<PAGE>
As filed with the Securities and Exchange Commission on June 8, 2000.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------
AvantGo, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 7371 94-3275789
(State or other (Primary Standard(I.R.S. Employer Identification
jurisdiction of Industrial Number)
incorporation or Classification
organization) code number)
1700 South Amphlett Boulevard, Suite 300
San Mateo, California 94402
(650) 638-3399
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------
Richard Owen
Chief Executive Officer
AvantGo, Inc.
1700 South Amphlett Boulevard, Suite 300
San Mateo, California 94402
(650) 638-3399
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------
Copies to:
Mark S. Albert, Esq. Gregory C. Smith, Esq.
Ralph L. Arnheim III, Esq. Keith L. Belknap, Esq.
Perkins Coie LLP Skadden, Arps, Slate, Meagher &
135 Commonwealth Drive, Suite 250 Flom LLP
Menlo Park, California 94025 525 University Avenue
(650) 752-6000 Palo Alto, California 94131
------------ (650) 470-4500
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. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Maximum Proposed Amount of
Title of Each Class of Amount to be Offering Price Maximum Aggregate Registration
Securities to be Registered Registered(1) Per Share(2) Offering Price(2) Fee
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $0.0001
par value.............. $100,000,000 $26,400
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</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.
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<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 JUNE 8, 2000
Shares
[AVANTGO LOGO]
Common Stock
---------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of our common stock is expected to be between
$ and $ per share. We have applied to list our common stock on The Nasdaq
Stock Market's National Market under the symbol "AVGO."
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 Discounts and Proceeds to
to Public Commissions AvantGo
------------- ------------- -------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Merrill Lynch & Co.
U.S. Bancorp Piper Jaffray
The date of this prospectus is , 2000.
<PAGE>
[There is one large graphic of a wireless handheld device connected by cable
wires running through a multi-story enterprise building. On the device is the
AvantGo logo and a list of channels from our AMI service. The text surrounding
the graphic reads: "The interaction between mobile, wireless and the Internet."
Below the large graphic are pictures of the following four devices that are
capable of using our AvantGo software:
1. Internet-enabled phone with the AvantGo name & logo on a Web browser with
the words "Wireless Edition" written under the name and logo.
2. Pocket PC device with Pocket Internet Explorer start page.
3. Palm OS device with a wireless modem running an enterprise application,
which includes a listing of corporate intranet channels.
4. Vertical market device running an enterprise application, which includes
menus and submit buttons.
The text under these devices reads: "AvantGo provides mobile infrastructure
products and services that create tighter relationships between businesses and
their customers using mobile devices."
The AvantGo Logo is located in the bottom right hand corner of the page.]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 7
Forward-Looking Statements........... 17
Use of Proceeds...................... 18
Dividend Policy...................... 18
Capitalization....................... 19
Dