikkinen, McClure and Mr. Gupta. Pursuant to such
agreements, each of these executive officers purchased shares of our common
stock at a price of $1.50 per share. Mr. DeLeon purchased 133,333 shares for an
aggregate purchase price of $200,000; Mr. Heikkinen purchased 50,000 shares for
an aggregate purchase price of $75,000; Mr. McClure purchased 108,333 shares
for an aggregate purchase price of $162,500; and
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<PAGE>
Mr. Gupta purchased 500,000 shares for an aggregate purchase price of $750,000.
The purchase price for each of the foregoing stock purchases was paid for with
a promissory note from each of the respective officers to us. Under the terms
of the stock purchase agreements, we have the right to repurchase from these
executive officers shares that have not been released from our repurchase
option at a price of $1.50 per share. With respect to shares purchased by Mr.
DeLeon, our right to repurchase lapses as to 1/48 of the total number of shares
purchased on the last day of each month beginning in February 2000. With
respect to shares purchased by Mr. Heikkinen, our right to repurchase lapses as
to 9/48 of the total number of shares purchased on November 1, 2000, and each
month thereafter 1/48 of the shares will be released from our repurchase
option. With respect to shares purchased by Mr. McClure, our right to
repurchase lapses as to 8/48 of the total number of shares purchased on October
1, 2000, on each month thereafter 1/48 of the shares will be released from our
repurchase option. With respect to shares purchased by Mr. Gupta, our right to
repurchase lapses as to 6/48 of the total number of shares purchased on
September 10, 2000, and each month thereafter 1/48 of the shares will be
released from our repurchase option.
In November 1999, we entered into restricted stock purchase agreements with
certain of our executive officers. Pursuant to such agreements, each of the
executive officers purchased shares of our common stock at a price of $0.60 per
share. Mr. Bantleman purchased 833,333 shares for an aggregate purchase price
of $500,000; Mr. Bozzini purchased 1,500,000 shares for an aggregate purchase
price of $900,000; Mr. Ferrie purchased 266,667 shares for an aggregate
purchase price of $160,000; Mr. Davis purchased 666,667 shares for an aggregate
purchase price of $400,000; Mr. Heikkinen purchased 450,000 shares for an
aggregate purchase price of $270,000; and Mr. DeLeon purchased 83,333 shares
for an aggregate purchase price of $50,000. The purchase price for each of the
foregoing stock purchases was paid with a promissory note from each of the
respective executive officers to us. Under the terms of the November 1999 stock
purchase agreements, we have the right to repurchase shares from our executive
officers that have not been released from our repurchase option at a price of
$0.60 per share. With respect to shares purchased by Messrs. Bantleman, Ferrie
and DeLeon, our right to repurchase lapses as to 1/48 of the total number of
shares purchased by each of these executive officers on the first day of each
month beginning in October 1999. With respect to shares purchased by Messrs.
Bozzini, Davis and Heikkinen, our right to repurchase lapses as to 25% of the
total number of shares purchased by each of these officers on November 1, 2000,
November 22, 2000 and December 6, 2000, respectively, and each month after that
1/48 of the shares will be released from our repurchase option.
In February 1999, we entered into restricted stock purchase agreements with
Messrs. Bantleman, Ferrie and DeLeon. Pursuant to such agreements, each of
these executive officers purchased shares of our common stock at a price of
$0.15 per share. Mr. Bantleman purchased 1,366,667 shares for an aggregate
purchase price of $205,000; Mr. Ferrie purchased 633,333 shares for an
aggregate purchase price of $95,000; and Mr. DeLeon purchased 183,500 shares
for an aggregate purchase price of $27,525. The purchase price for each of the
foregoing stock purchases was paid with a promissory note from each of the
respective executive officers to us. Under the February 1999 stock purchase
agreements, we have the right to repurchase shares from Messrs. Bantleman,
Ferrie and DeLeon that have not been released from our repurchase option at a
price of $0.15 per share. Our right to repurchase lapses as to 1/48 of the
total number of shares purchased by each of these executive officers on the
15th day of each month beginning in January 1999.
All of the above stock purchase agreements with our executive officers
provide that in the event of a change of control of Evolve: (1) if the officer
voluntarily terminates his employment before the first anniversary of the
change of control, our right of repurchase will lapse with respect to stock
that would have otherwise been released only to such termination date, without
any acceleration or continued vesting of the stock beyond the date of the
officer's voluntary termination; (2) if the officer's position is eliminated
and if he is not offered a similar position with comparable pay, our repurchase
option will lapse with regard to all of the stock; (3) if the officer is
involuntarily terminated by the acquiring party before the first year
anniversary of such acquisition, our repurchase right will lapse with respect
to, and there will be an acceleration of vesting of, that stock that would have
otherwise been released as of the second anniversary of the acquisition; and
(4) upon completion of the officer's first year of employment after the
acquisition, our repurchase right will lapse with respect to, and there will be
an acceleration of vesting in, that stock that would have otherwise been
released as
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of the second anniversary of the acquisition. We have also entered into
agreements with each of Messrs. Bantleman, Ferrie and DeLeon dated February 1,
1999, that provide similar acceleration provisions with respect to all shares
of restricted stock held by such executive officers. Also, in connection with
the hiring of James J. Bozzini as our Chief Operating Officer in November 1999,
we entered into an employment agreement and a restricted stock purchase
agreement with Mr. Bozzini that provide similar acceleration provisions with
respect to all shares of restricted stock held by Mr. Bozzini except that, in
the event of any acquisition of Evolve before the first anniversary of
employment of Mr. Bozzini, our right to repurchase will lapse with respect to,
and there will be an acceleration of vesting in, that stock that would have
otherwise been released as of his first anniversary of employment; then the
above four provisions will be applied as if the acquisition had occurred on Mr.
Bozzini's first anniversary of employment.
In January 1998 we entered into a restricted stock purchase agreement with
Mr. Bantleman. Pursuant to the agreement, Mr. Bantleman purchased 300,000
shares of our stock at a price of $0.90 per share for an aggregate purchase
price of $270,000 in exchange for a promissory note. We have the right to
repurchase these shares from Mr. Bantleman that have not been released from our
repurchase option at a price of $0.90 per share. Our right to repurchase lapsed
with respect to 20% of the shares on October 20, 1999, and each month after
that 1/60 of the total number of shares purchased will be released from our
repurchase option. In the event of a change of control of Evolve, our
repurchase right will lapse immediately prior to the consummation of such
transaction with respect to all of the shares purchased by Mr. Bantleman under
this agreement.
Options granted under our 1995 Stock Option Plan, as amended, will
accelerate and become fully vested in the event we merge into or with another
company or sell substantially all our assets, unless the successor corporation
assumes the options or substitutes equivalent options in their place.
Our 2000 Employee Stock Purchase Plan provides that, in the event of our
merger with or into another corporation or a sale of substantially all our
assets, each outstanding option shall be assumed or substituted for a new
option by the successor corporation. If the successor corporation refuses to
assume or substitute a new option for the outstanding options, any purchase
periods then in progress will be shortened and a new exercise date will be set
before the date of the proposed sale or merger. All options of an employee will
be automatically exercised on that new exercise date unless that employee
withdraws from the offering period.
Options and stock purchase rights granted under our 2000 Stock Plan will
accelerate and become fully vested in the event we merge into or with another
company or sell substantially all our assets, unless the successor corporation
assumes the options or stock purchase rights or substitutes equivalent options
or stock purchase rights in their place.
Limitations on Directors' and Officers' Liability and Indemnification
Our amended and restated certificate of incorporation to be filed upon
completion of this offering limits the liability of our directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability associated with any of
the following:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemption; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of our directors' liability does not apply to liabilities
arising under the federal securities laws and does not affect the availability
of equitable remedies such as injunctive relief or rescission.
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Our amended and restated certificate of incorporation and bylaws also
provide that we shall indemnify our directors and executive officers and may
indemnify our other officers and employees and other agents to the fullest
extent permitted by law. We believe that indemnification under our bylaws
covers at least negligence and gross negligence on the part of indemnified
parties. Our bylaws also permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in such capacity, regardless of whether our bylaws would permit
indemnification.
We have entered into indemnification agreements with each of our directors
containing provisions that require us to, among other things, indemnify such
directors against liabilities that may arise by reason of their status or
service as directors (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 cover our
directors under any of our liability insurance policies applicable to our
directors. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than compensation agreements and other arrangements, which are
described as required in "Management," and the transactions described below,
since we were formed, there has not been nor is there currently proposed, any
transaction or series of similar transactions to which we were or will be a
party:
. in which the amount involved exceeded or will exceed $60,000; and
. in which any director, executive officer, holder of more than 5% of our
common stock on an as-converted basis or any member of their immediate
family had or will have a direct or indirect material interest.
We believe that each of the transactions described below were on terms no
less favorable than could have been obtained from unaffiliated third parties.
All future transactions between us and any director or executive officer will
be subject to approval by a majority of the disinterested members of our Board
of Directors.
Preferred Stock Sales
From July 1, 1996 through December 31, 1999, in a series of private
transactions, we issued securities as follows:
<TABLE>
<CAPTION>
Purchase
Security Date of Issuance Shares Price
-------- ---------------- ------ --------
<S> <C> <C> <C>
Series F Preferred Stock........... 11/25/98 5,544,390 $1.96
Series G Preferred Stock........... 11/25/98 and 12/15/98 9,333,333 $1.07
Series H Preferred Stock........... 9/28/99 and 12/3/99 11,904,763 $2.10
</TABLE>
We issued these securities pursuant to purchase agreements (except for terms
relating to date and price), under which we made representations, warranties
and covenants, and provided the purchasers with certain registration rights,
information rights, among other provisions. Listed below for holders of 5% or
more of our common stock and our directors, officers and entities affiliated
with our directors and our officers are the securities they purchased in the
above financings:
<TABLE>
<CAPTION>
Shares of Preferred
Stock Purchased
----------------------
Investor Series G Series H
-------- --------- ---------
<S> <C> <C>
Sierra Ventures VI, L.P........................... 9,053,333(1) 2,380,952(2)
The Goldman Sachs Group, Inc...................... -- 3,809,524(3)
John R. Oltman.................................... -- 47,619(4)
Jeffrey M. Drazan................................. 116,667 23,810
</TABLE>
- --------
(1) Includes 8,230,303 shares held by Sierra Ventures VI, L.P. and 823,030
shares held by its general partner, Sierra Associates VI, L.P. Jeffrey M.
Drazan, a Director of Evolve, is a general partner of Sierra Ventures VI,
L.P. Mr. Drazan disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest in these shares arising from his
interest in Sierra Ventures VI, L.P.
(2) Includes 2,164,531 shares held by Sierra Ventures VI, L.P. and 216,421
shares held by its general partner, Sierra Associates VI, L.P. Jeffrey M.
Drazan, a Director of Evolve, is a general partner of Sierra Ventures VI,
L.P. Mr. Drazan disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest in these shares arising from his
respective interest in Sierra Ventures VI, L.P.
(3) Includes 3,571,429 shares held by The Goldman Sachs Group, Inc. ("GSG") and
238,095 shares held by Stone Street Fund 1999, L.P., an affiliate of GSG
that shares voting and investing power with GSG.
(4) Represents 47,619 shares held by JRO Consulting, Inc. John R. Oltman, the
President of JRO Consulting, Inc. and a director of Evolve, is the
beneficial owner of these shares.
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Stockholder Rights Agreement
We have entered into an agreement with the preferred stockholders described
above pursuant to which these and other preferred stockholders will have
registration rights with respect to their shares of common stock following this
offering. For a description of these registration rights, see "Description of
Capital Stock" below. Upon the completion of this offering, all shares of our
outstanding preferred stock will be automatically converted into an equal
number of shares of common stock.
Common Stock Purchases and Sales
In February 2000, we entered into a restricted stock purchase agreement with
Ms. Hamilton, one of our directors. Pursuant to this agreement, Ms. Hamilton
purchased 166,667 shares of our common stock at a price of $1.50 per share for
an aggregate purchase price of $250,000. The purchase price was paid with a
promissory note that accrues interest at the rate of 6.56% per year. We have
the right to repurchase shares that have not been released from our repurchase
option at a price of $1.50 per share. Our right to repurchase lapses as to 25%
of the total number of shares on March 6, 2001, and each month thereafter 1/48
of the shares will be released from our repurchase option.
In February 2000, we entered into restricted stock purchase agreements with
each of Messrs. DeLeon, Heikkenen, McClure and Gupta. Pursuant to such
agreements, each of these executive officers purchased shares of our common
stock at a price of $1.50 per share. Mr. DeLeon purchased 133,333 shares for an
aggregate purchase price of $200,000; Mr. Heikkinen purchased 50,000 shares for
an aggregate purchase price of $75,000; Mr. McClure purchased 108,333 shares
for an aggregate purchase price of $162,500; and Mr. Gupta purchased 500,000
shares for an aggregate purchase price of $750,000. The purchase price for each
of the foregoing stock purchases was paid for with a promissory note from each
of the respective officers that accrues interest at the rate of 6.56% per year.
Under the terms of the stock purchase agreements, we have the right to
repurchase from these executive officers shares that have not been released
from our repurchase option at a price of $1.50 per share. With respect to
shares purchased by Mr. DeLeon, our right to repurchase lapses as to 1/48 of
the total number of shares purchased on the first day of each month beginning
in February 2000. With respect to shares purchased by Mr. Heikkinen, our right
to repurchase lapses as to 9/48 of the total number of shares purchased on
November 1, 2000, and each month thereafter 1/48 of the shares will be released
from our repurchase option. With respect to shares purchased by Mr. McClure,
our right to repurchase lapses as to 8/48 of the total number of shares
purchased on October 1, 2000, and each month thereafter 1/48 of the shares will
be released from our repurchase option. With respect to shares purchased by Mr.
Gupta, our right to repurchase lapses as to 6/48 of the total number of shares
purchased on September 10, 2000, and each month thereafter 1/48 of the shares
will be released from our repurchase option.
In November 1999, we entered into restricted stock purchase agreements with
each of Messrs. Bantleman, Bozzini, Ferrie, Davis, Heikkinen and DeLeon.
Pursuant to such agreements, each of these executive officers purchased shares
of our common stock at a price of $0.60 per share. Mr. Bantleman purchased
833,333 shares for an aggregate purchase price of $500,000; Mr. Bozzini
purchased 1,500,000 shares for an aggregate purchase price of $900,000; Mr.
Ferrie purchased 266,667 shares for an aggregate purchase price of $160,000;
Mr. Davis purchased 666,667 shares for an aggregate purchase price of $400,000;
Mr. Heikkinen purchased 450,000 shares for an aggregate purchase price of
$270,000; and Mr. DeLeon purchased 83,333 shares for an aggregate purchase
price of $50,000. The purchase price for each of the foregoing stock purchases
was paid with a promissory note to us from each of the respective officers that
accrues interest at the rate of 6.08% per year. Under the terms of the stock
purchase agreements, we have the right to repurchase from our executive
officers shares that have not been released from our repurchase option at a
price of $0.60 per share. With respect to shares purchased by Messrs.
Bantleman, Ferrie and DeLeon, our right to repurchase lapses as to 1/48 of the
total number of shares purchased by each of these executive officers on the
first day of each month beginning in October 1999. With respect to shares
purchased by Messrs. Bozzini, Davis and Heikkinen, our right to repurchase
lapses as to 25% of the total number of shares purchased by each of these
officers on November 1, 2000, November 22, 2000 and December 6, 2000,
respectively, and each month thereafter 1/48 of the shares will be released
from our repurchase option.
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In November 1999, we sold 166,667 shares of restricted common stock to
Jeffrey M. Drazan, one of our directors, at a price of $0.60 per share for an
aggregate purchase price of $100,000. The purchase price for the foregoing
stock purchase was paid with a promissory note to us from Mr. Drazan that
accrues interest at the rate of 6.08% per year. We have the right to repurchase
from Mr. Drazan any shares that have not been released from our repurchase
option at a price of $0.60 per share. Our right to repurchase will lapse with
respect to 25% of the shares purchased by Mr. Drazan on November 18, 2000, and
each month thereafter 1/48 of the total number of shares purchased by Mr.
Drazan will be released from our repurchase option.
In November 1999, we sold 166,667 shares of our restricted common stock to
The Goldman Sachs Group, Inc. at a price of $0.60 per share for an aggregate
purchase price of $100,000. The purchase price was paid with a promissory note
that accrues interest at the rate of 6.08% per year. We have the right to
repurchase shares that have not been released from our repurchase option at a
price of $0.60 per share. Our right to repurchase will lapse with respect to
25% of the shares on November 18, 2000, and each month thereafter 1/48 of the
total number of shares purchased will be released from our repurchase option.
In October 1999, we sold 666,667 shares of restricted common stock to JRO
Consulting, Inc. at a price of $0.15 per share for an aggregate purchase price
of $100,000. The purchase price was paid with a promissory note that accrues
interest at the rate of 7.0% per year. John R. Oltman, the President of JRO
Consulting, Inc., is a director of Evolve and the beneficial owner of these
shares. We have the right to repurchase shares from JRO Consulting, Inc. that
have not been released from our repurchase option at a price of $0.15 per
share. Our right to repurchase lapses as to 1/48 of the total number of shares
purchased by JRO Consulting, Inc. on the last day of each month beginning in
September 1999.
In February 1999, we entered into restricted stock purchase agreements with
each of Messrs. Bantleman, Ferrie and DeLeon. Pursuant to these agreements,
these executive officers purchased shares of our common stock at a price of
$0.15 per share. Mr. Bantleman purchased 1,366,667 shares for an aggregate
purchase price of $205,000; Mr. Ferrie purchased 633,333 shares for an
aggregate purchase price of $95,000; and Mr. DeLeon purchased 183,500 shares
for an aggregate purchase price of $27,525. The purchase price for each of the
foregoing stock purchases was paid with a promissory note to us from each of
the respective executive officers that accrues interest at the rate of 5.0% per
year. Under the terms of these agreements, we have the right to repurchase
shares from Messrs. Bantleman, Ferrie and DeLeon that have not been released
from our repurchase option at a price of $0.15 per share. Our right to
repurchase lapses as to 1/48 of the total number of shares purchased by each of
these executive officers on the 15th day of each month beginning in January
1999.
In January 1998 we entered into a restricted stock purchase agreement with
Mr. Bantleman. Pursuant to the agreement, Mr. Bantleman purchased 300,000
shares of our stock at a price of $0.90 per share for an aggregate purchase
price of $270,000 in exchange for a promissory note that accrues interest at
the rate of 5.69% per year. We have the right to repurchase these shares from
Mr. Bantleman that have not been released from our repurchase option at a price
of $0.90 per share. Our right to repurchase lapsed with respect to 20% of the
shares on October 20, 1998, and each month thereafter 1/60 of the total number
of shares purchased will be released from our repurchase option.
Indemnification Agreements
We have entered into indemnification agreements with each of our directors.
Such indemnification agreements require us to indemnify our directors to the
fullest extent permitted by Delaware law. We believe that these agreements are
necessary to attract and retain qualified persons as directors. For a
description of the limitation of our directors' liability and our
indemnification of such directors, see "--Limitation on Directors' and
Officers' Liability and Indemnification" above.
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<PAGE>
Employee and Related Party Loans
As described above, we entered into promissory notes with each of (i) our
executive officers, Messrs. Bantleman, Bozzini, Davis, Ferrie, DeLeon, McClure,
Gupta and Heikkinen; (ii) our directors, Mr. Drazan and Ms. Hamilton; (iii) JRO
Consulting, Inc.; and (iv) The Goldman Sachs Group, Inc., for amounts they each
borrowed to purchase our restricted stock.
We loaned Mr. Ferrie $90,000 on November 17, 1999, Mr. DeLeon $7,179 on
November 18, 1999, and Mr. McClure $135,000 on December 14, 1999, each loan
pursuant to promissory notes that accrue interest at a rate of 6.00%, 6.08% and
6.20%, respectively, per year. These amounts were borrowed to exercise
incentive stock options to purchase shares of our common stock.
We also loaned Mr. Bantleman $20,000 on March 9, 1999, $40,000 on June 30,
1999, and $40,000 on September 30, 1999. These loans are secured by shares of
our common stock held by Mr. Bantleman.
Each of the promissory notes described above do not require periodic
interest payments. The principal amount and accrued interest on the loan will
be due on the earliest of the fourth anniversary of the loan, one year after
termination for death or disability, or thirty (30) days after termination for
any other reason.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of March 15, 2000 and as adjusted
to reflect the sale of common stock offered hereby by the following:
. each stockholder known by us to own beneficially more than 5% of our
common stock;
. each of our executive officers named in the compensation table above;
. each of our directors; and
. all directors and executive officers as a group.
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 March 15, 2000 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 52,175,861 shares of our common stock outstanding prior
to this offering and shares of common stock outstanding after this
offering. Unless otherwise indicated in the footnotes below, the persons and
entities named in the table have sole voting and investment power with respect
to all shares beneficially owned, subject to community property laws where
applicable. The address for those individuals for which an address is not
otherwise indicated is Evolve Software, Inc., 615 Battery Street, Suite 400,
San Francisco, California 94111. To our knowledge, except as indicated in the
footnotes to the table and under applicable community property laws, the
stockholders named in the table have sole voting and investment power over all
shares listed in the table.
<TABLE>
<CAPTION>
Percent of Shares Outstanding
Shares Beneficially ------------------------------------
Name and Address of Owned Prior to Prior to
Beneficial Owners Offering Offering After Offering
- ------------------- ------------------- --------------- -----------------
<S> <C> <C> <C>
Sierra Ventures VI,
L.P.(1)................ 11,434,286 21.9% %
3000 Sand Hill Rd.
Building 4, Suite 210
Menlo Park, CA 94025
The Goldman Sachs Group,
Inc.(2)................ 3,809,524 7.3
85 Broad St.
New York, NY 10004
John P. Bantleman(3).... 2,500,000 4.8
Marc Ferrie(4).......... 1,000,000 1.9
John R. Oltman.......... 714,287 1.4
J. Russell DeLeon(5).... 501,834 1.0
Jeffrey M. Drazan(6).... 236,905 *
Judith Hamilton(7)...... 166,667 *
All directors and
officers as a group (11
persons)(8)............ 8,619,691 16.5
</TABLE>
- --------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 10,394,835 shares held by Sierra Ventures VI, L.P. and 1,039,451
shares held by its general partner, Sierra Associates VI, L.P. Jeffrey M.
Drazan, a Director of Evolve, is a general partner of Sierra Ventures VI,
L.P. Mr. Drazan disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest in these shares arising from his
interest in Sierra Ventures VI, L.P.
(2) Includes 3,571,429 shares held by The Goldman Sachs Group, Inc. ("GSG")
and 238,095 shares held by Stone Street Fund 1999, L.P., an affiliate of
GSG that shares voting and investing power with GSG.
(3) Includes 1,906,111 shares subject to our right of repurchase, which lapses
over time.
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<PAGE>
(4) Includes 774,306 shares subject to our right of repurchase, which lapses
over time.
(5) Includes 314,351 shares subject to our right of repurchase, which lapses
over time.
(6) Includes 166,667 shares subject to our right of repurchase, which lapses
over time.
(7) Includes 714,287 shares subject to our right of repurchase, which lapses
over time. Of these shares, 47,619 shares are held by JRO Consulting, Inc.
Mr. Oltman, the President of JRO Consulting, Inc. is the beneficial owner
of these shares.
(8) Includes the shares beneficially owned by the persons and entities
described in footnotes (3)--(7).
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
We will file our amended and restated certificate of incorporation
immediately before the completion of this offering. The following description
of our capital stock is intended as a summary only and is not complete. You
should read the full text of our amended and restated certificate of
incorporation and our bylaws, which were filed with the registration statement
of which this prospectus is a part.
General
Upon the completion of this offering, we will be authorized to issue
120,000,000 shares of common stock, par value $0.001 per share, and 10,000,000
shares of preferred stock, par value $0.001 per share. After this offering
there will be shares of our common stock outstanding and shares if the
underwriters exercise their over-allotment option in full.
Common Stock
As of March 15, 2000, and assuming the conversion of all outstanding shares
of preferred stock into common stock, there were 52,175,861 shares of common
stock outstanding that were held of record by approximately 482 stockholders.
There will be shares of common stock outstanding (assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options after March 15, 2000) after giving effect to the sale of
our common stock in this offering. There are outstanding options to purchase a
total of 2,943,278 shares of our common stock. See "Management--Stock Plans"
for a description of our stock plans.
The holders of our common stock are entitled to one vote per share held of
record on all matters submitted to a vote of the stockholders. Our amended and
restated certificate of incorporation to be filed concurrently with completion
of this offering, does not provide for cumulative voting in the election of
directors. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by our Board of
Directors out of funds legally available for that purpose. In the event of our
liquidation, dissolution or winding up, holders of our 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. Holders of our common stock have no preemptive or other
subscription or conversion rights. There are no redemption or sinking fund
provisions applicable to our common stock.
Preferred Stock
Upon the completion of this offering and filing of our amended and restated
certificate of incorporation, our Board of Directors will be authorized,
without action by the stockholders, to issue 10,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof. These rights, preferences and privileges may include
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of any series, all or any of which
may be greater than the rights of the common stock. It is not possible to state
the actual effect of the issuance of all shares of preferred stock upon the
right of holders of our common stock until our Board of Directors determines
the specific rights of the holders of any preferred stock that may be issued.
However, the effect might include, among other things: (a) restricting
dividends on the common stock; (b) diluting the voting power of the common
stock; (c) impairing the liquidation rights of the common stock; and (d)
delaying or preventing a change in our control without further action by the
stockholders. Upon the closing of this offering, no shares of preferred stock
will be outstanding and we have no present plans to issue any shares of
preferred stock.
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<PAGE>
Warrants
As of March 15, 2000, there were warrants outstanding to purchase a total
of: (i) 600,000 shares of our common stock, (ii) 16,667 shares of our Series B
Preferred Stock, (iii) 10,000 shares of our Series E Preferred Stock, (iv)
322,277 shares of our Series F Preferred Stock, and (v) 11,667 shares of our
Series G Preferred Stock. All but one of these outstanding warrants will expire
on the effective date of this offering. The warrant to purchase 8,333 shares of
our Series B Preferred Stock at $3.00 per share will expire on the earlier of
the fifth anniversary of the effective date of this offering or October 5,
2005.
Registration Rights
Pursuant to an Amended and Restated Stockholder Rights Agreement dated
December 3, 1999, we entered into with holders of 30,169,986 shares of our
common stock (assuming conversion of all outstanding shares of preferred
stock), the holders of these shares are entitled to certain registration rights
regarding these shares. The registration rights provide that if we propose to
register any securities under the Securities Act, either for our own account or
for the account of other security holders exercising registration rights, they
are entitled to notice of the registration and are entitled to include shares
of their common stock in the registration. This right is subject to conditions
and limitations, including the right of the underwriters in an offering to
limit the number of shares included in the registration. The holders of these
shares may also require us to file up to two registration statements under the
Securities Act at our expense with respect to their shares of common stock. We
are required to use our best efforts to effect this registration, subject to
conditions and limitations. Furthermore, the holders of these shares may
require us to file additional registration statements on Form S-3, subject to
conditions and limitations. These rights terminate on the fifth anniversary of
the effective date of this offering.
Charter Provisions and Delaware Laws That May Have an Anti-Takeover Effect
Some provisions of Delaware law and our amended and restated certificate of
incorporation and bylaws could make the following more difficult:
. acquisition of us by means of a tender offer;
. acquisition of us by means of a proxy contest or otherwise; or
. removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our Board of Directors. 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 such proposals because negotiation of such
proposals could result in an improvement of their terms.
Election and Removal of Directors. Effective with the first annual meeting
of stockholders following completion of this offering, our amended and restated
bylaws provide for the division of our Board of Directors into three classes,
as nearly equal in number as possible, with the directors in each class serving
for a three-year term, and one class being elected each year by our
stockholders. This system of electing and removing 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 the Board of Directors,
as it generally makes it more difficult for stockholders to replace a majority
of the directors. For more information on the classified board, see the Section
entitled "Management--Executive Officers and Directors."
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our restated 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 the Board of
Directors or a committee thereof.
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<PAGE>
Stockholder Meetings. Under our amended and restated certificate of
incorporation and bylaws, only our Board of Directors, Chairman of the Board or
Chief Executive Officer may call special meetings of stockholders.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with
affiliates and associates, owns or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision may have an anti-
takeover effect with respect to transactions not approved in advance by the
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.
Elimination of Stockholder Action By Written Consent. Our amended and
restated certificate of incorporation eliminates the right of stockholders to
act by written consent without a meeting.
Elimination of Cumulative Voting. Our amended and restated certificate of
incorporation and bylaws do not provide for cumulative voting in the election
of directors. Cumulative voting provides for a minority stockholder to vote a
portion or all of its shares for one or more candidates for seats on the Board
of Directors. Without cumulative voting, a minority stockholder will not be
able to gain as many seats on our Board of Directors based on the number of
shares of our stock that such stockholder holds than if cumulative voting were
permitted. The elimination of cumulative voting makes it more difficult for a
minority stockholder to gain a seat on our Board of Directors and to influence
the Board of Directors's decision regarding a takeover.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the Board of Directors to issue preferred stock
with voting or other rights or preferences that could impede the success of any
attempt to change the control of Evolve. These and other provisions may have
the effect of deterring hostile takeovers or delaying changes in control or
management of Evolve.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding common stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.
Listing
We have applied for listing of our common stock on The Nasdaq Stock Market's
National Market under the symbol "EVLV."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of our common stock in the
public market could adversely affect the market price of our common stock.
Upon completion of this offering, based on shares outstanding as of March
15, 2000 we will have outstanding shares of common stock, assuming(1) the
issuance of shares of common stock in this offering, (2) no exercise of the
underwriters' over-allotment option, and (3) no exercise of options after March
15, 2000. All of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act. However,
the sale of any of these share if purchased by "affiliates" as that term is
defined in Rule 144 are subject to certain limitations and restrictions that
are described below.
The remaining 52,175,861 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. These shares are "restricted
shares" as that term is defined in Rule 144 and therefore may not be sold
publicly unless they are registered under the Securities Act or are sold
pursuant to Rule 144 or another exemption from registration. In addition, our
directors and officers as well as certain other stockholders and optionholders
have entered into "lock-up agreements" with the underwriters. These lock-up
agreements provide that, except under limited exceptions, the stockholder may
not offer, sell, contract to sell, pledge or otherwise dispose of any of our
common stock or securities that are convertible into or exchangeable for, or
that represent the right to receive, our common stock for a period of 180 days
after the effective date without the prior written consent of Credit Suisse
First Boston Corporation. Accordingly, substantially all of the remaining
52,175,861 shares will become eligible for sale on , 2000, the 181st
day after the effective date subject to Rules 144 and 701, assuming an
effective date of , 2000.
As of March 15, 2000, there were a total of 2,943,278 shares of common stock
subject to outstanding options, 1,474,292 of which were vested, and nearly all
of which are subject to lock-up agreements. Immediately after the completion of
the offering, we intend to file registration statements on Form S-8 under the
Securities Act to register all of the shares of common stock issued or reserved
for future issuance under our 1995 Stock Option Plan, as amended, our 2000
Stock Plan, and our 2000 Employee Stock Purchase Plan. On the date 180 days
after the effective date of the offering, the date that the lock-up agreements
expire, a total of shares of our common stock subject to outstanding
options will be vested. After the effective dates of the registration
statements on Form S-8, shares purchased upon exercise of options granted
pursuant to our 1995 Stock Option Plan, as amended, our 2000 Stock Plan, and
our 2000 Employee Stock Purchase Plan generally would be available for resale
in the public market.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year, including the holding period of any prior
owner except an affiliate of us, would be entitled to sell, within any three-
month period, a number of shares that does not exceed the greater of:
. 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this offering;
or
. the average weekly trading volume of our common stock on The Nasdaq
Stock Market's National Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice filing and the availability of current
public information about us.
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Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
generally including the holding period of any prior owner other than an
"affiliate," is entitled to sell such shares without complying with the manner
of sale, notice filing, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with certain restrictions, including the holding period, contained in
Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this prospectus, may be sold by persons
other than "affiliates," as defined in Rule 144, subject only to the manner of
sale provisions of Rule 144. Securities issued in reliance on Rule 701 may be
sold by "affiliates" under Rule 144 without compliance with its one year
minimum holding period requirement.
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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 and Deutsche Bank
Securities, Inc. are acting as representatives, the following respective
numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Deutsche Bank Securities, Inc......................................
----
Total............................................................
====
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this 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 this
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public offering
price less the underwriting discounts and commissions. The 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
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.... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we 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 shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares 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
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.
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Our officers, directors and stockholders have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, enter into a
transaction that would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of our common stock, whether any such aforementioned
transaction is to be settled by delivery of our common stock or such other
securities, in cash or otherwise, or publicly disclose the intention to make
any such offer, sale, pledge or disposition, or to enter into any such
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in this offering. The number of shares available for
sale to the general public in this offering will be reduced to the extent these
persons purchase the 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 have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "EVLV."
Prior to 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 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.
The representatives, on behalf of the underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions, and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
. 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.
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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 Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
for sale to their online brokerage account holders. Internet distributions will
be allocated by the underwriters that will make internet distributions on the
same basis as other allocations.
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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 that
will vary depending on the relevant jurisdiction, and that 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 rescission 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 such purchaser in this offering. This 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.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult with 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.
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LEGAL MATTERS
The validity of the common stock offered under this prospectus will be
passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Legal matters will be passed upon for the
underwriters by Shearman & Sterling, Menlo Park, California. As of the date of
this prospectus, WS Investment Company 99B and WS Investment Company 95A, each
an investment partnership composed of certain current and former members of and
persons associated with Wilson Sonsini Goodrich & Rosati, Professional
Corporation, in addition to certain current individual members of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, beneficially own an
aggregate of 47,024 shares of Common Stock of Evolve Software, Inc.
EXPERTS
The audited financial statements of Evolve Software, Inc. as of December 31,
1999, and for the six months ended December 31, 1999, and as of June 30, 1999
and 1998 and for each of the three years in the period ended June 30, 1999,
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent public accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Infowide, Inc. (a development stage company) as
of December 31, 1998 and 1999 and for the period from April 15, 1998
(inception) to December 31, 1998, the year ended December 31, 1999 and the
period from April 15, 1998 (inception) to December 31, 1999 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein (which report expresses an unqualified
opinion and includes an explanatory paragraph concerning InfoWide, Inc.'s being
in the development stage and certain factors which raise substantial doubt
about the ability of InfoWide, Inc. to continue as a going concern), and have
been so included in reliance upon the report of such firm 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, Washington, D.C.,
a registration statement on Form S-1 under the Securities Act with respect to
the shares of common stock offered under this prospectus. This prospectus,
which constitutes a part of the registration statement, does not contain all of
the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and our common
stock, reference is made to the registration statement and to the exhibits and
schedules filed therewith. Statements contained in this prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and in each instance reference is made to the copy of the contract or
other document filed as an exhibit to the registration statement, each
statement being qualified in all respects by this reference. A copy of the
registration statement may be inspected by anyone without charge at the Public
Reference Section of the Commission in Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of all or any portion of the
registration statement may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
prescribed fees. The Commission also maintains a website at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
Upon completion of the offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance with this law, will file periodic reports, proxy statements and
other information with the SEC. These periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the website of the SEC referred to above.
74
<PAGE>
EVOLVE SOFTWARE, INC.
INDEX TO FINANCIAL STATEMENTS
EVOLVE SOFTWARE, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ F-2
Balance Sheets as of June 30, 1998 and 1999 and December 31, 1999 and pro
forma Stockholders' Equity as of December 31, 1999...................... F-3
Statements of Operations for the years ended June 30, 1997, 1998 and 1999
and for the six months ended December 31, 1998 (unaudited) and 1999..... F-4
Statements of Shareholders' Equity (Deficit) for the year ended June 30,
1997, 1998 and 1999 and for the six months ended December 31, 1999...... F-5
Statements of Cash Flows for the year ended June 30, 1997, 1998 and 1999
and for the six months ended December 31, 1998 (unaudited) and 1999..... F-6
Notes to Financial Statements............................................ F-7
INFOWIDE, INC.
Independent Auditors' Report............................................. F-22
Balance Sheets as of December 31, 1998 and December 31, 1999............. F-23
Statements of Operations for the period from April 15, 1998 to
December 31, 1998 and for year ended December 31, 1999 and for the
period from April 15, 1998 to December 31, 1999......................... F-24
Statements of Shareholders' Equity (Deficit) for the period from
April 15, 1998 to December 31, 1999..................................... F-25
Statements of Cash Flows for the period from April 15, 1998 to December
31, 1998 and for the year ended December 31, 1999 and for the period
from April 15, 1998 to December 31, 1999................................ F-26
Notes to Financial Statements............................................ F-27
EVOLVE SOFTWARE, INC.
Unaudited Pro Forma Combined Financial Information....................... F-32
Unaudited Pro Forma Combined Balance Sheet at December 31, 1999.......... F-33
Unaudited Pro Forma Combined Statements of Operations.................... F-34
Notes to Unaudited Pro Forma Combined Financial Information.............. F-35
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Evolve Software, Inc.
The reverse stock split described in Note 12 of the notes to the financial
statements is not effective at March 17, 2000. When it is effective, we will be
in a position to furnish the following report:
In our opinion, the accompanying balance sheets and the related statements
of operations and statements of stockholders' equity (deficit) and of cash
flows present fairly, in all material respects, the financial position of
Evolve Software, Inc. at June 30, 1998 and 1999 and December 31, 1999, and the
results of its operations and its cash flows for the years ended June 30, 1997,
1998 and 1999, and for the six months ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
March 7, 2000
San Jose, California
F-2
<PAGE>
EVOLVE SOFTWARE, INC.
BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro forma
Stockholders'
June 30 Equity
------------------ December 31, December 31,
1998 1999 1999 1999
-------- -------- ------------ -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 2,076 $ 2,840 $ 17,505
Restricted cash................. -- -- 2,000
Short term investments.......... -- -- 2,264
Accounts receivable, net of
allowance for doubtful
accounts of none, none and
$78............................ -- 78 2,521
Prepaid expenses and other
current assets................. 138 340 173
-------- -------- --------
Total current assets.......... 2,214 3,258 24,463
Property and equipment, net...... 635 521 930
Deposits and other assets........ 206 109 94
Note receivable from related
party........................... 20 60 100
Interest due on receivable from
stockholders.................... -- 139 205
-------- -------- --------
Total assets.................. $ 3,075 $ 4,087 $ 25,792
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable................ $ 282 $ 285 $ 1,131
Accrued liabilities............. 339 671 2,050
Capital lease obligations,
current portion................ 363 371 245
Deferred revenues............... 50 931 4,233
-------- -------- --------
Total current liabilities..... 1,034 2,258 7,659
Deferred revenues, less current
portion......................... -- 1,085 1,202
Capital lease obligations, less
current portion................. 389 238 143
Long term debt................... 13,746 3,661 3,811
Note payable to related party.... 100 -- --
-------- -------- --------
Total liabilities............. 15,269 7,242 12,815
-------- -------- --------
Commitments and contingencies
(Note 5)
Stockholders' equity (deficit)
Convertible preferred stock,
$0.01 par value;
100,000,000 shares authorized:
98,577,500 shares designated.
Shares issued and outstanding:
10,182,500, 54,815,669, and
90,529,958 shares as of June
30, 1998 and 1999 and December
31, 1999, respectively.
Liquidation prefererence of
$57,424........................ 102 548 905 --
Common stock, $0.01 par value;
50,000,000 shares authorized;
shares issued and outstanding:
4,226,191, 8,342,804 and
14,851,196 shares as of June
30, 1998 and 1999, and
December 31, 1999,
respectively and 48,694,516
shares issued and outstanding
pro forma...................... 43 84 149 487
Additional paid-in capital...... 11,882 32,846 91,818 125,358
Notes receivable from
stockholders................... (683) (1,265) (4,499) (4,499)
Unearned stock-based
compensation................... (359) (27,525) (27,525)
Accumulated deficit............. (23,538) (35,009) (47,871) (50,871)
-------- -------- -------- -------
Total stockholders' equity
(deficit).................... (12,194) (3,155) 12,977 42,950
-------- -------- -------- -------
Total liabilities and
stockholders' equity
(deficit).................... $ 3,075 $ 4,087 $ 25,792
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EVOLVE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
--------------------------- --------------------
1997 1998 1999 1998 1999
------- -------- -------- ----------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Solutions................. $ -- $ -- $ 150 $ -- $ 1,417
Subscriptions............. -- -- 367 -- 670
------- -------- -------- ------- --------
Total revenues.......... -- -- 517 -- 2,087
Cost of revenues:
Solutions................. -- -- 245 -- 644
Subscriptions............. -- -- 390 -- 722
------- -------- -------- ------- --------
Total cost of revenues...... -- -- 635 -- 1,366
------- -------- -------- ------- --------
Gross margin (loss)..... -- -- (118) -- 721
Operating expenses:
Research and development.. 4,341 6,138 5,057 2,183 3,392
Sales and marketing....... 1,194 1,253 3,876 1,253 4,880
General and
administrative........... 2,372 1,834 1,857 817 1,657
Stock-based charges....... -- -- 218 -- 3,872
------- -------- -------- ------- --------
Total operating
expenses............... 7,907 9,225 11,008 4,253 13,801
------- -------- -------- ------- --------
Loss from operations........ (7,907) (9,225) (11,126) (4,253) (13,080)
Interest income............. 310 420 277 62 410
Interest expense............ (495) (1,772) (697) (501) (189)
Other income (expense),
net........................ (1) (5) 75 4 (3)
------- -------- -------- ------- --------
Net loss................ $(8,093) $(10,582) $(11,471) $(4,688) $(12,862)
======= ======== ======== ======= ========
Net loss per common share--
basic and diluted.......... $ (6.06) $ (4.64) $ (3.60) $ (1.61) $ (2.89)
======= ======== ======== ======= ========
Shares used in net loss per
common share calculation--
basic and diluted.......... 1,336 2,282 3,182 2,920 4,448
======= ======== ======== ======= ========
Pro forma net loss per
share--basic and diluted
(unaudited) ............... $ (0.78) $ (0.45)
======== ========
Shares used in pro forma net
loss per share
calculation--basic and
diluted (unaudited) ....... 14,799 28,469
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EVOLVE SOFTWARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Notes Total
Stock Common Stock Additional Receivable Unearned Stockholders'
------------- -------------- Paid-In from Stock-Based Accumulated Equity
Shares Amount Shares Amount Capital Stockholders Compensation Deficit (Deficit)
------ ------ ------ ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30,
1996.................... 9,313 $ 93 3,765 $ 38 $10,662 $ (261) $ (4,863) $ 5,669
Exercise of preferred
Series D warrants, net
of issuance costs of
$10..................... 840 8 -- -- 821 -- -- 829
Issuance of preferred
Series E for cash, net
issuance costs of $18... 30 1 -- -- 41 -- -- 42
Exercise of common stock
options................. -- -- 72 1 16 -- -- 17
Issuance of common stock
options to non-
employees............... -- -- -- -- 10 -- -- 10
Repurchase of common
stock................... -- -- (95) (1) (13) 14 -- --
Net loss................ -- -- -- -- -- -- (8,093) (8,093)
------ ---- ------ ---- ------- ------- -------- -------- --------
Balances, June 30,
1997.................... 10,183 102 3,742 38 11,537 (247) -- (12,956) (1,526)
Repurchase of common
stock................... -- -- (233) (2) (208) 14 -- (196)
Issuance of common
stock................... -- -- 500 5 445 (450) -- --
Exercise of common stock
options................. -- -- 217 2 96 -- -- 98
Issuance of common stock
options to non-
employees............... -- -- -- -- 12 -- -- 12
Net loss................ -- -- -- -- -- -- (10,582) (10,582)
------ ---- ------ ---- ------- ------- -------- -------- --------
Balances, June 30,
1998.................... 10,183 102 4,226 43 11,882 (683) -- (23,538) (12,194)
Repurchase of common
stock................... -- -- (276) (3) (219) 222 -- --
Issuance of common
stock................... -- -- 3,992 40 740 (780) -- --
Exercise of common stock
options................. -- -- 401 4 106 (24) -- 86
Issuance of common stock
options to non-
employees............... -- -- -- -- 20 -- -- 20
Preferred Series F
issued upon conversion
of promissory notes..... 16,633 166 -- -- 10,490 -- -- 10,656
Issuance of preferred
Series G for cash and
conversion of debt, net
of issuance costs of
$770.................... 28,000 280 -- -- 9,250 -- -- 9,530
Unearned stock-based
compensation............ 577 (577) --
Amortization of unearned
stock-based
compensation............ 218 218
Net loss................ -- -- -- -- -- -- (11,471) (11,471)
------ ---- ------ ---- ------- ------- -------- -------- --------
Balances, June 30,
1999.................... 54,816 548 8,343 84 32,846 (1,265) (359) (35,009) (3,155)
Repurchase of common
stock................... (200) (2) (28) 30 -- --
Repayment on notes
receivable.............. 24 24
Issuance of common
stock................... 5,133 51 3,237 (3,288) -- --
Exercise of common stock
options................. 1,575 16 105 121
Issuance of common stock
options to non-
employees............... 16 16
Issuance of preferred
Series H for cash, net
of issuance costs of
$39..................... 35,714 357 24,604 24,961
Issuance of warrants for
stock-based settlement.. 651 651
Unearned stock-based
compensation............ 30,387 (30,387) --
Amortization of unearned
stock-based
compensation............ 3,221 3,221
Net loss................ (12,862) (12,862)
------ ---- ------ ---- ------- ------- -------- -------- --------
Balance, December 31,
1999.................... 90,530 $905 14,851 $149 $91,818 $(4,499) $(27,525) (47,871) $ 12,977
====== ==== ====== ==== ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EVOLVE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six months ended
Year Ended June 30, December 31,
--------------------------- --------------------
1997 1998 1999 1998 1999
------- -------- -------- ---------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss................... $(8,093) $(10,582) $(11,471) $(4,688) $(12,862)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Loss on disposal of fixed
assets.................... 69 48 7 -- --
Amortization of debt
issuance costs............ 49 568 -- -- --
Common stock options
issued to non-employees... 10 12 20 -- 16
Allowance for doubtful
accounts.................. -- -- -- -- 78
Depreciation and
amortization.............. 613 439 384 205 186
Accrued interest........... 279 1,081 571 431 150
Stock based charges........ 218 3,872
Changes in assets and
liabilities:
Accounts receivable....... -- -- (78) (223) (2,521)
Notes receivable.......... -- -- -- (1,000) --
Prepaid expenses and
other current assets..... (9) (29) (201) (58) 167
Note receivable from
related party............ -- (20) (40) 12 (40)
Interest due on notes
receivable from
stockholders............. -- -- (61) (108) (66)
Deposits and other
assets................... (68) 37 19 118 15
Accounts payable.......... (134) 155 3 257 846
Accrued liabilities....... 79 (28) 331 (45) 1,379
Deferred revenues......... -- -- 1,966 2,200 3,419
------- -------- -------- ------- --------
Net cash used in
operating activities.... (7,205) (8,319) (8,332) (2,899) (5,361)
------- -------- -------- ------- --------
Cash flows from investing
activities:
Purchase of short term
investments............... -- -- -- -- (2,264)
Purchases of property and
equipment................. (198) -- (41) (49) (595)
Restricted cash on lease... -- -- -- -- (2,000)
------- -------- -------- ------- --------
Net cash used in
investing activities.... (198) -- (41) (49) (4,859)
------- -------- -------- ------- --------
Cash flows from financing
activities:
Payments under capital
lease obligations......... (417) (288) (379) (188) (221)
Repayment of notes payable
to related party.......... -- -- (100) (4) --
Proceeds from (repayment
of) long-term debt........ (19) (21) -- 7 --
Proceeds from payment on
note receivable........... -- -- -- -- 24
Proceeds from issuance of
preferred stock, net of
issuance costs............ 871 -- 9,530 9,530 24,961
Proceeds from issuance of
convertible debt.......... 12,675 -- -- -- --
Proceeds from exercise of
common stock options...... 17 98 86 19 121
Payments of debt issuance
costs..................... (902) -- -- -- --
Payments on repurchase of
common stock.............. -- (96) -- -- --
------- -------- -------- ------- --------
Net cash provided
by/(used in) financing
activities 12,225 307 9,137 9,364 24,885
------- -------- -------- ------- --------
Increase/(decrease) in
cash....................... 4,822 (8,626) 764 6,416 14,665
Cash and cash equivalents at
beginning of year.......... 5,880 10,702 2,076 2,076 2,840
------- -------- -------- ------- --------
Cash and cash equivalents at
end of year................ $10,702 $ 2,076 $ 2,840 $ 8,492 $ 17,505
======= ======== ======== ======= ========
Supplemental disclosure of
cash flow information:
Cash paid during the
period for interest....... $ 166 $ 123 $ 121 $ 59 $ 39
======= ======== ======== ======= ========
Supplemental schedule of
noncash investing and
financing activities:
Assets acquired under
capital leases............ $ 230 $ 368 $ 235 $ 22 $ --
======= ======== ======== ======= ========
Notes receivable from
stockholder in exchange
for common stock.......... $ -- $ 450 $ 804 $ 218 $ 3,288
======= ======== ======== ======= ========
Repurchase of common stock
issued for notes
receivable................ $ 14 $ 14 $ 222 $ -- $ 30
======= ======== ======== ======= ========
Repurchase of common stock
for notes payable......... $ -- $ 100 $ -- $ -- $ --
======= ======== ======== ======= ========
Conversion of convertible
debt into Series F
preferred stock........... $ -- $ -- $ 10,656 $10,656 $ --
======= ======== ======== ======= ========
Conversion of convertible
debt into non-convertible
promissory note........... $ -- $ -- $ 3,500 $ 3,500 $ --
======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Formation and Business of the Company
Evolve Software, Inc. (the "Company") was incorporated under the laws of the
state of Delaware in February 1995 for the purpose of designing, developing,
marketing and supporting enterprise application software products. The Company
commenced development of its product, ServiceSphere, in September 1997. This
product was released in early 1999 and enables professional service
organizations to integrate and automate the selling, managing and delivery of
professional services.
2. Summary of Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Unaudited interim results
The accompanying interim financial statements for the six months ended
December 31, 1998 are unaudited. The unaudited interim financial statements
have been prepared on the same basis as the annual financial statements and, in
the opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly in all material respects the
Company's financial position, results of operations and its cash flows for the
six months ended December 31, 1998. The financial data and other information
disclosed in these notes to financial statements related to these periods are
unaudited.
Cash and cash equivalents
Cash and cash equivalents consist of highly liquid investments with original
or remaining maturities of three months or less at the purchase date.
Substantially all cash and cash equivalents are on deposit with three financial
institutions.
Investments
The Company classifies all of its investments as "available for sale" in
accordance with the provisions of Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"),
"Accounting for Certain Investments in Debt and Equity Securities."
Accordingly, the Company states its investments at estimated fair value, with
unrealized gains and losses reported in stockholders' equity. The cost of
securities sold is based on the specific identification method. Such securities
are anticipated to be used for current operations and are, therefore,
classified as current assets. At December 31, 1999, the unrealized holding
gains and losses were not significant. For the six months ended December 31,
1999 there were no realized gains or losses.
Property and equipment
Computers and software are stated at cost, and are depreciated using the
straight-line basis over three years. Furniture and fixtures are stated at
cost, and are depreciated on the straight-line basis over five years. When
assets are sold or retired, the cost and accumulated depreciation are removed
from the accounts and any gain or loss is included in the statement of
operations.
F-7
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities and the
net operating loss and credit carryforwards using enacted tax rates. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Fair value of financial instruments
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, short term investments, accounts
receivable, accounts payable and accrued liabilities, approximate fair value
because of their short maturities.
Restricted cash
At December 31, 1999, cash balances of $2.0 million were restricted from
withdrawal and held by a bank in the form of a certificate of deposit. The
certificate of deposit serves as collateral supporting standby letters of
credit issued to the Company's landlord for the Emeryville, California facility
as security deposits.
Concentrations
Cash and cash equivalents are maintained with three major financial
institutions in the United States. Deposits held with banks may exceed the
amount of insurance provided on such deposits. Generally, these deposits may be
redeemed upon demand and therefore, bear minimum risk.
At June 30, 1997, 1998, and 1999 the Company had no customers that had
significant accounts receivable balances. At December 31, 1999, accounts
receivable was comprised primarily of three customers, which represented 34%,
22%, and 19% of accounts receivable.
Revenue recognition
The Company derives revenues from fees for licenses and services ("Solutions
revenue") and fees from maintenance, application service provider and
subscription agreements ("Subscription revenue").
The Company recognizes revenues in accordance with the provisions of
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 97-2, "Software Revenue Recognition." This was amended by SOP
No. 98-4, "Deferral of the Effective Date of Certain Provisions of SOP 97-2"
and SOP 98-9, "Modification of SOP 97-2 With Respect to Certain Transactions."
Under SOP 97-2 as amended, the Company recognizes revenues when all of the
following conditions are met:
. The Company has signed a non-cancellable agreement with the customer
. The Company has delivered the software product to the customer
. The amount of fees to be paid by the customer is fixed or determinable
and
. The Company believes that collection of these fees is probable
Generally, the Company has vendor specific objective evidence of fair value
for the maintenance element of software arrangements based on the renewal rates
for maintenance in future years as specified in the contracts. In such cases,
the Company defers the maintenance revenue at the outset of the arrangement and
recognizes it ratably over the period during which the maintenance is to be
provided, which normally commences on the date the software is delivered.
F-8
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company does not have vendor specific objective evidence of fair value
for services specified in software arrangements, as the services are never sold
separately, and accordingly the remaining software revenue allocated to the
software license and services are recognized ratably on a straight line basis
over the period during which the services are provided, which is generally
between six and nine months.
The Company also expects that it will begin to recognize revenue from its
application service provider ("ASP") business, whereby it provides the
software, and provides maintenance and other services to the customer but also
hosts the software on its own servers making the solution available to the
customer via the Internet. In such situations, customers pay a monthly fee for
the term of the contract in return for access to our software, maintenance and
other services such as implementation, training, consulting and hosting. For
such ASP software arrangements the Company does not have vendor specific
objective evidence of fair value for the elements of the contract and
accordingly fees from such arrangements will be recognized on a monthly basis
as the hosting service is provided.
In software arrangements where, as part of the contract with the customer,
the Company has agreed to deliver unspecified additional software products in
the future, it has accounted for the arrangement as a subscription and all the
revenue from the software arrangement is recognized ratably over the term of
the contracts. Additionally, in software arrangements where the amount of fees
to be paid by the customer is deemed not to be fixed or determinable, generally
due to extended payment terms, the Company recognizes revenue when such fees
become due and payable by the customer.
Stock-Based Charges
The Company follows the disclosure provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." The Company has elected to continue accounting for stock-based
compensation issued to employees using Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly,
pro forma disclosures required under SFAS 123 have been presented. Under APB
No. 25, compensation expense is based on the difference, if any, on the date of
grant, between the fair value of the Company's stock and the exercise price of
the option. Stock, stock options, and warrants for stock issued to non-
employees have been accounted for in accordance with the provisions of SFAS 123
and Emerging Issue Task Force Issue No. 96-18, "Accounting for Equity
instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." The Company presents stock-based
compensation expense as a separate line item in its consolidated statements of
operations for the year ended June 30, 1999 and for the six months ended
December 31, 1999.
Segment information
In 1998, the Company adopted Statement of Financial Accounting Standard
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." Under the new standard the Company is
required to use the "management" approach in reporting its segments. The
management approach designates that the internal organization that is used by
management for making operating decisions and assessing performance be the
source of the Company's segments. The Company believes that it operates in only
one segment, professional services software and uses only one measure of
profitability for internal reporting purposes.
Comprehensive Income
The Company follows SFAS No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in financial statements. The Company's
total comprehensive loss was the same as its net loss for the years ended June
30, 1997, 1998 and 1999 and for the six months ended December 31, 1998 and
1999.
F-9
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Software development costs
Costs incurred in the research, design and development of products are
expensed as incurred until technological feasibility has been established. To
date, the establishment of technological feasibility of the Company's products
and general release substantially coincide. As a result, the Company has not
capitalized any software development costs since such costs have not been
significant.
Net loss per share
Basic net loss per common share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding during the
period. Diluted net loss per common share is computed by dividing the net loss
for the period by the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares, composed of
common shares issuable upon the exercise of stock options and warrants and upon
conversion of convertible preferred stock, are included in the diluted net loss
per common share calculation to the extent these shares are dilutive. A
reconciliation of the numerator and denominator used in the calculation of
basic and diluted net loss per common share follows (in thousands except per
share amount):
<TABLE>
<CAPTION>
Six months ended
Year Ended June 30 December 31,
--------------------------- --------------------
1997 1998 1999 1998 1999
------- -------- -------- ---------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator
Net loss.................. $(8,093) $(10,582) $(11,471) $(4,688) $(12,862)
======= ======== ======== ======= ========
Denominator
Weighted average common
shares................... 3,779 3,999 5,798 4,237 9,953
Weighted average unvested
common shares subject to
repurchase............... (2,443) (1,717) (2,616) (1,317) (5,505)
------- -------- -------- ------- --------
Denominator for basic and
diluted calculation...... 1,336 2,282 3,182 2,920 4,448
======= ======== ======== ======= ========
</TABLE>
Unaudited pro forma net loss per share has been computed as described above
and also gives effect to the conversion of convertible preferred stock that
will automatically convert upon completion of the Company's initial public
offering (using the if-converted method). Pro forma basic and diluted net loss
per share is as follows (in thousands, except per share amount):
<TABLE>
<CAPTION>
Six months
Year Ended ended
June 30 December 31,
---------- ------------
1999 1999
---------- ------------
(unaudited)
<S> <C> <C>
Numerator
Net loss............................................. $(11,471) $(12,862)
======== ========
Shares used in computing basic and diluted net loss
per share........................................... 3,182 4,448
Adjusted to reflect the effect of the assumed
conversion of all convertible preferred stock from
the date of issuance................................ 11,617 24,021
-------- --------
Weighted Average shares used in computing pro forma
basic and diluted net loss per share................ 14,799 28,469
======== ========
</TABLE>
F-10
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Unaudited pro forma Stockholders' Equity
Upon the closing of the Company's IPO, all outstanding convertible preferred
stock will be converted automatically into common stock. The pro forma effect
of this conversion has been presented as a separate column in the Company's
consolidated balance sheet, assuming the conversion had occurred as of
December 31, 1999. The unaudited pro forma Stockholders Equity also takes into
account the 3.7 million shares of common stock to be issued in connection with
the acquisition of InfoWide in March 2000.
New accounting pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," that requires companies to
record derivative financial instruments on their balance sheets as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative instrument and whether it qualifies for hedge accounting. The
key criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash flows.
In June 1999, the FASB issued SFAS No. 137, "Accounting For Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133," that amends SFAS No. 133 to be effective for all fiscal
quarters or all fiscal years beginning after June 15, 2000. The Company is
currently evaluating the implementation of SFAS No. 133.
3. Property and Equipment, Net
<TABLE>
<CAPTION>
June 30, December 31,
--------------- ------------
1998 1999 1999
------ ------- ------------
<S> <C> <C> <C>
Computers...................................... $1,024 $ 1,153 $ 1,612
Software....................................... 228 258 383
Furniture and fixtures......................... 234 254 265
------ ------- -------
1,486 1,665 2,260
Less: Accumulated depreciation................. (851) (1,144) (1,330)
------ ------- -------
$ 635 $ 521 $ 930
====== ======= =======
</TABLE>
The Company leases certain computers, furniture and fixtures, and software
under capital leases. The total cost and accumulated amortization of these
assets as of June 30, 1998, 1999 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
-------------- ------------
1998 1999 1999
------ ------ ------------
<S> <C> <C> <C>
Computers....................................... $ 927 $1,066 $1,066
Software........................................ 129 135 135
Furniture and fixtures.......................... 216 216 216
------ ------ ------
1,272 1,417 1,417
Less: accumulated amortization.................. (487) (597) (666)
------ ------ ------
$ 785 $ 820 $ 751
====== ====== ======
</TABLE>
F-11
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Accrued Liabilities
<TABLE>
<CAPTION>
June 30, December 31,
--------- ------------
1998 1999 1999
---- ---- ------------
<S> <C> <C> <C>
Accrued compensation and related expenses............. $229 $553 $1,644
Taxes payable......................................... -- 19 166
Other................................................. 110 99 240
---- ---- ------
$339 $671 $2,050
==== ==== ======
</TABLE>
5. Commitments and Contingencies
Capital leases
Future minimum lease payments under capital leases at December 31, 1999 are
as follows:
<TABLE>
<S> <C>
Year ended December 31,
2000.............................................................. $ 285
2001.............................................................. 122
2002.............................................................. 29
-----
Total minimum lease payments........................................ 436
Less amount representing interest................................... (48)
-----
Present value of minimum lease payment.............................. 388
Less current portion of capital lease obligations................... (245)
-----
$ 143
=====
</TABLE>
During the six months ended December 31, 1999, the Company had asset leasing
availability of $1.9 million under one master lease agreement which expires
March 15, 2000. A total of $581,000 has been drawn down as of December 31,
1999, leaving $1.3 million available to lease equipment.
Operating leases
The Company leases its office facilities under operating leases. Future
minimum obligations under noncancelable operating leases at December 31, 1999
are as follows:
<TABLE>
<S> <C>
December 31,
2000............................................................. $ 1,516
2001............................................................. 1,387
2002............................................................. 1,429
2003............................................................. 1,472
2004............................................................. 1,516
Thereafter....................................................... 3,107
-------
$10,427
=======
</TABLE>
Rent expense under operating leases for the years ended June 30, 1997, 1998
and 1999 and six months ended December 31, 1999 was $446,000, $446,000,
$483,000 and $325,000, respectively.
F-12
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Contingencies
From time to time, the Company may become involved in litigation relating to
additional claims arising from the ordinary course of business. In January
2000, PeopleSoft, Inc. filed an action in the California Superior Court
alleging certain claims arising out of our employment of former employees of
PeopleSoft, and seeking an injunction to preclude additional hiring of
PeopleSoft employees. The Company believes PeopleSoft's claims are without
merit, and the Company is in the process of contesting these claims. This
litigation, whether or not determined or settled in the Company's favor, may be
costly and may divert the efforts and attention of the Company's management
from normal business operations.
6. Long-Term Debt
On March 13, 1997 and April 11, 1997, the Company issued Senior Subordinated
Convertible Notes totaling $12.7 million. The notes were issued in $25,000
units and bore interest of 8.5% per annum, payable upon conversion or maturity
of the notes. In December 1998, the Company converted its outstanding Senior
Subordinated Convertible Notes with principal of $12.7 million and accrued
interest of $1.8 million into 16,633,169 shares of Series F preferred stock and
uncollateralized non-convertible promissory notes with principal of $3.5
million due on the earlier of November 15, 2008 or at the election of the
lenders upon the closing of an acquisition transaction or an initial public
offering with proceeds to the Company of $20.0 million or more. The non-
convertible promissory notes accrue interest at 8.5% per annum. Accrued
interest at December 31, 1999 on the non-convertible notes amounted to
$310,000.
In addition, the warrants originally issued in association with the
convertible debt for an aggregate exercise price of $636,000 were converted
into warrants to purchase 966,831 shares of Series F preferred stock (see Note
8).
In October 1998, the Company received a $1.0 million convertible bridge loan
from an investor. This bridge loan accrued interest at a rate of 8% per annum.
In November and December 1998, the Company issued 28,000,000 shares of Series G
preferred stock to the investor for total proceeds of $10.0 million by
conversion in exchange for the $1.0 million bridge loan and $9.0 million in
cash. The Company also granted to the purchaser of the Series G preferred stock
a warrant to purchase up to 7,000,000 shares of Series G preferred stock for an
aggregate exercise price of $5.0 million. The value of this warrant has been
accounted for as a cost of issuance. At December 31, 1999, the warrant remains
unexercised.
F-13
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Income Taxes
The tax effects of temporary differences that give rise to significant
portions of federal tax assets are as follows:
<TABLE>
<CAPTION>
June 30,
------------------ December 31,
1998 1999 1999
-------- -------- ------------
<S> <C> <C> <C>
Net operating loss carryforwards............... $ 6,688 $ 11,309 $ 13,580
Depreciation................................... (16) 77 180
Capitalized start-up costs--net................ 3,635 1,945 2,800
Accrued liabilities............................ 78 121 126
Research and development credit................ 135 1,823 2,700
-------- -------- --------
Total deferred assets........................ 10,520 15,275 19,386
Less valuation allowance....................... (10,520) (15,275) (19,386)
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its deferred tax assets. At such time as it is determined that it is
more likely than not that the deferred tax assets are realizable, the valuation
allowance will be reduced.
At December 31, 1999, the Company has federal and state net operating loss
carryforwards of approximately $24.8 million and $31.7 million, respectively,
available to reduce future taxable income. These carryforwards expire through
2019 and 2004, respectively. In addition, the Company has research and
development tax credit carryforwards of approximately $2.0 million and
$700,000, respectively, for federal and state income tax purposes at December
31, 1999. The federal and state research and development tax credit
carryforwards expire in 2019.
The Company's ability to utilize its net operating loss carryforwards to
offset future taxable income is subject to restrictions attributable to equity
transactions that result in change in ownership as defined in the Tax Reform
Act of 1986. These restrictions will limit, on an annual basis, the Company's
future use of its net operating loss carryfowards and research and development
tax credit.
8. Stockholders' Equity
Common stock
In fiscal 1999, the Company increased its authorized capital stock to
50,000,000 shares of common stock and 100,000,000 shares of preferred stock.
Each share of common stock is entitled to one vote. The holders of common stock
are also entitled to receive dividends whenever funds are legally available and
when declared by the Board of Directors, subject to the prior rights of holders
of all classes of preferred stock outstanding. As of December 31, 1999, no
dividends have been declared. At December 31, 1999, 9,611,576 unvested common
stock shares were subject to repurchase.
F-14
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Preferred stock
Under the Company's Certificate of Incorporation, as amended in September
1999, the Company is authorized to issue 100,000,000 shares of preferred stock.
From inception through December 31, 1999, the Company issued preferred stock as
follows:
<TABLE>
<CAPTION>
Amount Common
Original net of Shares Issued and Par Value Liquidation Stock
Issue Price Issuance Authorized Outstanding Amount Preference Equivalents
----------- -------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Series A................ $0.4000 $ 452 1,167,500 1,167,500 $0.01 467 389,167
Series B................ $1.0000 3,062 3,125,000 3,075,000 0.01 3,075 1,025,000
Series C................ $1.0000 995 1,000,000 1,000,000 0.01 1,000 333,333
Series D................ $1.0000 2,918 2,940,000 2,940,000 0.01 2,940 980,000
Series E................ $2.0000 3,967 2,030,000 2,000,000 0.01 4,000 666,667
Series F ............... $0.6534 10,942 17,600,000 16,633,169 0.01 10,942 5,544,390
Series G................ $0.3571 9,530 35,000,000 28,000,000 0.01 10,000 9,333,333
Series H................ $0.7000 24,961 35,715,000 35,714,289 0.01 25,000 11,904,763
------- ---------- ---------- ------- -----------
$56,827 98,577,500 90,529,958 $57,424 $30,176,653
======= ========== ========== ======= ===========
</TABLE>
Dividends:
The holders of outstanding Series A, Series B, Series C, Series D, Series E,
Series F, Series G, and Series H are entitled to receive in any fiscal year,
when, if and as declared by the Board of Directors, noncumulative dividends in
cash at an annual rate of 10% of the original issuance price per share. Such
dividends will be declared or paid prior and in preference to any declaration
or payment of any dividend on the common stock. As of December 31, 1999, no
dividends have been declared.
Voting Rights:
Each share of Series A, Series B, Series C, Series D, Series E, Series F,
Series G, and Series H preferred stock entitles a holder to the number of votes
per share equal to the number of shares of common stock into which each shares
of Series A, Series B, Series D, Series E, Series F, Series G, and Series H
preferred stock is then convertible.
Liquidation Preference:
In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of Series G and Series H preferred stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus of funds to the holders of Series A, Series B, Series C,
Series D, Series E, and Series F preferred stock and common stock, an amount
equal to the Series G and Series H Original Issue Price for each share of
Series G and Series H preferred stock plus any declared but unpaid dividends on
such shares. After payments are made to holders of Series G and H preferred
stock, the holders of Series F Preferred stock are entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds to
the Series A, Series B, Series C, Series D, and Series E and common stock an
amount equal to the Series F Original Issue Price of each share of Series F
preferred stock then held by them, plus any declared but unpaid dividends on
such shares. After such payments have been made, the holders of Series A, B, C,
D and E preferred stock are entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Company to the
holders of common stock, and amount equal to their respective original issuance
price, plus any declared but unpaid dividends. After payment has been made to
the holders of the Preferred stock of their respective liquidation preferences,
the holders of the Preferred stock and common stock are entitled to receive the
remaining assets of the Company in proportion to the number of shares of common
stock which would be held by each holder if all shares of Preferred stock were
converted into common stock.
F-15
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Conversion:
Each share of Series A, Series B, Series C, Series D, Series E, Series F,
Series G, and Series H preferred stock are convertible, at the option of the
holder into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $0.70 in the case of the Series H stock, and $0.36
in the case of Series A, Series B, Series C, Series D, Series E, Series F, and
Series G preferred stock by the applicable Conversion Price. The Conversion
Price are initially equal to $2.10 in the case of the Series H stock, and $1.08
in the case of Series A, Series B, Series C, Series D, Series E, Series F, and
Series G preferred stock.
Each share of Series A, Series B, Series C, Series D, Series E, Series F and
Series G Preferred stock are automatically converted into shares of common
stock at the then effective applicable conversion price, in the event of a
public offering for a price greater than $3.00 per share at an aggregate
offering price of not less than $10.0 million, or at the election of the
holders of a majority of the outstanding shares of Preferred stock.
Each share of Series H Preferred stock are automatically converted into
shares of common stock at the then effective applicable conversion price, in
the event of a public offering for a price greater than $4.20 per share at an
aggregate offering price of not less than $20.0 million, or at the election of
the holders of a majority of the outstanding share of Preferred stock.
Warrants
In October 1995, in connection with an equipment lease agreement, the
Company granted the lessor warrants to purchase 25,000 shares of Series B
preferred stock at an exercise price equal to $1.00 per share. These warrants
are exercisable through October 6, 2005. As of December 31, 1999, all of the
warrants remain outstanding.
In November 1995, in connection with a lease agreement for office space, the
Company granted the lessor a warrant for 200,000 shares of the Company's Series
B preferred stock at an exercise price of $1.00 per share, exercisable through
May 31, 1996 and 25,000 shares of the Company's Series B preferred stock at an
exercise price of $1.00 per share, exercisable through January 1, 2001. As of
December 31, 1999, 25,000 of these warrants remained outstanding, 75,000 were
exercised in prior periods and 125,000 were expired.
In February 1997, the Company granted an investor warrants to purchase
30,000 shares of Series E preferred stock at an exercise price of $2.00 per
share, exercisable through February 2002. As of December 31, 1999, all of the
warrants remain outstanding. The value of these warrants are immaterial to the
financial statements.
In January 1998, in conjunction with the common stock repurchase, the
Company granted a stockholder and outside director warrants to purchase 233,333
shares of common stock at $60.00 per share. The warrants vested ratably over a
five year term, on the condition that the stockholder continue service to the
Company as an employee, consultant, officer or director. The warrants were
canceled during fiscal 1999. The value of the warrants are immaterial to the
financial statements.
In March and April 1997, in conjunction with the issuance of the 8.5% Senior
Subordinated Convertible Notes, the Company issued warrants to purchase 422,500
shares of common stock to noteholders and warrants to purchase 21,200 shares of
common stock to the managers of the offering. All of these warrants were to
purchase the shares at the lesser of $6.00 per share or the conversion price.
The value of these warrants was $903,000 and represented a discount to the face
value of the debt. In December 1998, in conjunction with the conversion of the
8.5% Senior Subordinated Convertible Notes into Series F preferred stock at
$0.6534 per share, the remaining unamortized discount of $285,000 was offset to
equity. At the same time, the Company
F-16
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
issued 16,633,169 shares of Series F preferred stock and $3.5 million of non-
convertible promissory notes with interest at 8.5% per annum to holders of the
notes, and a warrant to purchase 966,831 shares of Series F preferred stock to
the managers of the offering.
In November 1998, the Company granted seven investors warrants to purchase
5,536,363, 35,000, 70,000, 553,637, 70,000, 700,000 and 35,000 shares of Series
G preferred stock valued at $770,000 at a purchase price of $0.7143 per share.
The warrants will terminate on the earlier of five years from the date of
issuance or upon the initial public offering of the Company with gross proceeds
from the offering of $10.0 million and per share price to the public of no less
than $1.00 per share. As of December 31, 1999, all of the warrants remain
outstanding.
In December 1998, in connection with a Company's license and service
agreement, the Company granted a licensee warrants to purchase 133,333 shares
of the Company's common stock at an exercise price of $6.00 per share,
exercisable upon the payment of $4.0 million in program license fees. The
warrants will terminate on the earlier of five years from the date of issuance
or upon the initial public offering of the Company. As of December 31, 1999,
all of the warrants remain outstanding. The value of these warrants are
immaterial to the financial statements.
In September 1999, the Company granted an investor warrants to purchase
466,667 shares of common stock valued at $651,000 at a purchase price of $1.08
per share. The warrants will terminate on the earlier of seven years from the
date of issuance or upon the initial public offering of the Company. As of
December 31, 1999, all warrants are outstanding.
The fair value of the warrants were estimated using the Black-Scholes
option-pricing model. The estimates were made based on the full contractual
terms of the warrants at their appropriate ranges of risk-free interest rates,
expected volatility and expected lives, and a zero annual dividend yield.
9. Stock Options
Under the terms of the 1995 Stock Option Plan (the "Plan"), eligible
employees, directors and consultants can receive options to purchase shares of
the Company's common stock at a price not less than 100% and 85% of the fair
value on the grant date for incentive stock options and nonqualified stock
options, respectively. The Company originally authorized 833,333 shares of
common stock for issuance under the Plan. By September 1999, the Company had
increased the number of shares issuable under the Plan to 6,666,667. The
options granted under the Plan are exercisable over a maximum term of ten years
from the date of grant and generally vest over a four to five year period.
Options are exercisable immediately but have a right of repurchase which
generally lapses over four to five years. In some instances, fully vested
options are granted. Options granted under the Plan are subject to various
restrictions as to resale and right of first refusal by the Company.
F-17
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of the activity under the Plan is set forth below:
<TABLE>
<CAPTION>
Outstanding Options
---------------------------------------------
Weighted
Shares Exercise Aggregate Average
Available Number of Price per Price Exercise
for Grant Shares Share (in thousands) Price
---------- ---------- --------- -------------- --------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996.. 47,322 771,278 $.15-$.30 $ 125 $.1617
Additional shares
authorized............. 333,333
Options granted......... (373,840) 373,840 $.60-$.90 256 $.6861
Options exercised....... -- (72,410) $.15-$.60 (17) $.2370
Options canceled........ 188,427 (188,427) $.15-$.60 (37) $.1956
---------- ---------- ------
Balance, June 30, 1997.. 195,242 884,281 $.15-$.90 327 $.3702
Options granted......... (502,066) 502,066 $.90 452 $.9000
Options exercised....... -- (216,743) $.15-$.90 (98) $.4500
Options canceled........ 274,619 (274,619) $.15-$.90 (160) $.5841
---------- ---------- ------
Balance, June 30, 1998.. (32,205) 894,985 $.15-$.90 $ 521 $.5823
Additional shares
authorized............. 2,166,667
Options granted......... (1,770,764) 1,770,764 $.15-$.90 363 $.2100
Options exercised....... -- (401,169) $.15-$.90 (109) $.2700
Options canceled........ 408,288 (408,288) $.15-$.90 (202) $.4800
---------- ---------- ------
Balance, June 30, 1999.. 771,986 1,856,292 $.15-$.90 $ 573 $.3000
Additional shares
authorized............. 3,333,333
Options granted......... (2,364,333) 2,364,333 $.15-$.60 1,250 $.5400
Options exercised....... -- (1,575,058) $.15-$.90 (617) $.3900
Options canceled........ 286,549 (286,549) $.15-$.90 (52) $.1800
---------- ---------- ------
Balance, December 31,
1999................... 2,027,535 2,359,018 $.15-$.90 $1,154 $.4890
========== ========== ======
</TABLE>
Options exercisable without the right of repurchase at June 30, 1997, 1998
and 1999 and December 31, 1999 are, 525,119, 481,068, 561,384, and 390,278,
respectively.
The following table summarizes information with respect to stock options and
warrants outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options
Outstanding Options Exercisable
-------------------------- ------------------
Weighted Average Number Exercisable
Weighted Average Number Remaining at December 31, Weighted Average
Exercise Price of Shares Contractual Life 1999 Exercise Price
- ---------------- --------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
$.15...... 678,285 8.06 266,968 $.15
$.30...... 6,666 6.39 6,666 $.30
$.60...... 1,564,560 9.82 55,764 $.60
$.90...... 109,507 7.96 60,880 $.90
--------- -------
$.48...... 2,359,018 9.22 390,278 $.33
========= =======
</TABLE>
The following information concerning the Company's stock option plan is
provided in accordance with Statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"). The Company has
continued to account for its plan in accordance with APB No. 25.
F-18
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The weighted average fair value per share of the options granted for the
years ended June 30, 1997, 1998 and 1999 and the six months ended December 31,
1999 is $.2025, $.2655, $.0504 and $.1371, respectively. The fair value of
each stock option is estimated on the date of grant using the minimum value
option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
June 30,
----------------------- December 31,
1997 1998 1999 1999
------- ------- ------- ------------
<S> <C> <C> <C> <C>
Risk-free interest rate................. 6.00% 6.00% 5.81% 6.19%
Expected life........................... 6 years 6 years 5 years 5 years
Expected dividends...................... -- -- -- --
</TABLE>
The following pro forma net loss information has been prepared following
the provision of SFAS 123.
<TABLE>
<CAPTION>
For the year ended June Six months
30, ended
--------------------------- December 31,
1997 1998 1999 1999
------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net loss:
As reported...................... $(8,093) $(10,582) $(11,471) $(12,862)
Pro forma........................ $(8,169) $(10,715) $(11,561) $(13,182)
</TABLE>
In connection with the granting of stock options and the sales of
restricted stock to our employees and the granting of equity instruments to
non-employees for services rendered, we recorded deferred stock-based charges
totaling approximately $30.4 million as of December 31, 1999. This amount
represents the difference between the exercise or purchase price at which the
stock options were granted or the restricted stock was issued, and the deemed
fair value of our common stock for accounting purposes on the date of grant or
issuance. This amount is included as a component of stockholders' equity and,
in accordance with the method described in Financial Accounting Standards
Board Interpretation No. 28, is being amortized on an accelerated basis by
charges to operations over the vesting period of the options and restricted
stock, which is generally four years. This resulted in an expense of $218,000
for the year ended June 30, 1999, and an expense of $3.2 million for the six
months ended December 31, 1999. The remaining unamortized and unearned stock-
based compensation at December 31, 1999, will be amortized as follows: $8.7
million for the six months ending June 30, 2000; $11.5 million for the year
ending June 30, 2001; $4.8 million for the year ending June 30, 2002; $1.9
million for the year ending June 30, 2003 and $133,000 for the year ending
June 30, 2004. We expect to record additional significant stock-based
compensation for stock options granted and restricted stock issued subsequent
to December 31, 1999.
10. Related Party Transactions
During the year ended June 30, 1998, the Company loaned two of its officers
and directors an aggregate of $450,000. Each of the loans is due five years
from the date of issuance, relates to the purchase of common stock of the
Company, and are collateralized by the pledge of common stock of the Company.
In addition, the loans may be prepaid in part or in full without notice or
penalty, and are represented by a promissory note which bears interest at the
Applicable Federal Rate at the date of issuance (ranging from 5.69% to 6.39%
per annum). Interest on these notes is due on maturity.
On January 1, 1998, in connection with the repurchase of common stock, the
Company canceled a loan to an officer and director for $14,000 and forgave the
related interest receivable of $3,514. In addition, the Company also issued a
$96,243 note in exchange for these shares of common stock. The note bears
interest of 7.75% per annum. In January 1999, the Company repaid the note and
related interest of $7,459.
F-19
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
On June 30, 1998, the Company loaned a stockholder, who is also an executive
officer of the Company, $19,691. The loan was due on December 31, 1998 and was
represented by a promissory note bearing interest of 7% per annum. Interest was
due upon maturity of the note. The loan was repaid during fiscal 1999. On
March 9, 1999, June 30, 1999 and September 30, 1999, the Company issued
additional loans to the stockholder for $20,000, $40,000 and $40,000,
respectively, with interest bearing at a rate of 6% per annum. The principal
and accrued interest are due on the earlier of June 30, 2001, thirty days after
termination other than for death or disability, or one year after termination
for death or disability. The loans are represented by two promissory notes and
are collateralized by all shares of the Company's common stock held by the
borrower.
During the year ended June 30, 1999, the Company loaned seven of its
officers and directors an aggregate of $780,025 under the Company's Restricted
Stock Purchase agreements with the officers and directors. All of the loans
relate to the purchase of common stock of the Company and are collateralized by
the pledge of common stock of the Company. In addition, the loans may be
prepaid in part or in full without notice or penalty, and are presented by
promissory notes which bear interest ranging from 5% to 7%. The notes are due
four to five years from date of issuance.
On March 1, 1999, the Company loaned a former employee $24,003 pursuant to
the terms of a severance agreement for the purposes of exercising the
employee's stock options for 52,330 shares of common stock of the Company. The
loan bears interest at a rate of 5% per annum and was repaid in full as of
December 31, 1999.
During the year ended June 30, 1999, the Company exercised its right to
repurchase 829,168 shares of common stock from two stockholders under the right
to repurchase option of the Restricted Stock Purchase agreements entered into
by the Company and the two stockholders. In connection with the repurchase of
common stock, the Company canceled the related stockholder loans for an
aggregate amount of $221,000.
During the six months ended December 31, 1999, the Company loaned twenty
three of its officers, directors, employees, investors and vendors an aggregate
of $3.3 million under the Company's Restricted Stock Purchase agreements. All
of the loans relate to the purchase of common stock of the company
collateralized by the pledge of common stock of the Company. In addition, the
loans may be prepaid in part or in full without notice or penalty, and are
represented by promissory notes which bear interest ranging from 6% to 7%. The
notes are due three to five years from date of issuance.
11. Employee Savings Plan
The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a percentage (not to
exceed 15%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. All employees of the Company are eligible
to participate in the Savings Plan. The Company is not required to contribute
to the Savings Plan and has made no contributions since the inception of the
Savings Plan.
12. Subsequent Events
Initial Public Offering
On March 13, 2000, the Company approved the issuance and sale in an
underwritten public offering of the Company's common stock.
F-20
<PAGE>
EVOLVE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock Split
On March 13, 2000, the Company approved a 1 for 3 reverse split of its
common stock, which will be effected prior to the closing of the public
offering. All common stock data and common stock option plan information has
been restated to reflect the reverse split.
In addition, the conversion prices of the Company's convertible preferred
stock have also been adjusted to reflect the effect of the reverse split.
Stock Plans
In January 2000, the Company's Board of Directors authorized an increase of
4,500,000 shares to be issued under the Company's stock plans. As of March
2000, 3,333,333 of these shares were granted to employees and 333,333 shares
were reserved for employees of InfoWide, Inc., an acquisition (see following
disclosure).
Acquisition of InfoWide, Inc.
On March 9, 2000, the Company agreed to acquire InfoWide, Inc. in exchange
for 3.7 million shares of common stock of the Company. The acquisition is
expected to close by March 31, 2000 and will be accounted for as a purchase.
The Company expects to incur costs associated with the acquisition of
goodwill of approximately $3.1 million which will be recorded primarily as
goodwill, purchased technology and other intangible assets which will have an
estimated useful life of three years.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
InfoWide, Inc.:
We have audited the accompanying balance sheets of InfoWide, Inc. (a
development stage company) (the "Company") as of December 31, 1998 and 1999,
and the related statements of operations, shareholders' equity (deficit) and
cash flows for the period from April 15, 1998 (inception) to December 31, 1998
and the year ended December 31, 1999 and for the period from April 15, 1998
(inception) to 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1998 and 1999,
and the results of its operations and its cash flows for the period from April
15, 1998 (inception) to December 31, 1998, the year ended December 31, 1999 and
for the period from April 15, 1998 (inception) to December 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in developing and marketing automated information sharing
services. As discussed in Note 1 to the financial statements, the Company's
operating losses since inception, its negative working capital and
shareholders' deficit raise substantial doubt about its ability to continue as
a going concern. Management's plans concerning these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
San Jose, California
March 10, 2000
F-22
<PAGE>
INFOWIDE, INC
(A Development Stage Company)
BALANCE SHEETS
December 31, 1998 and 1999
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1998 1999
----- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 98 $ 21
Accounts receivable.......................................... -- 14
Prepaid expenses and other assets............................ 16 1
----- -------
Total current assets....................................... 114 36
PROPERTY AND EQUIPMENT, net.................................... 88 148
DEPOSIT........................................................ 60 41
----- -------
TOTAL...................................................... $ 262 $ 225
===== =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accrued expenses............................................. $ -- $ 92
Notes payable to related parties............................. -- 390
----- -------
Total current liabilities.................................. -- 482
----- -------
DEPOSIT FROM RELATED PARTY..................................... 30 20
COMMITMENTS (Note 3)
SHAREHOLDERS' EQUITY (DEFICIT):
Convertible preferred stock--Series A, par value: $0.0001 per
share; 5,500,000 shares authorized; shares issued and
outstanding: 3,923,079 in 1998 and 4,923,079 in 1999........ 510 640
Convertible preferred stock--Series B, par value: $0.0001 per
share; 2,500,000 shares authorized; shares issued and
outstanding: none in 1998 and 948,720 in 1999............... -- 370
Common stock--par value: $0.0001 per share; 18,000,000 shares
authorized; shares issued and outstanding: 5,333,333 in 1998
and 1999.................................................... 9 496
Deferred compensation........................................ -- (303)
Deficit accumulated during the development stage............. (287) (1,480)
----- -------
Total shareholders' equity (deficit)....................... 232 (277)
----- -------
TOTAL...................................................... $ 262 $ 225
===== =======
</TABLE>
See notes to financial statements.
F-23
<PAGE>
INFOWIDE, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Period from Period from
April 15, 1998 April 15, 1998
(Inception) to Year Ended (Inception) to
December 31, December 31, December 31,
1998 1999 1999
-------------- ------------ --------------
<S> <C> <C> <C>
NET SALES........................... $ -- $ 26 $ 26
COSTS AND EXPENSES:
Cost of sales..................... -- 36 36
General and administrative........ 91 303 394
Research and development.......... 200 724 924
Sales and marketing............... 1 152 153
----- ------- ------
Total costs and expenses........ 292 1,215 1,507
----- ------- ------
LOSS FROM OPERATIONS................ (292) (1,189) (1,481)
INTEREST INCOME (EXPENSE), Net...... 5 (4) 1
----- ------- ------
NET LOSS............................ $(287) $(1,193) (1,480)
===== ======= ======
</TABLE>
See notes to financial statements.
F-24
<PAGE>
INFOWIDE, INC.
A Development Stage Company
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Period from April 15, 1998 (Inception) through December 31, 1999
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Series B
Series A Convertible Deficit
Convertible Preferred Accumulated
Preferred Stock Stock Common Stock Deferred During the
---------------- -------------- ---------------- Compen- Development
Shares Amount Shares Amount Shares Amount sation Stage Total
--------- ------ ------- ------ --------- ------ -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
to founders for cash at
$0.0014 per share in
April 1998............. $-- $-- 5,333,333 $ 8 $ -- $ -- $ 8
Issuance of Series A
preferred stock at
$0.13 per share in May
1998................... 3,923,079 510 510
Issuance of stock
options to
consultants............ 1 1
Net loss................ (287) (287)
--------- ---- ------- ---- --------- ---- ----- ------- -------
BALANCES, December 31,
1998................... 3,923,079 510 -- -- 5,333,333 9 -- (287) 232
Issuance of Series A
preferred stock at
$0.13 per share in
March 1999............. 1,000,000 130 130
Issuance of Series B
preferred stock at
$0.39 per share in May
1999................... 948,720 370 370
Issuance of stock
options to
consultants............ 166 166
Deferred compensation... 321 (321) --
Amortization of deferred
stock compensation..... 18 18
Net loss................ (1,193) (1,193)
--------- ---- ------- ---- --------- ---- ----- ------- -------
BALANCES, December 31,
1999................... 4,923,079 $640 948,720 $370 5,333,333 $496 $(303) $(1,480) $ (277)
========= ==== ======= ==== ========= ==== ===== ======= =======
</TABLE>
See notes to financial statements.
F-25
<PAGE>
INFOWIDE, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Period from Period from
April 15, 1998 Year April 15, 1998
(inception) to Ended (Inception) to
December 31, December 31, December 31,
1998 1999 1999
-------------- ------------ --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss........................... $(287) $(1,193) $(1,480)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization..... 7 45 52
Amortization of deferred
compensation and noncash
compensation to consultants...... 1 184 185
Changes in assets and liabilities:
Prepaid expenses and other
assets.......................... (16) 15 (1)
Accounts receivable.............. -- (14) (14)
Accrued expenses................. -- 92 92
Deposit from related party....... 30 (10) 20
Deposit.......................... (60) 19 (41)
----- ------- -------
Net cash used in operating
activities..................... (325) (862) (1,187)
----- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES--
Purchases of property and
equipment......................... (95) (105) (200)
----- ------- -------
Net cash used in investing
activities..................... (95) (105) (200)
----- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of preferred stock........ 510 500 1,010
Issuance of common stock........... 8 -- 8
Notes payable to related parties... -- 390 390
----- ------- -------
Net cash provided by financing
activities..................... 518 890 1,408
----- ------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ 98 (77) 21
CASH AND CASH EQUIVALENTS, Beginning
of period.......................... -- 98 --
----- ------- -------
CASH AND CASH EQUIVALENTS, End of
period............................. $ 98 $ 21 21
===== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--
Cash paid during the period for
interest.......................... $ -- $ -- $ --
===== ======= =======
</TABLE>
See notes to financial statements.
F-26
<PAGE>
INFOWIDE, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Period From April 15, 1998 (Inception) To December 31, 1998 and Year Ended
December 31, 1999
1. Organization and Summary Of Significant Accounting Policies
Organization--InfoWide, Inc. (the "Company") was incorporated on April 15,
1998 under the laws of the state of Delaware. The Company has developed a web-
hosted, rent on demand financial management package designed for professional
services organizations. The Company is subject to the risks associated with a
development stage enterprise, including the need to refine its product
technology, extend its marketing and distribution channels and continue to
raise financing.
Commercial selling commenced from August 1999; as of December 31, 1999, the
Company is considered to be a development stage enterprise because revenues
through that date have not been significant. The accompanying financial
statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company's continuation as a going concern is dependent upon
its ability to generate enough cash flow to meet its obligations on a timely
basis, to comply with the terms of its financing agreements, and to attain
successful operations. The Company's operating losses since inception, its
negative working capital and shareholders' deficit raise substantial doubt
about its ability to continue as a going concern. The Company plans to finance
its operations with proceeds from the sale of equity securities and,
ultimately, with revenues from product sales. In the event that the Company is
unsuccessful in raising sufficient funding or there are other unexpected
adverse developments affecting cash flow, the Company will have to
significantly reduce its operating expenses or curtail operations.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents--The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentration of credit risk consist of cash and cash
equivalents. Cash and cash equivalents consist primarily of interest-bearing
accounts and are regularly monitored by management.
Property and Equipment--Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over their respective
useful lives of three to five years.
Software Development Costs--The costs for the development of new software
products are expensed as incurred until technological feasibility has been
established, at which time any additional costs would be capitalized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software To Be Sold, Leased or Otherwise
Marketed." Because the Company believes its current process for developing
software is essentially completed concurrently with the establishment of
technological feasibility, no costs have been capitalized to date.
Income Taxes--The Company accounts for income taxes using the asset and
liability approach for financial reporting. Deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for
income tax purposes and operating loss and tax credit carryforwards. A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets recorded will not be recognized.
F-27
<PAGE>
INFOWIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Comprehensive Income (Loss)--The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires an enterprise to report, by major
components and as a single total, the change in net assets during the period
from nonowner sources. Comprehensive loss was the same as net loss for the
period from April 15, 1998 (inception) to December 31, 1998 and the year ended
December 31, 1999.
New Accounting Pronouncement--In June 1998, the Financial Accounting
Standards Board issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments and for hedging activities. SFAS 133 requires that
entities recognize all derivatives as either assets or liabilities and measure
those instruments at fair value. The Company is in the process of studying the
impact of SFAS 133 on its financial position, results of operations and cash
flows. The Company will adopt SFAS 133 in the first quarter of the year ending
December 31, 2001.
2. Property and Equipment, Net
Property and equipment at December 31, 1998 and 1999 consists of (in
thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Computers and accessories...................................... $66 $101
Furniture and equipment........................................ 7 42
Software....................................................... 22 34
Telephones..................................................... -- 23
--- ----
95 200
Accumulated depreciation and amortization...................... (7) (52)
--- ----
$88 $148
=== ====
</TABLE>
3. Lease Commitments
The Company leases it's office facilities under a noncancelable operating
lease. Rent expense for the period from April 15, 1998 (inception) to December
31, 1998 and the year ended December 31, 1999 was $67,000 and $117,000,
respectively.
Future minimum lease commitments are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000................................................................. $121
2001................................................................. 51
----
Total.............................................................. $172
====
</TABLE>
The Company also subleases part of its office space under a sublease
agreement with an entity which is owned by three of the Company's preferred
shareholders. This entity also made a deposit to the Company on the leased
facility. Sublease income for the period from April 15, 1998 (inception) to
December 31, 1998 and the year ended December 31, 1999 amounted to $31,000 and
$58,000, respectively.
F-28
<PAGE>
INFOWIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Notes Payable to Related Parties
Notes payable include $40,000 payable to a shareholder and $350,000
payable to an entity which is owned by three preferred shareholders of the
Company. The notes bear interest at 6% per annum and are payable on demand.
Also see Note 9.
5. Convertible Preferred Stock
Significant terms of the Series A and Series B preferred stock are as
follows:
. Each share is convertible into one share of common stock at the holder's
option, subject to adjustment for issuances of common stock, as defined.
Each share of preferred stock shall automatically be converted into
common stock upon closing of a public offering with gross proceeds to the
Company of at least $7.5 million or on a date specified by written
agreement of the holders of a majority of the then outstanding shares of
preferred stock.
. The holders of the Series A and Series B preferred stock are entitled to
receive noncumulative dividends of $0.0078 and $0.0234, respectively, per
share per annum, when and as declared by the Board of Directors.
Dividends on preferred stock are payable prior and in preference to any
dividends on common stock. No dividends have been declared or paid since
inception.
. Upon liquidation dissolution or winding up of the Company, the holders of
Series A and Series B preferred stock will be entitled to receive an
amount per share equal to (a) in the case of the Series A preferred
stock, the sum of (i) $0.13 for each outstanding share of Series A
preferred stock and (ii) an amount equal to declared but unpaid dividends
on such shares, and (b) in the case of Series B preferred stock the sum
of (i) $0.39 for each outstanding share of Series B preferred stock and
(ii) an amount equal to declared but unpaid dividends on such shares.
. The holders of the preferred stock have been granted a right of first
offer with respect to future sales of the Company's shares as defined.
. Each share has voting rights equivalent to the number of shares of common
stock into which it is convertible.
6. Common Stock
During the period ended December 31, 1998, the Company sold 5,333,333 shares
of common stock to the founder of the Company, resulting in net proceeds of
$8,000. 75% of all the shares are subject to the Company's option to repurchase
the shares in the event the founder is terminated from the Company without
cause. Such repurchase right expires ratably at 2.0833% of purchased shares
after each month of continuous services. At December 31, 1999, 1,777,813 shares
were subject to repurchase at a weighted average price of $0.014 per share.
7. Stock Option Plan
Under the Company's 1999 Stock Option Plan (the "Plan"), the Company may
grant options to purchase up to 3,000,000 shares of common stock to employees,
directors and consultants. The options generally vest over a period of four
years and expire no more than ten years from the date of grant. Generally,
holders of the options may exercise shares prior to vesting under a restricted
stock purchase agreement which allows the Company the option to repurchase any
unvested shares from the holder upon the holder's termination. The Company's
repurchase option terminates in accordance with the vesting schedule contained
in the holder's original option agreement.
F-29
<PAGE>
INFOWIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company grants fully vested options for common stock to nonemployees for
services performed. During the period from April 15, 1998 (inception) to
December 31, 1998 and the year ended December 31, 1999, the amount of stock-
based compensation expense related to such options was $1,000 and $166,000,
respectively.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise
Outstanding Price
----------- --------
<S> <C> <C>
Balance, April 15, 1998............................... -- $ --
Granted (weighted average minimum value of $0.02 per
share)............................................... 170,000 $0.02
---------
Balance, December 31, 1998............................ 170,000
Granted (weighted average minimum value of $0.42 per
share)............................................... 1,180,000 $0.04
Cancelled............................................. (30,000) $0.02
--------- -----
Balance, December 31, 1999............................ 1,320,000 $
========= =====
</TABLE>
At December 31, 1999, 1,680,000 shares were available for future grants
under the plan.
Additional information regarding options outstanding as of December 31, 1999
is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
-------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.02 310,000 9.08 $0.02 310,000 $0.02
0.04 1,010,000 9.80 0.04 1,010,000 0.04
--------- ---------
1,320,000 9.57 $0.04 1,320,000 0.04
========= =========
</TABLE>
During the year ended December 31, 1999, in connection with the grant of
certain stock options, the Company recorded deferred stock compensation of
$321,000, representing the difference between the exercise price of the options
and the estimated fair value of the Company's common stock on the date of
grant. Such amounts are being amortized over the vesting period of the related
options, generally 48 months.
Additional Stock Plan Information
The Company accounts for its stock-based awards using the intrinsic value
method in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and its related interpretations.
SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS 123) requires
the disclosure of pro forma net loss had the Company adopted the minimum value
method. Under SFAS 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including expected time to exercise, which greatly affects the
calculated values. The Company's calculations were made using the minimum value
method with the following weighted average assumptions: expected life, five
years; risk free interest rate, 5.5%; and no dividends during the expected
term.
F-30
<PAGE>
INFOWIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company's calculations are based on a single option valuation approach and
forfeitures are recognized as they occur. If the computed fair values of the
stock option awards had been amortized to expense over the vesting period of
the awards, pro forma net loss would have been $287,000 and $1,195,000,
respectively for the period from April 15, 1998 (inception) to December 31,
1998 and the year ended December 31, 1999.
At December 31, 1999, the Company had reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock.......................... 5,871,799
Issuance under stock option plan................................... 3,000,000
---------
Total............................................................ 8,871,799
=========
</TABLE>
8. Income Taxes
No income tax benefit was recorded during the period from April 15, 1998
(inception) to December 31, 1998 and the year ended December 31, 1999 due to
the Company's net losses. At December 31, 1998 and 1999, the net deferred tax
assets generated by net operating loss carryforwards totaling approximately
$120,000 and $460,000, respectively, have been fully reserved due to the
uncertainty surrounding the realization of such benefits.
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $1,400,000 available to offset future federal and state taxable
income.
Federal and California tax rules impose substantial restrictions on the
utilization of net operating loss carryforwards in the event of an "ownership
change," as defined by the Internal Revenue Code. Any such ownership change
could significantly limit the Company's ability to utilize its tax
carryforwards.
9. Subsequent Events
On January 15, 2000 the Company borrowed approximately $1,216,000 from a
related entity (See Note 4) to finance its working capital needs. The
borrowing carries interest at the rate of 5.74% and the principal and interest
are to be repaid on August 1, 2000. In the event that another stock issuance
occurs during the term of the borrowing, the related party has the right to
convert the obligation into common stock under terms and conditions as defined
in the secured note. The borrowing is secured by substantially all of the
Company's assets.
On March 9, 2000 the shareholders of the Company entered into an agreement
and plan of reorganization with Evolve Software, Inc. to acquire the Company
in a stock-for-stock transaction expected to be consummated in March 2000.
* * * * *
F-31
<PAGE>
EVOLVE SOFTWARE, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information for Evolve
Software, Inc, (the "Company") consists of the Unaudited Pro Forma Combined
Statements of Operations for the year ended June 30, 1999 and the six months
ended December 31, 1999 and the Unaudited Pro Forma Combined Balance Sheet as
of December 31, 1999. This pro forma financial information gives effect to
Evolve's acquisition of InfoWide, Inc. which is to be accounted for as a
purchase.
The definitive terms of the InfoWide acquisition were agreed to on March 9,
2000 and the acquisition is expected to be consummated by March 31, 2000. The
stockholders of InfoWide will receive 3.7 million shares of Evolve common
stock. The unaudited pro forma combined balance sheet gives effect to the
InfoWide acquisition as if it had occurred on December 31, 1999, by
consolidating the balance sheet of InfoWide with the balance sheet of Evolve at
December 31, 1999. The unaudited pro forma combined statements of operations
for the year ended June 30, 1999 and for the six months ended December 31, 1999
gives effect to the acquisition as if it had occurred on July 1, 1998 by
consolidating the results of operations of InfoWide with the results of
operations of Evolve.
The unaudited pro forma combined statement of operations is not necessarily
indicative of the operating results that would have been achieved had the
transactions been in effect as of the beginning of the periods presented and
should not be construed as being representative of future operating results.
The historical financial statements of the Company, and InfoWide are included
elsewhere in this Prospectus and the unaudited pro forma combined financial
information presented herein should be read in conjunction with those financial
statements and related notes.
F-32
<PAGE>
EVOLVE SOFTWARE, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AT DECEMBER 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Evolve Pro Forma
Software InfoWide Adjustments Combined
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........ $ 17,505 $ 21 $ 17,526
Restricted cash.................. 2,000 2,000
Short term investments........... 2,264 2,264
Accounts receivable.............. 2,521 14 2,535
Prepaid expenses and other
current assets.................. 173 1 174
-------- ------- ------- --------
Total current assets........... 24,463 36 24,499
Property and equipment, net........ 930 148 1,078
Goodwill, purchased technology and
other intangible assets........... $30,400(A) 30,400
Deposits and other assets.......... 94 41 135
Note receivable from related
party............................. 100 100
Interest due on receivable from
stockholders...................... 205 205
-------- ------- ------- --------
Total assets................... $ 25,792 $ 225 $30,400 $ 56,417
======== ======= ======= ========
Liabilities and Stockholders'
Equity (Deficit)
Current liabilities:
Accounts payable................. $ 1,131 $ 1,131
Accrued liabilities.............. 2,050 $ 112 $ 150(B) 2,312
Note payable to related party.... 390 390
Capital lease obligations,
current portion................. 245 245
Deferred revenues, current
portion......................... 4,233 4,233
-------- ------- ------- --------
Total current liabilities...... 7,659 502 150 8,311
Capital lease obligations, less
current portion................... 143 143
Long term debt..................... 3,811 3,811
Deferred revenues, less current
portion........................... 1,202 1,202
-------- ------- ------- --------
Total liabilities.............. 12,815 502 150 13,467
-------- ------- ------- --------
Stockholders' equity (deficit)
Convertible preferred stock...... 905 1 (1)(B) 905
Common stock..................... 445 1 36(B) 482
Additional paid in capital....... 91,522 1,504 31,432(B) 124,458
Notes receivable from
stockholders.................... (4,499) (4,499)
Unearned stock-based charges..... (27,525) (303) 303(B) (27,525)
Accumulated deficit.............. (47,871) (1,480) (1,520) (50,871)
-------- ------- ------- --------
Total stockholders' equity
(deficit)..................... 12,977 (277) 30,250 42,950
-------- ------- ------- --------
Total liabilities and
stockholders' equity (deficit).. $ 25,792 $ 225 $30,400 $ 56,417
======== ======= ======= ========
</TABLE>
F-33
<PAGE>
EVOLVE SOFTWARE, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended December 31, 1999
----------------------------------------
Evolve Pro Forma
Software InfoWide Adjustments Combined
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues.............................. 2,087 26 -- 2,113
Cost of revenues...................... 1,366 36 -- 1,402
-------- ----- ------ --------
Gross margin (loss)................... 721 (10) -- 711
Operating expenses
Research and development............ 3,392 450 -- 3,842
Sales and marketing................. 4,880 141 -- 5,021
General and administrative.......... 1,657 102 -- 1,759
Stock based charges................. 3,872 18 -- 3,890
Amortization of purchased technology
and other intangibles.............. -- -- 5,066 5,066
-------- ----- ------ --------
Total operating expenses.......... 13,801 711 5,066 19,578
-------- ----- ------ --------
Loss from operations.................. (13,080) (721) (5,066) (18,867)
Interest income (expense), net........ 218 (4) -- 218
-------- ----- ------ --------
Net loss............................ $(12,862) $(725) (5,066) $(18,649)
======== ===== ====== ========
Net loss per share.................... (2.30)
--------
Shares used in net loss per share
calculation.......................... 8,115
--------
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30, 1999
----------------------------------------
Evolve Pro Forma
Software InfoWide Adjustments Combined
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues.............................. 517 -- -- 517
Cost of revenues...................... 635 -- -- 635
-------- ----- ------- -------
Gross margin (loss)................... (118) -- -- (118)
Operating expenses
Research and development............ 5,057 474 -- 5,531
Sales and marketing................. 3,876 12 -- 3,888
General and administrative.......... 1,857 274 -- 2,131
Stock based charges................. 218 -- -- 218
Amortization of purchased technology
and other intangibles.............. -- -- 10,133 10,133
-------- ----- ------- -------
Total operating expenses.......... 11,008 760 10,133 21,901
-------- ----- ------- -------
Loss from operations.................. (11,126) (760) (10,133) (22,019)
Interest income (expense), net........ (345) 5 -- (340)
-------- ----- ------- -------
Net loss............................ $(11,471) $(755) (10,133) (22,359)
======== ===== ======= =======
Net loss per share.................... (3.26)
Shares used in net loss per share
calculation.......................... 6,849
</TABLE>
F-34
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Evolve Software, Inc. in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee................................................ $ 7,000
NASD filing fee..................................................... 17,160
Nasdaq Stock Market's National Market listing fee...................
Printing and engraving costs........................................
Legal fees and expenses.............................................
Accounting fees and expenses........................................
Blue Sky fees and expenses..........................................
Transfer Agent and Registrar fees...................................
Miscellaneous expenses..............................................
-------
Total............................................................. $
=======
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article Ninth of the registrant's Amended and Restated Certificate of
Incorporation provides for the indemnification of directors to the fullest
extent permissible under Delaware law.
Article 6 of the registrant's Amended and Restated Bylaws provides for the
indemnification of officers, directors and third parties acting on behalf of
the registrant if such person acted in good faith and in a manner reasonably
believed to be in and not opposed to the best interest of the registrant, and,
with respect to any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.
The registrant has entered into indemnification agreements with its
directors, in addition to indemnification provided for in the registrant's
Amended and Restated Bylaws, and intends to enter into indemnification
agreements with any new directors in the future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the underwriters of the registrant and its executive officers and directors,
and by the registrant of the underwriters for some liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the underwriters for inclusion in the
Registration Statement.
Item 15. Recent Sales of Unregistered Securities
Since July 1, 1996, we have issued unregistered securities to a limited
number of persons as described below (all share numbers and exercise prices in
this Item 15 have been adjusted for our one for three stock split to become
effective immediately prior to the effectiveness of this initial public
offering.
(a) On July 1, 1996, we sold an aggregate of 176,667 shares of our Series E
Preferred Stock for $6.00 per share to a group of private investors for
an aggregate purchase price of $1,060,000.
(b) From July 1, 1996 through March 15, 2000, we sold an aggregate of
3,608,743 shares of our common stock at exercise prices ranging from
$0.05 to $0.50 per share to employees, consultants, directors and other
service providers pursuant to our 1995 Stock Option Plan, as amended.
II-1
<PAGE>
(c) On February 5, 1997, we issued a warrant to purchase 10,000 shares of
our Series E Preferred Stock at an exercise price of $6.00 per share to
a commercial lender.
(d) On March 13, 1997 and April 10, 1997, we issued 8.5% senior
subordinated convertible promissory notes to various private investors
in the aggregate amount of $12,675,000. Except for $3,500,000 million,
which was restructured on December 15, 1998, as 8.5% nonconvertible
debt due within thirty days of the effectiveness of this initial public
offering, the principal (plus accrued interest of approximately
$1,689,000) on these notes were converted into 5,544,390 shares of
Series F Preferred Stock in conjunction with our Series G Preferred
Stock Financing on November 25, 1998.
(e) On March 13, 1997 and April 10, 1997, in conjunction with the issuance
of the 8.5% senior subordinated convertible promissory notes, we issued
warrants to purchase 443,700 shares of our common stock at the lesser
of $6.00 and the conversion price of the convertible debt financing.
These warrants were cancelled in conjunction with our Series G
Preferred Stock Financing on November 25, 1998.
(f) On April 10, 1997, we issued a warrant to Index Securities, S.A., a
private investor, to purchase $636,000 of conversion stock. On November
25, 1998, the warrant was reissued to Index Securities, S.A. in
conjunction with our sale of Series G Preferred Stock, as a warrant to
purchase 322,277 shares of our Series F Preferred Stock at an exercise
price of $1.97 per share, for an aggregate purchase of $636,000.
(g) On October 16, 1998, we issued a $1,000,000 convertible promissory note
to Sierra Ventures VI, L.P. in consideration for a $1,000,000 loan. On
November 25, 1998 this note was converted into 933,333 shares of Series
G Preferred Stock in conjunction with our Series G Preferred Stock
Financing.
(h) On November 25, 1998, and December 15, 1998, we sold an aggregate of
8,400,000 shares of our Series G Preferred Stock for $1.07 per share to
Sierra Ventures VI, and certain of its affiliates, for an aggregate
purchase price of $9,000,000. On November 25, 1998, in conjunction with
our Series G Preferred Stock Financing, we issued warrants to Sierra
Ventures VI, L.P. and various private investors to purchase 2,333,333
shares of our Series G Preferred Stock for $2.14 per share, for an
aggregate purchase price of $5,000,000.
(i) On December 15, 1998, we issued a warrant to purchase up to 133,333
shares of our common stock at an exercise price of $6.00 per share.
(j) On September 14, 1999, we issued a warrant to an investor to purchase
466,667 shares of our common stock for $1.07 per share for an aggregate
purchase price of $500,000.
(k) On September 28, 1999, and December 3, 1999, we sold an aggregate of
11,904,763 shares of our Series H Preferred Stock for $2.10 per share
to a group of private investors for an aggregate purchase price of
$25,000,002.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Transactions" in the form of prospectus included herein.
The sales of the above securities were deemed to be exempt from registration
in reliance on Rule 701 promulgated under Section 3(b) under the Securities Act
as transactions pursuant to a compensatory benefit plan or a written contract
relating to compensation, or in reliance on Section 4(2) of the Securities Act
or Regulation D promulgated thereunder as transactions by an issuer not
involving any public offering. The recipients of securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about Evolve or had access, through
employment or other relationships, to such information.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of
Registrant to be adopted upon completion of this offering
3.3* Bylaws of the Registrant
4.1* Form of stock certificates
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors
10.2* Paradigm Technologies License Agreement
10.3* Office Building Lease, 615 Battery Street, San Francisco, CA.
10.4 Office Building Lease, 1400 65th Street, Emeryville, CA.
10.5* 1995 Stock Option Plan, as amended, and form of agreements thereunder
10.6 2000 Stock Plan
10.7 2000 Employee Stock Purchase Plan
10.8 Employment Offer Letter for John P. Bantleman
10.9 Employment Offer Letter for James J. Bozzini
10.10 Employment Offer Letter for Marc C. Ferrie
10.11 Employment Offer Letter for Mark L. Davis
10.12 Employment Offer Letter for Kurt M. Heikkinen
10.13 Employment Offer Letter for Jeff A. McClure
10.14 Employment Offer Letter for Anil K. Gupta
23.1 Consent of PricewaterhouseCoopers, LLP, Independent Accountants
23.2* Consent of Counsel (see Exhibit 5.1)
24.1 Power of Attorney (see page II-6)
</TABLE>
- --------
+ Certain portions of this exhibit have been granted confidential treatment by
the Commission. The omitted portions have been separately filed with the
Commission.
* To be filed by amendment.
No financial statement schedules have been included because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-3
<PAGE>
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on the 17th day of March, 2000.
Evolve Software, Inc.
By /s/ John P. Bantleman
-----------------------------------
John P. Bantleman,
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John P. Bantleman and J. Russell DeLeon, and
each of them, his attorneys-in-fact, each with the power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement, and to sign any registration statement for the same offering covered
by this registration statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that such attorneys-in-fact and agents or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ John P. Bantleman President and Chief March 17, 2000
____________________________________ Executive Officer
John P. Bantleman (Principal Executive
Officer)
/s/ J. Russell DeLeon Vice President, Finance March 17, 2000
____________________________________ and Administration,
J. Russell DeLeon General Counsel,
Secretary, Treasurer
(Principal Financial
and Accounting
Officer)
/s/ Jeffrey M. Drazan Director March 17, 2000
____________________________________
Jeffrey M. Drazan
/s/ Judith H. Hamilton Director March 17, 2000
____________________________________
Judith H. Hamilton
Director, Chairman of March 17, 2000
____________________________________ the Board
John R. Oltman
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of
Registrant to be adopted upon completion of this offering
3.3* Bylaws of the Registrant
4.1* Form of stock certificates
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors
10.2* Paradigm Technologies License Agreement
10.3* Office Building Lease, 615 Battery Street, San Francisco, CA.
10.4 Office Building Lease, 1400 65th Street, Emeryville, CA.
10.5* 1995 Stock Option Plan, as amended, and form of agreements thereunder
10.6 2000 Stock Plan
10.7 2000 Employee Stock Purchase Plan
10.8 Employment Offer Letter for John P. Bantleman
10.9 Employment Offer Letter for James J. Bozzini
10.10 Employment Offer Letter for Marc C. Ferrie
10.11 Employment Offer Letter for Mark L. Davis
10.12 Employment Offer Letter for Kurt M. Heikkinen
10.13 Employment Offer Letter for Jeff A. McClure
10.14 Employment Offer Letter for Anil K. Gupta
23.1 Consent of PricewaterhouseCoopers, LLP, Independent Accountants
23.2* Consent of Counsel (see Exhibit 5.6)
24.1 Power of Attorney (see page II-6)
</TABLE>
- --------
+ Certain portions of this exhibit have been granted confidential treatment by
the Commission. The omitted portions have been separately filed with the
Commission.
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EVOLVE SOFTWARE, INC.
Evolve Software, Inc. a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
A. The name of the corporation is Evolve Software, Inc. The corporation
was originally incorporated under the name "Cortez Software International, Inc."
The original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on February 24, 1995.
B. Pursuant to Sections 228, 242 and 245 of the General Corporation Law of
the state of Delaware, this Amended and Restated Certificate of Incorporation
has been duly adopted by the written consent of the stockholders of this
corporation following prompt written notice to the stockholders of the
corporation, and restates and integrates and further amends the provisions of
the Certificate of Incorporation of this corporation and all Certificates of
Designation of Preferred Stock of this corporation.
C. The text of the Certificate of Incorporation of this corporation is
hereby amended and restated in its entirety to read as follows:
I.
The name of this corporation is "Evolve Software, Inc." (the
"Corporation").
II.
The address of the corporation's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, Delaware 19805. The name of its registered
agent at such address is The Prentice-Hall Corporation System, Inc. in New
Castle County.
III.
<PAGE>
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
IV.
(a) Authorized Stock. This Corporation is authorized to issue two classes
----------------
of shares, designated "Preferred Stock" and "Common Stock." The total number of
shares which this Corporation shall have authority to issue is 250,000,000 of
which 150,000,000 shares shall be Common Stock, with a par value of $.01, and
100,000,000 shares shall be Preferred Stock, with a par value of $.01.
(b) Preferred Stock. The shares of Preferred Stock may be issued form time
---------------
to time in one or more series. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this Article IV, to provide
for the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designations, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
(1) The number of shares constituting that series and the distinctive
designation of that series;
(2) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights or priority, if any, of payment of dividends on shares of that series;
(3) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(4) Whether that series shall have conversion rights, in addition to
the conversion rights provided by law, and, if so, the terms of such conversion
rights;
(5) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(6) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
-2-
<PAGE>
(7) The rights and shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series;
(8) Any other relative or participating rights, preferences and
limitations of that series.
(c) Series A, Series B, Series C, Series D, Series E, Series F, Series G
--------------------------------------------------------------------
and Series H Preferred Stock. The first series of Preferred Stock shall be
- ----------------------------
designated Series A Preferred Stock ("Series A Preferred Stock") and shall
consist of 1,167,500 shares. The second series of Preferred Stock shall be
designated Series B Preferred Stock ("Series B Preferred Stock") and shall
consist of 3,075,000 shares. The third series of Preferred Stock shall be
designated Series C Preferred Stock (the "Series C Preferred Stock") and shall
consist of 1,000,000 shares. The fourth series of Preferred Stock shall be
designated Series D Preferred Stock (the "Series D Preferred Stock") and shall
consist of 2,940,000 shares. The fifth series of Preferred Stock shall be
designated Series E Preferred Stock (the "Series E Preferred Stock") and shall
consist of 2,000,000 shares. The sixth series of Preferred Stock shall be
designated Series F Preferred Stock (the "Series F Preferred Stock") and shall
consist of 17,600,000 shares. The seventh series of Preferred Stock shall be
designated Series G Preferred Stock (the "Series G Preferred Stock") and shall
consist of 35,000,000 shares. The eighth series of Preferred Stock shall be
designated Series H Preferred Stock (the "Series H Preferred Stock") and shall
consist of [35,715,000] shares.
A statement of the rights, preferences, privileges and restrictions granted
to or imposed on the Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, Series G Preferred Stock and Series H Preferred Stock and the
holders thereof is as follows:
(1) Dividends.
---------
(a) For purposes of this Certificate of Incorporation, (i) any
other series of Preferred Stock entitled to dividends and liquidation preference
on a parity with the Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, Series G Preferred Stock or Series H Preferred Stock shall be
referred to as "Parity Preferred Stock," (ii) any other series of Preferred
Stock ranking senior to the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock, Series G Preferred Stock and Series H Preferred Stock,
with respect to dividends and liquidation preference shall be referred to as
"Senior Stock," and (iii) the Common Stock and any series of Preferred Stock
ranking junior to the Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, Series G Preferred Stock or Series H Preferred Stock with
respect to dividends and liquidation preference
-3-
<PAGE>
shall be referred to as "Junior Stock."
(b) After the full dividend preference for holders of Senior
Stock has been paid or declared and set apart for payment, the holders of
outstanding Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, Series G Preferred Stock and Series H Preferred Stock, shall be
entitled to receive in any fiscal year, when, if and as declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
in cash at an annual rate of 10% of the Series A Original Issue Price, Series B
Original Issue Price, Series C Original Issuance Price, Series D Original
Issuance Price, Series E Original Issuance Price, Series F Original Issuance
Price, Series G Original Issue Price and Series H Original Issue Price,
respectively, per share. Such dividends shall be payable, when, if and as
declared by the Board of Directors. The right to such dividends shall not be
cumulative, and no right shall accrue to holders of Preferred Stock by reason of
the fact that dividends on such shares were not declared in any prior year, nor
shall any undeclared or unpaid dividends bear or accrue interest. Dividends may
be declared or paid upon shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Series F Preferred Stock, Junior Stock or Common Stock in any fiscal year
of the Corporation only if dividends at the annual rates set forth above shall
have been paid or declared and set apart upon all shares of Series G Preferred
Stock Preferred and Series H Preferred Stock for such fiscal year. Dividends may
be declared or paid upon shares of Junior Stock or Common Stock in any fiscal
year of the Corporation only if dividends at the annual rates set forth above
shall have been paid or declared and set apart upon all shares of Preferred
Stock for such fiscal year. No dividend shall be declared or paid with respect
to the Common Stock unless at the same time equivalent dividends (which shall be
in addition to the dividends on the Preferred Stock referred to in the preceding
sentence) are declared or paid with respect to all shares of Preferred Stock.
The terms "Series A Original Issue Price," "Series B Original Issue Price,"
"Series C Original Issue Price,""Series D Original Issue Price,""Series E
Original Issue Price,""Series F Original Issue Price," "Series G Original Issue
Price", and "Series H Preferred Stock" as used herein, shall mean $0.40 per
share, $1.00 per share, $1.00 per share, $1.00 per share, $2.00 per share,
$0.6534 per share, $0.3571 and $0.70 per share, respectively.
(c) In the event that the Corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights to purchase any such securities or evidences of indebtedness,
then, in each such case the holders of Preferred Stock shall be entitled to a
proportionate share of any such distribution as though such holders of Preferred
Stock were the holders of the number of shares of Common Stock of the
Corporation into which their respective shares of Preferred Stock are
convertible pursuant to Section 3(a) as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(2) Liquidation Preference.
----------------------
-4-
<PAGE>
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary:
(i) After setting apart or paying in full the preferential amounts
due to holders of Senior Stock, the holders of the Series G Preferred Stock and
Series H Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the Corporation to
the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, Junior Stock or Common Stock by reason of their ownership
thereof, an amount equal to the Series G Original Issue Price for each share of
Series G Preferred Stock then held by them, plus any declared but unpaid
dividends on such shares (as adjusted for stock splits, stock dividends and
similar events) (the "Series G Liquidation Preference") and an amount equal to
the Series H Original Issue Price for each share of Series H Preferred Stock
then held by them, plus any declared but unpaid dividends on such shares (as
adjusted for stock splits, stock dividends and similar events) (the "Series H
Liquidation Preference"). If, upon occurrence of such event the assets and funds
thus distributed among the holders of the Series G Preferred Stock, Series H
Preferred Stock and any Parity Stock shall be insufficient to permit the payment
to such holders of the full preferential amount, then after setting apart or
paying in full the preferential amounts due to holders of Senior Stock the
entire assets and funds of the Corporation legally available for distribution
shall be distributed among the holders of the Series G Preferred Stock, Series H
Preferred Stock and Parity Stock in proportion to the number of shares and the
respective liquidation preferences of Series G Preferred Stock, Series H
Preferred Stock and Parity Stock held by each such holder.
(ii) After payment has been made to holders of Series G Preferred
Stock of the Series G Liquidation Preference and to holders of Series H
Preferred Stock of the Series H Liquidation Preference and after setting apart
or paying in full the preferential amounts due to holders of Senior Stock, the
holders of the Series F Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Series A Preferred Stock, Series B Preferred
Stock Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Junior Stock or Common Stock by reason of their ownership thereof, an
amount equal to the Series F Original Issue Price for each share of Series F
Preferred Stock then held by them, plus any declared but unpaid dividends on
such shares (as adjusted for stock splits, stock dividends and similar events)
(the "Series F Liquidation Preference"). If, upon occurrence of such event the
assets and funds thus distributed among the holders of the Series F Preferred
Stock shall be insufficient to permit the payment to such holders of the full
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution after payment of the Series G Liquidation Preference
and the Series H Liquidation Preference and after setting apart or paying in
full the preferential amounts due to holders of Senior Stock shall be
distributed among the holders of the F Preferred Stock and any Parity Stock in
proportion to the number of shares of Series F Preferred Stock or Parity Stock
held by each such holder.
-5-
<PAGE>
(iii) After payment has been made to holders of Series H Preferred of
the Series H Liquidation Preference, to holders of Series G Preferred Stock of
the Series G Liquidation Preference and to holders of Series F Preferred of the
Series F Liquidation Preference and after setting apart or paying in full the
preferential amounts due to holders of Senior Stock, the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds of
the Corporation to the holders of the Common Stock by reason of their ownership
thereof, an amount equal to the Series A Original Issue Price for each share of
Series A Preferred Stock then held by them and an amount equal to the Series B
Original Issue Price for each share of Series B Preferred Stock then held by
them, an amount equal to the Series C Original Issue Price for each share of
Series C Preferred Stock then held by them, an amount equal to the Series D
Original Issue Price for each share of Series D Preferred Stock then held by
them, an amount equal to the Series E Original Issue Price for each share of
Series E Preferred Stock then held by them, plus any declared but unpaid
dividends on shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock
then held by them (as adjusted for stock splits, stock dividends and similar
events) (the "Series A Liquidation Preference", "Series B Liquidation
Preference", "Series C Liquidation Preference", "Series D Liquidation
Preference", and"Series E Liquidation Preference", respectively). If, upon
occurrence of such event the assets and funds thus distributed among the holders
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and any Parity Stock
shall be insufficient to permit the payment to such holders of the full
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution after payment of the Series H Liquidation Preference,
the Series G Liquidation Preference and the Series F Liquidation Preference and
after setting apart or paying in full the preferential amounts due to holders of
Senior Stock shall be distributed among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Parity Stock in proportion to the product
obtained by multiplying, in the case of Series A Preferred Stock, the number of
shares of Series A Preferred Stock held by each such holder by the Series A
Original Price, in the case of Series B Preferred Stock, the number of shares of
Series B Preferred Stock held by each such holder by the Series B Original Issue
Price, in the case of the Series C Preferred Stock, the number of shares of
Series C Preferred Stock held by each such holder by the Series C Original Issue
Price, in the case of the Series D Preferred Stock, the number of shares of
Series D Preferred Stock held by each such holder by the Series D Original Issue
Price, in the case of the Series E Preferred Stock, the number of shares of
Series E Preferred Stock held by each such holder by the Series E Original Issue
Price, and in the case of Parity Stock, the number of shares of Parity Stock
held by each such holder by the liquidation preference of such Parity Stock.
After payment has been made to the holders of the Preferred Stock of their
respective Liquidation Preferences, the holders of the Preferred Stock and the
Common Stock shall be entitled to receive the remaining assets of the
Corporation in proportion to the number of shares of Common Stock which would be
held by each such holder if all shares of Preferred Stock were
-6-
<PAGE>
converted into Common Stock at the then effective applicable Conversion Prices
(as defined in paragraph 3(a) below).
(b) For purposes of this paragraph 2, a liquidation, dissolution or
winding up of the Corporation shall be deemed to be occasioned by, and to
include, (i) the Corporation's sale of all or substantially all of its assets or
(ii) any reorganization, merger, consolidation or similar transaction which
would result in the transfer of voting equity securities of the Corporation
representing more than fifty percent (50%) of all voting equity securities of
the Corporation immediately prior to such transaction.
(c) In any of such events, if the consideration received by the
Corporation is other than cash, its value will be deemed its fair market value
as determined by the Board of Directors in the good faith exercise of its
reasonable business judgment. Any securities shall be valued as follows:
(i) Securities not subject to restrictions on free marketability:
(1) If traded on a securities exchange or through Nasdaq
National Market System, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value shall be
the fair market value thereof, as determined by the Board of Directors in the
good faith exercise of its reasonable business judgment.
(ii) The method of valuation of securities subject to restrictions
on free marketability (other than restrictions arising solely by virtue of a
shareholder's status as an affiliate or former affiliate) shall be to make an
appropriate discount from the market value determined as above in (i)(1), (2) or
(3) to reflect the approximate fair market value thereof, as determined by the
Board of Directors in the good faith exercise of its reasonable business
judgment.
(3) Conversion. The holders of the Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
----------------
Each share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock,
-7-
<PAGE>
Series G Preferred Stock and Series H Preferred Stock shall be convertible, at
the option of the holder thereof, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $0.70, in the
case of the Series H Preferred Stock, and $0.36 in the case of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock, by the applicable Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. The Conversion Price shall
initially be equal to $0.70, in the case of the Series H Preferred Stock, and
$0.36 in the case of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock. The Conversion Price shall be
subject to adjustment as hereinafter provided.
Each share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock, and Series G Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective applicable
Conversion Price (i) in the event of the effectiveness of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, (the "Securities Act"), covering
the offer and sale of Common Stock for the account of the Corporation to the
public at an offering price to the public of not less than $1.00 per share
(appropriately adjusted in the event of a stock split, reverse split,
recapitalization or similar event after the date of this Amended and Restated
Certificate of Incorporation), and at an aggregate offering price of not less
than $10,000,000 (prior to underwriter commissions and expenses), or (ii) at the
election of the holders of a majority of the outstanding shares of the Preferred
Stock.
Each share of Series H Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective applicable
Conversion Price (i) in the event of the effectiveness of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, (the "Securities Act"), covering
the offer and sale of Common Stock for the account of the Corporation to the
public at an offering price to the public of not less than $1.40 per share
(appropriately adjusted in the event of a stock split, reverse split,
recapitalization or similar event after the date of this Amended and Restated
Certificate of Incorporation), and at an aggregate offering price of not less
than $20,000,000 (prior to underwriter commissions and expenses), or (ii) at the
election of the holders of a majority of the outstanding shares of the Series H
Preferred Stock.
(b) Mechanics of Conversion. No fractional shares of Common Stock
-----------------------
shall be issued upon conversion of Preferred Stock. In lieu of any fractional
share to which a holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the fair market value of the Common
Stock as determined by the Board of Directors. Before any holder of Preferred
Stock shall be entitled to convert the same into full shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Preferred Stock and
shall give
-8-
<PAGE>
written notice to the Corporation at such office that he elects to convert the
same. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into a fractional share of
Common Stock. Except as set forth in the following sentence, such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the shares of Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. If the conversion is in
connection with an underwritten public offering of securities registered
pursuant to the Securities Act, the conversion shall be conditioned upon the
closing of such public offering, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Preferred Stock
shall not be deemed to have converted such Preferred Stock until immediately
prior to such closing.
(c) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(i) Special Definitions. For purposes of this
-------------------
paragraph 3, the following definitions shall apply:
(1) "Options" shall mean rights, options or
-------
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "Convertible Securities" shall mean any
----------------------
evidences of indebtedness, shares (other than Common Stock, Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred
Stock and Series H Preferred Stock) or other securities convertible into or
exchangeable for Common Stock.
(3) "Additional Shares of Common Stock" shall mean
---------------------------------
all shares of Common Stock issued (or, pursuant to paragraph 3(c)(iii), deemed
to be issued) by the Corporation after the first issuance of shares of Series H
Preferred Stock (the "Original Issue Date") other than shares of Common Stock
issued or issuable:
(A) upon conversion of shares of Preferred
Stock;
(B) to officers, directors or employees of, or
consultants to, the Corporation pursuant to a stock grant, option plan or
purchase plan or other stock incentive program, including without limitation
sales of shares to such persons pursuant to restricted stock purchase agreements
(collectively, the "Plans") approved by the Board of Directors, up to a maximum
of 37,250,000 shares of Common Stock which maximum includes
-9-
<PAGE>
shares issued pursuant to the Plans prior to the date of filing of this Amended
and Restated Certificate of Incorporation;
(C) as a dividend or distribution on Preferred
Stock or in connection with any stock split, stock dividend or similar
transaction;
(D) upon exercise or conversion of warrants to
purchase shares of Preferred Stock or Common Stock issued in connection with (1)
equipment lease financing transactions with institutions regularly engaged in
equipment leasing or (2) bank lending if such transactions are approved by the
Board of Directors, and the issuance of such warrants is not principally for the
purpose of raising additional equity capital for the Corporation;
(E) securities issued to joint venture
partners or in connection with other strategic alliances approved by the Board
of Directors which involve the grant of licenses or localization, distribution,
OEM, bundling, manufacturing or resale rights with respect to the Company's
products or technology; and
(F) securities offered to the public pursuant
to a registration statement filed under the Securities Act;
(G) securities issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets of the other corporation, or other
reorganization; and
(H) by way of dividend or other distribution
on shares of Common Stock excluded from the definition of Additional Shares of
Common Stock by the foregoing clauses (A), (B), (C), (D), (E), (F) or (G) or on
shares of Common Stock so excluded.
(ii) No Adjustment of Conversion Price: No adjustment
---------------------------------
in the Conversion Price of a particular share of Preferred Stock shall be made
in respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the Conversion Price in effect on
the date of, and immediately prior to such issue, for such share of Preferred
Stock. No adjustment in the Conversion Price shall be made pursuant to paragraph
(iv) below as a result of any stock dividend or subdivision which causes an
adjustment in the Conversion Price pursuant to Section 3(d) below.
(iii) Deemed Issue of Additional Shares of Common
-------------------------------------------
Stock. In the event the Corporation at any time or from time to time after the
- -----
Original Issue Date shall issue any Options or Convertible Securities (other
than as provided in paragraphs (i)(3)(B), (D) and (E) of this Section 3(c)) or
shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible Securities, then
the maximum
-10-
<PAGE>
number of shares (as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment of such number)
of Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that (1)
for purposes of determining whether adjustment of the Conversion Price of any
Series of Preferred Stock is required, the Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to paragraph 3(c)(v) hereof) of such Additional Shares of
Common Stock would be less than the Conversion Price of such Series of Preferred
Stock in effect on the date of and immediately prior to such issue, or such
record date, as the case may be, and provided further that in any case in which
Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the applicable
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities
by their terms provide, with the passage of time or otherwise, for any increase
or decrease in the consideration payable to the Corporation, or increase or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, each Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities; and
(C) no readjustment pursuant to clause (B)
above shall have the effect of increasing any Conversion Price to an amount
which exceeds the lower of (i) such Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.
(iv) Adjustment of Conversion Price Upon Issuance of
-----------------------------------------------
Additional Shares of Common Stock. (A) In the event this Corporation shall issue
- ---------------------------------
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to paragraph 3(c)(iii)) without consideration or
for a consideration per share less than the Conversion Price in effect on the
date of and immediately prior to such issue, then and in such event, such
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) which shall be determined by multiplying such
Conversion Price by a fraction, the numerator of which shall be the sum of (i)
the number of shares of Common Stock issued and
-11-
<PAGE>
outstanding immediately prior to such issue, (ii) the number of shares of Common
Stock issuable upon conversion of the Preferred Stock outstanding immediately
prior to such issue, (iii) the number of shares of Common Stock issuable upon
exercise of outstanding options and (iv) the number of shares of Common Stock
which the aggregate consideration received by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at such
Conversion Price; and the denominator of which shall be the sum of (1) the
number of shares of Common Stock issued and outstanding immediately prior to
such issue, (2) the number of shares of Common Stock issuable upon conversion of
the Preferred Stock outstanding immediately prior to such issue and (3) the
number of shares of Common Stock issuable upon exercise of outstanding options
and (4) the number of such Additional Shares of Common Stock so issued.
(v) Determination of Consideration. For purposes of
------------------------------
this paragraph 3(c), the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
-----------------
(A) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined by the Board of Directors in the good faith exercise of its
reasonable business judgment; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined by the Board of Directors in the good faith exercise of its
reasonable business judgment.
(2) Options and Convertible Securities. The
----------------------------------
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to paragraph 3(c)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion
-12-
<PAGE>
or exchange of such Convertible Securities by
(y) the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(d) Adjustments for Stock Dividends, Subdivisions, Combinations, or
---------------------------------------------------------------
Consolidations. In the event the Corporation shall pay a stock dividend on the
- --------------
Common Stock, or the outstanding shares of Common Stock shall be subdivided,
combined or consolidated, by reclassification or otherwise, into a greater or
lesser number of shares of Common Stock, the Conversion Prices in effect
immediately prior to such subdivision or combination shall, concurrently with
the effectiveness of such subdivision, combination or consolidation, be
proportionately adjusted.
(e) No Impairment. Unless approved in accordance with paragraph (5)
-------------
hereof the Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation but will at all times in good faith
assist in the carrying out of all the provisions of this paragraph 3 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock, Series G Preferred Stock and Series H
Preferred Stock against impairment.
(f) Notices of Record Date. In the event that this Corporation
----------------------
shall propose at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders
of any class or series of its stock any additional shares of stock of any class
or series or other rights;
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or
-13-
<PAGE>
(iv) to merge with or into any other corporation
(other than a merger in which the holders of the outstanding voting equity
securities of the Corporation immediately prior to such merger hold more than
fifty percent (50%) of the voting power of the surviving entity immediately
following such merger), or sell, lease or convey all or substantially all its
property or business, or to liquidate, dissolve or wind up;
then, in connection with each such event, this Corporation shall send to the
holders of the Preferred Stock:
(1) at least twenty (20) days' prior written
notice of the date on which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or for determining rights to
vote in respect of the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in
(iii) and (iv) above, at least twenty (20) days' prior written notice of the
date when the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such event).
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of Preferred Stock at the address for each
such holder as shown on the books of this Corporation and shall be deemed given
when so mailed.
(g) Recapitalization. If at any time or from time to time there shall
----------------
be a recapitalization of the Common Stock (other than a transaction treated as a
sale of assets for purposes of paragraph 2 or a subdivision or combination as
set forth in paragraph 3(d)) provision shall be made so that the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Preferred Stock the number of shares of stock or other securities or property of
the Corporation to which a holder of Common Stock deliverable upon conversion of
each share of such series would have been entitled on such recapitalization. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 3 with respect to the rights of the holders of the
Preferred Stock after the recapitalization to the end that the provisions of
this Section 3 (including adjustment of the Conversion Prices then in effect and
the number of shares purchasable upon conversion of the Preferred Stock) shall
be applicable after that event as nearly equivalent as may be practicable.
(h) Adjustments for Other Distributions. In the event the Corporation
-----------------------------------
at any time, or from time to time, makes or fixes a record date for the
determination of holders of Common Stock entitled to receive any distribution
payable in securities of the Corporation other than shares of Common Stock and
other than as otherwise adjusted in this paragraph 3, then and in each such
event provision shall be made so that the holders of the Preferred Stock shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable
-14-
<PAGE>
thereupon, the amount of securities of the Corporation which they would have
received had their Preferred Stock, as the case may be, been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the date of conversion,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
paragraph 3 with respect to the rights of the holders of the Preferred Stock.
(i) Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of the Conversion Prices pursuant to this paragraph
3, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of the Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of the Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (1) such applicable adjustments and
readjustments, (2) the applicable Conversion Prices at the time in effect, and
(3) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of such
holder's Preferred Stock. Any certificate sent to the holders of the Preferred
Stock pursuant to this paragraph 3(i) shall be signed by an officer of the
Corporation.
(j) Reservation of Shares Issuable Upon Conversion. The Corporation
----------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, Series G Preferred Stock and Series H Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock,
and Series H Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series A Preferred Stock, Series B
Preferred Stock Series, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock and
Series H Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(4) Voting Rights and Directors.
---------------------------
(a) Except as otherwise required by law, the holders of Series A
Preferred Stock, Series B Preferred Stock Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, and Series
H Preferred Stock, and the holders of Common Stock shall be entitled to notice
of any shareholders' meeting and to vote as a single class upon any matter
submitted to the shareholders for a vote, as follows: (i) each holder of
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<PAGE>
Preferred Stock shall have one vote for each full share of Common Stock into
which its respective shares of Preferred Stock would be convertible on the
record date for the vote and (ii) the holders of Common Stock shall have one
vote per share of Common Stock.
(b) As long as the number of shares of Common Stock issuable upon
conversion of shares of outstanding shares of Series F Preferred Stock is not
less than 12.5% of the aggregate number of shares of Common Stock of the
Corporation, after giving effect to the conversion of all shares of Preferred
Stock and other securities of the Corporation convertible into Common Stock, the
holders of such shares of Series F Preferred Stock shall be entitled to elect
one (1) director of this Corporation at each annual election of directors. As
long as the number of shares of Common Stock issuable upon conversion of shares
of outstanding shares of Series G Preferred Stock is not less than 22% of the
aggregate number of shares of Common Stock of the Corporation, after giving
effect to the conversion of all shares of Preferred Stock and other securities
of the Corporation convertible into Common Stock, the holders of such shares of
Series G Preferred Stock shall be entitled to elect two (2) directors of this
Corporation at each annual election of directors. As long as the number of
shares of Common Stock issuable upon conversion of shares of outstanding shares
of Series G Preferred Stock is not less than 12.5% of the aggregate number of
shares of Common Stock of the Corporation, after giving effect to the conversion
of all shares of Preferred Stock and other securities of the Corporation
convertible into Common Stock, the holders of such shares of Series G Preferred
Stock, shall be entitled to elect one (1) director of this Corporation at each
annual election of directors. As long as the number of shares of Common Stock
issuable upon conversion of shares of outstanding shares of Series H Preferred
Stock is not less than 12.5% of the aggregate number of shares of Common Stock
of the Corporation, after giving effect to the conversion of all shares of
Preferred Stock and other securities of the Corporation convertible into Common
Stock, the holders of such shares of Series H Preferred Stock, as the case may
be, shall be entitled to elect one (1) director of this Corporation at each
annual election of directors; provided however that such director shall be an
exeprienced software and/or services sector executive or consultant who is
reasonably acceptable to both the Corporation and Goldman, Sachs & Co. (the
"Industry Expert"); provided further that until such Industry Expert is selected
and appointed as a director of the Corporation, an officer of Goldman, Sachs &
Co. reasonably acceptable to the Company shall serve on the Board of Directors.
In the case of a vacancy (other than a vacancy caused by removal) in the office
of a director occurring among directors elected by the holders of a class or
series of stock pursuant to this Section 4(b), the remaining director so elected
by that class or series (or if there is no such director remaining, by the
affirmative vote of the holders of a majority of the shares of that class or
series), elect a successor or successors to hold office for the unexpired term
of the director or directors whose places shall be vacant. Any director who
shall have been elected by the holders of a class or series of stock or by any
directors so elected as provided in the immediately preceding sentence may be
removed during the aforesaid term of office, whether with or without cause, by,
and only by, the affirmative vote of holders of the shares of the class or
series of stock entitled to elect such director or directors, given either at a
special meeting of such stockholders duly called for that purpose or pursuant to
a written consent of stockholders, and any vacancy thereby created may be
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<PAGE>
filled by the holders of that class or series of stock represented at the
meeting or pursuant to the unanimous written consent.
(5) Protective Provisions.
---------------------
(a) In addition to any other rights provided by law, so long as at
least 500,000 shares of Preferred Stock shall be outstanding (appropriately
adjusted for stock splits, reverse splits, recapitalizations and similar
events), this Corporation shall not without first obtaining the affirmative vote
or written consent of the holders of not less than a majority of the outstanding
shares of Preferred Stock, voting together as a single class, on an as-converted
to Common Stock basis:
(i) amend or repeal any provision of, or add any provision to,
this Corporation's Certificate of Incorporation or Bylaws or take any other
action, if such action would change adversely the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of, the
Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock, Series G Preferred Stock and Series H Preferred Stock;
(ii) authorize or issue any shares of any class or series of
stock or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having option rights to purchase, any shares of stock of
this Corporation having any preference or priority over, the Series A Preferred
Stock, the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G
Preferred Stock or Series H Preferred Stock, with respect to voting, dividends
or upon liquidation;
(iii) reclassify any Common Stock into shares having any
preference or priority as to dividends or assets superior to any such preference
or priority of the Series A Preferred Stock, the Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock, Series G Preferred Stock or Series H Preferred Stock;
(iv) consummate a reorganization, merger, consolidation or
similar transaction which would result in the transfer of voting equity
securities of the Corporation representing more than fifty percent (50%) of all
voting equity securities of the Corporation immediately prior to such
transaction, unless the value received for, or realizable in respect of, each
share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock, Series G Preferred Stock and Series H Preferred Stock, determined in
accordance with paragraph 2(c) as a result of such sale or other transaction or
series of transactions exceeds $1.00;
(v) pay any dividend;
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<PAGE>
(vi) repurchase any outstanding shares of stock of the Company,
except for (i) repurchase of shares held by employees of the Company pursuant to
repurchase agreements approved by the Board of Directors and (ii) redemption of
shares of Preferred Stock;
(vii) amend the Bylaws of the Company to increase the
authorized number of directors of the Company.
(b) In addition to any other rights provided by law, so long as at
least 10,000,000 shares of Series G Preferred Stock shall be outstanding, this
Corporation shall not without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the outstanding shares of
Series G Preferred Stock:
(i) amend or repeal any provision of, or add any provision to,
this Corporation's Certificate of Incorporation or Bylaws or take any other
action, if such action would change adversely the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of, the
Series G Preferred Stock, but would not so affect other series of Preferred
Stock;
(ii) amend paragraph 3(c)(i)(2)(B) hereof to increase the number
of shares exempt from the definition of Additional Shares of Common Stock
thereunder; or
(iii) authorize any shares of any class or series of stock of the
Corporation having any preference or priority over, or being on a parity with,
the Series G Preferred Stock with respect to voting, dividends or upon
liquidation.
(c) In addition to any other rights provided by law, so long as at
least 10,000,000 shares of Series H Preferred Stock shall be outstanding, this
Corporation shall not without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the outstanding shares of
Series H Preferred Stock:
(i) amend or repeal any provision of, or add any provision to,
this Corporation's Certificate of Incorporation or Bylaws which adversely
changes the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Series H Preferred Stock;
(ii) authorize any shares of any class or series of stock of the
Corporation having any preference or priority over the Series H Preferred Stock
with respect to dividends or upon liquidation.
(6) Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to paragraph 3 hereof, the shares so converted
shall be canceled and shall not be issuable by the Corporation, and the
Certificate of Incorporation of this Corporation shall
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<PAGE>
be appropriately amended to effect the corresponding reduction in the
Corporation's authorized capital stock.
(7) Residual Rights. All rights accruing to the outstanding shares of
---------------
this Corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
V.
(a) Limitation of Directors' Liability. The liability of the
----------------------------------
directors of this Corporation for monetary damages shall be eliminated to the
fullest extent permissible under Delaware law.
(b) Indemnification of Corporate Agents. This Corporation is
-----------------------------------
authorized to indemnify the directors and officers of the Corporation to the
fullest extent permissible under Delaware law.
(c) Repeal or Modification. Any repeal or modification of the
----------------------
foregoing provisions of this Article V by the shareholders of the Corporation
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
VI.
The Board of Directors of the corporation is expressly authorized to make,
alter or repeal Bylaws of the corporation, but the stockholders may make
additional Bylaws and may alter or repeal any Bylaw whether adopted by them or
otherwise.
VII.
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the corporation.
VIII.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board or in the Bylaws of the Corporation.
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<PAGE>
IX.
Vacancies created by the resignation of one or more members of the Board
and newly created directorships, created in accordance with the Bylaws of this
Corporation, may be filled by the vote of a majority, although less than a
quorum, of the directors then in office, or by a sole remaining director.
X.
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
XI.
Except as set forth in Article V above, the Corporation reserves the right
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation."
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<PAGE>
IN WITNESS WHEREOF, Evolve Software, Inc. has caused this Amended and
Restated Certificate of Incorporation to be executed by John Bantleman, its
President attested by J. Russell DeLeon, its Secretary, this day of
----
, 1999.
- -----------
EVOLVE SOFTWARE, INC.
----------------------------------
John Bantleman, President
ATTEST
- ----------------------------
J. Russell DeLeon, Secretary
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<PAGE>
Exhibit 10.1
EVOLVE SOFTWARE, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of this ___th
day of March, 2000, by and between Evolve Software, Inc., a Delaware corporation
(the "Company"), and ________________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection permitted by law; and
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
1.1 Third Party Proceedings. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding,
<PAGE>
had no reasonable cause to believe Indemnitee's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that Indemnitee did not act in good faith and in a
manner which Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that Indemnitee's conduct was
unlawful.
1.2 Proceedings by or in the Right of the Company. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with the defense or settlement
of such action or suit if Indemnitee, acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company unless and only to the extent that the Court of Chancery
of the State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
of the State of Delaware or such other court shall deem proper.
1.3 Mandatory Payment of Expenses. To the extent that Indemnitee
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Subsections (a) and (b) of this Section 1 or the
defense of any claim, issue or matter therein, Indemnitee shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
Indemnitee in connection therewith.
2. Agreement to Serve.
------------------
In consideration of the protection afforded by this Agreement, if
Indemnitee is a director of the Company he agrees to serve at least for the
balance of the current term as a director and not to resign voluntarily during
such period without the written consent of a majority of the Board of Directors.
If Indemnitee is an officer of the Company not serving under an employment
contract, he agrees to serve in such capacity at least for the balance of the
current fiscal year of the Company and not to resign voluntarily during such
period without the written consent of a majority of the Board of Directors.
Following the applicable period set forth above, Indemnitee agrees to continue
to serve in such capacity at the will of the Company (or under separate
agreement, if such agreement exists) so long as he is duly appointed or elected
and qualified in accordance with the applicable provisions of the by-laws of the
Company or any subsidiary of the Company or until such time as he tenders his
resignation in writing. Nothing contained in this Agreement is intended to
create in Indemnitee any right to continued employment.
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<PAGE>
3. Expenses; Indemnification Procedure.
-----------------------------------
3.1 Advancement of Expenses. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action, suit or proceeding
referenced in Section l(a) or (b) hereof. Indemnitee hereby undertakes to repay
such amounts advanced only if, and to the extent that, it shall ultimately be
determined that the Indemnitee is not entitled to be indemnified by the Company
as authorized hereby. The advances to be made hereunder shall be paid by the
Company to the Indemnitee within twenty (20) days following delivery of a
written request therefor by Indemnitee to the Company.
3.2 Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
3.3 Procedure. Any indemnification and advances provided for in
Section 1 and this Section 3 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or By-laws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a written request
for payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to recover
the unpaid amount of the claim and, subject to Section 13 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Subsection 3(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors or any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors or any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
3.4 Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may
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<PAGE>
cover such Claim, the Company shall give prompt notice of the commencement of
such Claim to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such action, suit, proceeding, inquiry or
investigation in accordance with the terms of such policies.
3.5 Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee, upon the delivery to Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same Claim; provided
that, (i) Indemnitee shall have the right to employ Indemnitee's counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of counsel by
Indemnitee has been previously authorized by the Company, (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not continue to retain such counsel to defend such Claim, then the fees
and expenses of Indemnitee's counsel shall be at the expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
4.1 Scope. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's By-laws or by statute. In the event
of any change, after the date of this Agreement, in any applicable law, statute,
or rule which expands the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, such changes shall be, ipso facto,
within the purview of Indemnitee's rights and Company's obligations, under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
4.2 Nonexclusivity. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its By-laws, any
agreement, any vote of stockholders or disinterested Directors, the General
Corporation Law of the State of Delaware, or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while
holding such office. The indemnification provided under this Agreement shall
continue as to Indemnitee for any action taken or not taken while serving in an
indemnified capacity even though he may have ceased to serve in an indemnified
capacity at the time of any action, suit or other covered proceeding.
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<PAGE>
5. Partial Indemnification.
-----------------------
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of Expenses incurred in
connection with any Claim, but not, however, for all of the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such Expenses to which Indemnitee is entitled.
6. Mutual Acknowledgment.
---------------------
Both the Company and Indemnitee acknowledge that in certain instances,
Federal law or public policy may override applicable state law and prohibit the
Company from indemnifying its directors and officers under this Agreement or
otherwise. For example, the Company and Indemnitee acknowledge that the
Securities and Exchange Commission (the "SEC") has taken the position that
indemnification is not permissible for liabilities arising under certain federal
securities laws, and federal legislation prohibits indemnification for certain
ERISA violations. Indemnitee understands and acknowledges that the Company has
undertaken, and may be required in the future to undertake, with the SEC to
submit the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
7. Officer and Director Liability Insurance.
----------------------------------------
The Company shall, from time to time, make the good faith determination
whether or not it is practicable for the Company to obtain and maintain a policy
or policies of insurance with reputable insurance companies providing the
officers and directors of the Company with coverage for losses from wrongful
acts, or to ensure the Company's performance of its indemnification obligations
under this Agreement. Among other considerations, the Company will weigh the
costs of obtaining such insurance coverage against the protection afforded by
such coverage. In all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if Indemnitee is not an officer or
director but is a key employee. Notwithstanding the foregoing, the Company shall
have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a parent or subsidiary of the Company.
8. Severability.
------------
Nothing in this Agreement is intended to require or shall be construed as
requiring the Company to do or fail to do any act in violation of applicable
law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Section 8. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of
-5-
<PAGE>
competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee
to the full extent permitted by any applicable portion of this Agreement that
shall not have been invalidated, and the balance of this Agreement not so
invalidated shall be enforceable in accordance with its terms.
9. Exceptions.
----------
Any other provision herein to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement:
9.1 Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law of otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
9.2 Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
9.3 Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company; or
9.4 Claims under Section 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. Construction of Certain Phrases.
-------------------------------
10.1 For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that if Indemnitee is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
10.2 For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the
-6-
<PAGE>
Company" shall include any service as a director, officer, employee or agent of
the Company which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to
have acted in a manner "not opposed to the best interests of the Company" as
referred to in this Agreement.
11. Counterparts.
------------
This Agreement may be executed in one or more counterparts, each of which
shall constitute an original.
12. Successors and Assigns.
----------------------
This Agreement shall be binding upon the Company and its successors and
assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate,
heirs, legal representatives and assigns.
13. Attorneys' Fees.
---------------
In the event that any action is instituted by Indemnitee under this
Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be
entitled to be paid all court costs and expenses, including reasonable
attorneys' fees, incurred by Indemnitee with respect to such action, unless as a
part of such action, a court of competent jurisdiction determines that each of
the material assertions made by Indemnitee as a basis for such action were not
made in good faith or were frivolous. In the event of an action instituted by
or in the name of the Company under this Agreement or to enforce or interpret
any of the terms of this Agreement, Indemnitee shall be entitled to be paid all
court costs and expenses, including attorneys' fees, incurred by Indemnitee in
defense of such action (including with respect to Indemnitee's counterclaims and
cross-claims made in such action), unless as a part of such action the court
determines that each of Indemnitee's material defenses to such action were made
in bad faith or were frivolous.
14. Notice.
------
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if delivered by
hand and receipt is acknowledged by the party addressee, on the date of such
receipt, or (ii) if mailed by certified or registered mail with postage prepaid,
on the third business day after the date postmarked. Addresses for notice to
either party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.
15. Consent to Jurisdiction.
-----------------------
The Company and the Indemnitee each hereby irrevocably consent to the
jurisdiction of the courts of the State of Delaware for all purposes in
connection with any action or proceeding which arises out of or relates to this
Agreement and agree that any action instituted under this Agreement shall be
brought only in the state courts of the State of Delaware.
-7-
<PAGE>
16. Choice of Law.
-------------
This Agreement shall be governed by and its provisions construed in
accordance with the laws of the State of Delaware, as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
EVOLVE SOFTWARE, INC.
By:________________________
Title:_____________________
Address: 615 Battery Street
San Francisco, California 94111
AGREED TO AND ACCEPTED
INDEMNITEE:
___________________________
(Signature)
___________________________
(Name of Indemnitee)
___________________________
___________________________
(Address)
-8-
<PAGE>
Exhibit 10.6
EVOLVE SOFTWARE, INC.
2000 STOCK PLAN
1. Purposes of the Plan. The purposes of this 2000 Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Evolve Software, Inc., a Delaware
-------
corporation.
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
<PAGE>
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
-2-
<PAGE>
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 2000 Stock Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 3,000,000 Shares, plus an annual increase to be added on the
first day of the Company's fiscal year beginning in fiscal 2002 equal to (i) the
number of Shares subject to options or Stock Purchase Rights granted during the
preceding fiscal year, or (ii) a lesser amount determined by the Board. The
Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the
-3-
<PAGE>
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
--------
however, that Shares that have actually been issued under the Plan, whether upon
exercise of an Option or Right, shall not be returned to the Plan and shall not
become available for future distribution under the Plan, except that if Shares
of Restricted Stock are repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. Different Committees with
------------------------------
respect to different groups of Service Providers may administer the Plan.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
----------
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
-4-
<PAGE>
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options
-5-
<PAGE>
shall be taken into account in the order in which they were granted. The Fair
Market Value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 500,000
Shares, which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all
-6-
<PAGE>
classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
-7-
<PAGE>
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
-8-
<PAGE>
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the may be exercised within such period of time as is specified in the Option
Agreement (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquires the right to exercise the Option by bequest or inheritance, but
only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company.
-9-
<PAGE>
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 13 of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the
-10-
<PAGE>
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the
-11-
<PAGE>
issuance and delivery of such Shares shall comply with Applicable Laws and shall
be further subject to the approval of counsel for the Company with respect to
such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-12-
<PAGE>
Exhibit 10.7
EVOLVE SOFTWARE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Evolve Software, Inc., a Delaware
-------
corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
--------------
Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
-------------
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; [or
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").]
(k) "Offering Period" shall mean a period of approximately six (6)
---------------
months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after August 1, and terminating on
--------
the last Trading Day in the period ending the following January 31, or
----------
commencing on the first Trading Day on or after February 1 and terminating on
----------
the last Trading Day in the period ending the following July 31; provided,
-------
however, that the first Offering Period under the Plan shall commence with the
first Trading Day on or after the date on which the Securities and Exchange
Commission declares the Company's Registration Statement effective and ending on
the last Trading Day on or before July 31, 2002. The duration of Offering
-------------
Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 2000 Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
(n) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
-2-
<PAGE>
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
----------------
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after February 1 and August 1 each year, or on such other date as
---------- --------
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
January 31, 2001. The Board shall have the power to change the duration of
- ----------------
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such
-3-
<PAGE>
authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
------- --
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of
-4-
<PAGE>
the Company's Common Stock determined by dividing such Employee's payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase Price;
provided that in no event shall an Employee be permitted to purchase during each
Offering Period more than 50,000 shares (subject to any adjustment pursuant to
------
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The Option shall expire on the last day
of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on which
--------
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, the shares purchased upon exercise of his or her
option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
-------------------------
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll
-5-
<PAGE>
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be two million (2,000,000) shares, plus an annual increase to be added on
the first day of the Company's fiscal year beginning in fiscal 2002 equal to (i)
the number of shares issued pursuant to this plan during the preceding fiscal
year shares, or (ii) a lesser amount determined by the Board. If, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written
-6-
<PAGE>
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to
exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
----------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect
-7-
<PAGE>
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as provided
in Section 19 and Section 20 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount
-8-
<PAGE>
withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant in order to
adjust for delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied toward
the purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
-9-
<PAGE>
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-10-
<PAGE>
EXHIBIT A
---------
EVOLVE SOFTWARE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
Evolve Software, Inc. 2000 Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to 15%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
__________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the fair
market value of the shares at the time such shares were purchased by me
over the price which I paid for the shares. I hereby agree to notify the
----------------------------
Company in writing within 30 days after the date of any
-------------------------------------------------------
<PAGE>
disposition of shares and I will make adequate provision for Federal,
---------------------------------------------------------------------
state or other tax withholding obligations, if any, which arise upon the
------------------------------------------------------------------------
disposition of the Common Stock. The Company may, but will not be
-------------------------------
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year
holding period, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition,
and that such income will be taxed as ordinary income only to the extent
of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase
price which I paid for the shares, or (2) 15% of the fair market value of
the shares on the first day of the Offering Period. The remainder of the
gain, if any, recognized on such disposition will be taxed as capital
gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) ____________________________________________
(First) (Middle) (Last)
_______________________ ____________________________________________
Relationship
____________________________________________
(Address)
Employee's Social
Security Number: ____________________________________________
Employee's Address: ____________________________________________
____________________________________________
-2-
<PAGE>
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ___________________ __________________________________________
Signature of Employee
__________________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE>
EXHIBIT B
EVOLVE SOFTWARE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Evolve Software,
Inc. 2000 Employee Stock Purchase Plan which began on ___________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
____________________________________
____________________________________
____________________________________
Signature:
____________________________________
Date: _______________________________
<PAGE>
EXHIBIT 10.8
October 7, 1997
By Facsimile
------------
609-497-4587
Mr. John P. Bantleman
1193 Great Road
Princeton, NJ 08540
Dear John:
It is my pleasure to offer you the position of President and Chief
Operating Officer with a tentative start date of October 20, 1997, or sooner if
you can relocate quickly.
You will be compensated semi-monthly in arrears based on an annual salary
of $175,000. You will also be eligible to receive additional bonus compensation
of up to $75,000 per annum to be based on performance criteria to be established
within 90 days after your commencement of employment. If you meet or exceed your
performance criteria, your total cash compensation will be $250,000 per annum.
You will also receive 900,000 shares of restricted common stock, vesting at
a rate of 1/5th on your first anniversary of employment with the company and
1/60th per month over a four-year period thereafter. You will purchase these
shares for $0.30 per share with a promissory note, pursuant to a Restricted
Stock Purchase Agreement. These shares will become immediately vested upon the
consummation of a sale of assets or merger or other business combination
pursuant to which shareholders of this Company receive securities of a buyer
whose shares are publicly traded.
To help cover your relocation expenses from Princeton, New Jersey, to the
San Francisco Bay Area, (i) Evolve will reimburse up to fifty percent (50%) of a
total estimated $25,000 sales or brokerage commission to be paid by you on the
sale of your home in Princeton, New Jersey, consummated in connection with your
change of residence for employment at Evolve, and (ii) Evolve will reimburse
your reasonable moving costs, your transportation to and from Princeton, New
Jersey, to the San Francisco Bay Area during the transition period not to exceed
six months, and any reasonable rent or housing costs incurred by you in excess
of your expenses at your current residence for so long as you maintain your
residence in Princeton, New Jersey, but not longer than six months
(collectively, the "Relocation Expenses"). Evolve will promptly advance you
$25,000 of the Relocation Expenses upon your acceptance of this offer of
employment. In the event that you voluntarily terminate your employment with
Evolve within two years of your start date, then you will be obligated to
reimburse Evolve for your Relocation Expenses.
Evolve also offers comprehensive health care benefits and a 401(k) plan.
You will receive further information about our benefits programs on your first
day of employment.
<PAGE>
Our offer to hire you is contingent upon your submission of satisfactory
proof of your identity and your legal authorization to work in the United
States, and Evolve's policy is that all employment and compensation with company
is "at will" in that they can be terminated with or without cause, and with or
without notice, at any time at the option of either Evolve or yourself, except
as otherwise provided by law.
We are very excited about having you on board. Please indicate your
acceptance of this offer by faxing back a signed copy of this letter to the
attention of Russell DeLeon at (415) 439-4021.
Sincerely,
Michael Seashols
Chairman of the Board
Accepted and agreed to:
By:
______________________________
John Bantleman
Date: ___________________________
<PAGE>
EXHIBIT 10.9
October 13, 1999
James Bozzini
Dear Jim:
We are delighted to offer you a position on our senior executive team as Chief
Operating Officer starting on or before November 1, 1999. We believe your
understanding of the enterprise application market in general and "services
business" in particular will add tremendous value to our company.
Your target compensation will be $300,000 per annum, with a base salary of
$200,000 plus an annual bonus target of $100,000 to be awarded (or not) based on
the Evolve Management Bonus Plan.
You will also be provided with the opportunity to purchase 4,000,000 shares
(approximately 3% of the outstanding stock, options and warrants of the Company)
of restricted stock at $0.20 per share pursuant to the standard form of
Restricted Stock Purchase Agreement provided to all officers and directors of
the Company. These shares will vest at a rate of 1/4th on your first anniversary
of employment and 1/48th per month over a three-year period thereafter, but such
vesting will accelerate in the event of an acquisition of the Company as
follows:
If there is any sale of all, or substantially all, of the assets of the
Company, or any merger or consolidation as a result of which the holders of
the Company's capital stock immediately prior to such transaction own less
than 50% of the capital stock of the combined company following such
transaction (each, an "Acquisition"), then any stock or options to purchase
stock of the Company ("Subject Securities") held by you prior to any
Acquisition shall have the following vesting terms:
1. If you voluntarily terminate your employment or consulting prior to
the one-year anniversary of the Acquisition, there will be vesting
only to such termination date without any acceleration or continued
vesting of Subject Securities beyond the date of your voluntary
termination; or
2. If your position is eliminated and/or you are not offered a position
with comparable remuneration, responsibility, authority or location in
the new or acquiring entity, there will be an acceleration of vesting
of all Subject Securities; or
3. If your employment or consulting relationship is involuntarily
terminated during the first year of such service in the new or
acquiring entity, there will be an acceleration of vesting of Subject
Securities until the second anniversary of the Acquisition; or
4. Upon your completion of one year of employment, consulting or other
service in the new or acquiring entity, there will be an acceleration
of vesting of Subject Securities to the second anniversary of the
Acquisition.
In the event of any Acquisition prior to your first anniversary of
employment, there will be an immediate acceleration of vesting to your
first anniversary of employment, and provisions 1, 2, 3 and 4 above will be
interpreted "as if" any such Acquisition had occurred on your first
anniversary of employment.
<PAGE>
Your employment will be pursuant to our standard form employment agreement,
which provides that your employment may be terminated "at will" meaning it can
be terminated with or without cause, with or without notice, at any time by
either you or the Company.
Evolve offers medical, dental and vision coverage as well as life insurance,
long-term disability and a 401(k) plan, which will become effective on the first
day of your employment. Please contact Rosemary Tong at (415) 439-4017 to
schedule an appointment to complete your new hire paperwork at your earliest
convenience. In the meantime, Rosemary will promptly forward to you information
about Evolve's health care benefits, 401(k) plan, and other HR matters in a
packet of materials.
The terms of this offer and all other compensation matters relating to your
employment with the Company are confidential and may not be shared with anyone
except your family, professional advisors and immediate supervisor.
We are extremely enthused to have you join the Company on the terms set forth
above. If you are in agreement, sign below and fax to me at (415) 439-6001 by
October 15, 1999, indicating your acceptance of these employment terms.
Sincerely,
John P. Bantleman
President and C.E.O.
Accepted and agreed to:
By: Date:
----------------------------------------- --------------------
James Bozzini
<PAGE>
EXHIBIT 10.10
December 22, 1997
Mr. Marc Ferrie
1245 Vallejo Street
San Francisco, CA 94109
Dear Marc:
It is my pleasure to offer you the position of Vice President of
Engineering. Your expected start date is as early as possible the week of
January 5, 1998.
You will be compensated semi-monthly in arrears based on an annual salary
of $150,000. You will also be eligible to receive additional bonus compensation
of up to $25,000 per annum to be based on performance criteria to be established
within 90 days after your commencement of employment. If you meet or exceed your
performance criteria, your total cash compensation will be $175,000 per annum.
You will also receive options to purchase 250,000 shares of Evolve Common
Stock, vesting at a rate of 1/5th on your first anniversary of employment with
the Company and 1/60th per month over a four-year period thereafter.
Evolve also offers comprehensive health care benefits and a 401(k) plan.
Enclosed please find a packet of information relating to benefits and other
employment matters, including the Evolve Tahoe Trip, which I hope and your
family can attend. Please contact Rosemary Tong, our Human Resources Manager,
at (415) 439-4017 with any questions about these materials.
As set forth in our Employment, Confidential Information and Inventions
Assignment Agreement, you will be asked to sign as a condition of employment,
Evolve's policy is that all employment and compensation with company is "at
will" in that they can be terminated with or without cause, and with or without
notice, at any time at the option of either Evolve or yourself, except as
otherwise provided by law.
We are very excited about having you on board. Please indicate your
acceptance of this offer by faxing back a signed copy of this letter to me at
(415) 439-4093.
Sincerely,
John P. Bantleman
President and Chief Operating Officer
Accepted and agreed to:
By:
------------------------
Marc Ferrie
Date:
-------------
<PAGE>
EXHIBIT 10.11
November 8, 1999
Mark L. Davis
1860 Middleton Avenue
Los Altos, CA 94024
Dear Mark:
We are delighted to offer you an officer's position, as Vice President of
Marketing and Business Development for Evolve Software starting on or before
December 15, 1999.
Your target compensation will be $220,000 per annum, with a base salary of
$170,000 plus an annual bonus target of $50,000 to be awarded (or not) based on
the Company's Management Bonus Plan. You will also be provided with a car
allowance of $500 per month to help ease your commute from Los Altos.
You will also be provided with 2,000,000 shares of restricted stock at $0.20 per
share, vesting at a rate of 1/4th on your first anniversary of employment and
1/48th per month over a three-year period thereafter pursuant to the standard
form of agreement provided to all executives of the Company. This includes
accelerated vesting provisions under certain circumstances in the event of an
acquisition of the Company.
Also enclosed is information about Evolve's health care benefits, 401(k) plan,
and other HR matters. Further information about our benefits programs in a
packet of materials, including our standard form employment agreement, which
provides for "at will" termination of your employment by either you or the
Company.
The terms of this offer and all other compensation matters relating to your
employment with the Company are confidential and may not be shared with anyone
except your family, professional advisors and immediate supervisor.
We are extremely enthused to have you join the Company on the terms set forth
above. If you are in agreement, sign below and fax to me at (415) 439-6001,
indicating your acceptance of these terms.
Sincerely,
John P. Bantleman
President and C.E.O.
Accepted and agreed to:
By: Date:
--------------------------------------- --------------------
Mark L. Davis
<PAGE>
EXHIBIT 10.12
November 1, 1999
Kurt Heikkinen
513 Saddle Creek Court
San Ramon, CA 94583
Dear Kurt:
It is my pleasure to extend you an offer to join Evolve in the position of Vice
President of Professional Services reporting to me. Your start date is set for
November 29, 1999.
You will be compensated semi-monthly in arrears with an annual base salary of
$160,000. You are also eligible to participate in the Company Bonus Program with
an annual bonus target of $60,000.
You will also be provided with the opportunity to purchase 1,350,000 shares
(approximately 1% of the outstanding stock, options and warrants of the Company)
of restricted stock at $0.20 per share pursuant to the standard form of
Restricted Stock Purchase Agreement provided to all officers and directors of
the Company. These shares will vest at a rate of 1/4th on your first anniversary
of employment and 1/48th per month over a three-year period thereafter, but such
vesting will accelerate in the event of an acquisition of the Company as
follows:
If there is any sale of all, or substantially all, of the assets of the
Company, or any merger or consolidation as a result of which the holders of
the Company's capital stock immediately prior to such transaction own less
than 50% of the capital stock of the combined company following such
transaction (each, an "Acquisition"), then any stock or options to purchase
stock of the Company ("Subject Securities") held by you prior to any
Acquisition shall have the following vesting terms:
1. If you voluntarily terminate your employment or consulting prior to
the one-year anniversary of the Acquisition, there will be vesting
only to such termination date without any acceleration or continued
vesting of Subject Securities beyond the date of your voluntary
termination; or
2. If your position is eliminated and/or you are not offered a position
with comparable remuneration, responsibility, authority or location in
the new or acquiring entity, there will be an acceleration of vesting
of all Subject Securities; or
3. If your employment or consulting relationship is involuntarily
terminated during the first year of such service in the new or
acquiring entity, there will be an acceleration of vesting of Subject
Securities until the second anniversary of the Acquisition; or
4. Upon your completion of one year of employment, consulting or other
service in the new or acquiring entity, there will be an acceleration
of vesting of Subject Securities to the second anniversary of the
Acquisition.
<PAGE>
Kurt Heikkinen
November 1, 1999
Page 2
Evolve offers comprehensive medical, dental and vision coverage as well as life
insurance, long-term disability and a 401(k) plan, which will become effective
on the first day of your employment. Please contact Rosemary Tong at (415) 439-
4017 to schedule an appointment to complete your new hire paperwork on your
first day of work.
Our offer to hire you is contingent upon your submission of satisfactory proof
of your identity and your legal authorization to work in the United States, and
Evolve's policy is that all employment and compensation with company is "at
will" in that they can be terminated with or without cause, and with or without
notice, at any time at the option of either Evolve or yourself, except as
otherwise provided by law.
As a further condition of employment, we require that you read, sign and return
the enclosed Employment, Confidential Information and Invention Assignment
Agreement.
To assist us in complying with The Immigration Reform Act of 1986 which requires
employers to verify the citizenship and legal right to work of all new employees
within three business days of the time of hire, you will need to complete Part 1
of the enclosed Employee Eligibility Verification Form (I-9), dating it with the
date of your first day at work. You will also need to be prepared to supply to
Human Resources any documents needed to satisfy the requirements of Part 2 of
the I-9 form: either one from list A, OR one from list B and one from list C.
The documents need to be originals, not facsimiles, and need only meet the
minimum requirements. We have also included a W-4 form (required for payroll
processing) and a direct deposit form (participation is optional) which must be
completed and returned to Human Resources on your first day of employment.
The terms of this offer and all other compensation matters relating to your
employment with the Company are confidential and may not be shared with anyone
except your family, professional advisors and immediate supervisor.
We are very excited about the possibility of having you on board. Please
respond to this offer no later than November 4, 1999 by faxing your acceptance
to our Human Resources office at (415) 439-4021. If you have any questions,
please call me at directly (415) 439-4078.
Sincerely,
Jim Bozzini
Chief Operating Officer
Accepted by: Date:
--------------------------- -----------------
Kurt Heikkinen
<PAGE>
EXHIBIT 10.13
March 16, 2000
Jeff McClure
1411 Stoney Creek Drive
San Ramon, CA 94583
Dear Jeff:
It is my pleasure to extend you an offer to join Evolve in the position of
Director, Hosted Application Services. Your start date is set for November 29,
1999.
You will be compensated semi-monthly in arrears with an annual base salary of
$120,000. You are also eligible to participate in the current Company Bonus
Program with an annual bonus target of 1999 is $40,000.
You will also receive stock options to purchase 675,000 shares of common stock
at $0.20 per share. These options will vest at a rate of 1/4th on your first
anniversary of employment with the company and 1/48th per month over a three-
year period thereafter. Continued employment is a condition for vesting.
Evolve offers comprehensive medical, dental and vision coverage as well as life
insurance, long-term disability and a 401(k) plan, which will become effective
on the first day of your employment. Please contact Rosemary Tong at (415) 439-
4017 to schedule an appointment to complete your new hire paperwork on your
first day of work.
Our offer to hire you is contingent upon your submission of satisfactory proof
of your identity and your legal authorization to work in the United States, and
Evolve's policy is that all employment and compensation with company is "at
will" in that they can be terminated with or without cause, and with or without
notice, at any time at the option of either Evolve or yourself, except as
otherwise provided by law.
As a further condition of employment, we require that you read, sign and return
the enclosed Employment, Confidential Information and Invention Assignment
Agreement.
To assist us in complying with The Immigration Reform Act of 1986 which requires
employers to verify the citizenship and legal right to work of all new employees
within three business days of the time of hire, you will need to complete Part 1
of the enclosed Employee Eligibility Verification Form (I-9), dating it with the
date of your first day at work. You will also need to be prepared to supply to
Human Resources any documents needed to satisfy the requirements of Part 2 of
the I-9 form: either one from list A, OR one from list B and one from list C.
The documents need to be originals, not facsimiles, and need only meet the
minimum requirements. We have also included a W-4 form (required for payroll
processing) and a direct deposit form (participation is optional) which must be
completed and returned to Human Resources on your first day of employment.
<PAGE>
Jeff McClure
March 16, 2000
Page 2
The terms of this offer and all other compensation matters relating to your
employment with the Company are confidential and may not be shared with anyone
except your family, professional advisors and immediate supervisor.
We are very excited about the possibility of having you on board. Please
respond to this offer no later than November 4, 1999 by faxing your acceptance
to our Human Resources office at (415) 439-4021. If you have any questions,
please call me at directly (415) 439-4078.
Sincerely,
Jim Bozzini
Chief Operating Officer
Accepted by: Date:
----------------------------------- --------------
<PAGE>
EXHIBIT 10.14
February 10, 2000
Anil Gupta
497 Walsh Road
Atherton, CA 94027
Dear Anil:
It is my pleasure to extend you an offer to join Evolve in the position of Vice
President of Strategy reporting to me. You will be compensated semi-monthly in
arrears with an annual base salary of $190,000. You are also eligible to
participate in the Company Bonus Program with an annual bonus target of $60,000.
Your expected start date is March 10, 2000.
You will also be provided with the opportunity to purchase 1,500,000 shares of
restricted stock at $0.50 per share pursuant to the standard form of Restricted
Stock Purchase Agreement provided to all officers and directors of the Company.
These shares will vest at a rate of 1/8th on the date six months after your
commencement of employment and 1/48th per month over a forty-two month period
thereafter, but such vesting will accelerate in the event of an acquisition of
the Company as follows:
If there is any sale of all, or substantially all, of the assets of the
Company, or any merger or consolidation as a result of which the holders of
the Company's capital stock immediately prior to such transaction own less
than 50% of the capital stock of the combined company following such
transaction (each, an "Acquisition"), then any stock or options to purchase
stock of the Company ("Subject Securities") held by you prior to any
Acquisition shall have the following vesting terms:
1. If you voluntarily terminate your employment or consulting prior to
the one-year anniversary of the Acquisition, there will be vesting
only to such termination date without any acceleration or continued
vesting of Subject Securities beyond the date of your voluntary
termination; or
2. If your position is eliminated and/or you are not offered a position
with comparable remuneration, responsibility, authority or location in
the new or acquiring entity, there will be an acceleration of vesting
of all Subject Securities; or
3. If your employment or consulting relationship is involuntarily
terminated during the first year of such service in the new or
acquiring entity, there will be an acceleration of vesting of Subject
Securities until the second anniversary of the Acquisition; or
4. Upon your completion of one year of employment, consulting or other
service in the new or acquiring entity, there will be an acceleration
of vesting of Subject Securities to the second anniversary of the
Acquisition.
<PAGE>
Anil Gupta
March 16, 2000
Page 2
Evolve offers comprehensive medical, dental and vision coverage as well as life
insurance, long-term disability and a 401(k) plan, which will become effective
on the first day of your employment. Please contact Rosemary Tong at (415) 439-
4017 to schedule an appointment to complete your new hire paperwork on your
first day of work.
Our offer to hire you is contingent upon your submission of satisfactory proof
of your identity and your legal authorization to work in the United States, and
Evolve's policy is that all employment and compensation with company is "at
will" in that they can be terminated with or without cause, and with or without
notice, at any time at the option of either Evolve or yourself, except as
otherwise provided by law.
As a further condition of employment, we require that you read, sign and return
the enclosed Employment, Confidential Information and Invention Assignment
Agreement.
To assist us in complying with The Immigration Reform Act of 1986 which requires
employers to verify the citizenship and legal right to work of all new employees
within three business days of the time of hire, you will need to complete Part 1
of the enclosed Employee Eligibility Verification Form (I-9), dating it with the
date of your first day at work. You will also need to be prepared to supply to
Human Resources any documents needed to satisfy the requirements of Part 2 of
the I-9 form: either one from list A, OR one from list B and one from list C.
The documents need to be originals, not facsimiles, and need only meet the
minimum requirements. We have also included a W-4 form (required for payroll
processing) and a direct deposit form (participation is optional), which must be
completed and returned to Human Resources on your first day of employment.
The terms of this offer and all other compensation matters relating to your
employment with the Company are confidential and may not be shared with anyone
except your family, professional advisors and immediate supervisor.
We are very excited about the possibility of having you on board. Please
respond to this offer by faxing your acceptance to our Human Resources office at
(415) 439-4021. If you have any questions, please call me at directly (415)
439-4093.
Sincerely,
John Bantleman
President & C.E.O.
Accepted by: Date:
---------------------------- ---------------
Anil Gupta
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 7, 2000 relating to the financial statements of Evolve
Software, Inc. which appear in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, Ca
March 17, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Evolve Software,
Inc. on Form S-1 of our report dated March 10, 2000 which report expresses an
unqualified opinion and includes an explanatory paragraph concerning InfoWide,
Inc.'s being a development stage company and certain factors which raise
substantial doubt about the ability of InfoWide Inc. to continue as a going
concern, relating to the financial statements of InfoWide, Inc. (a development
stage company) which appear in such Registration Statement. We also consent to
the references to us under the heading "Experts" in such Registration
Statement.
DELOITTE & TOUCHE LLP
San Jose, California
March 17, 2000
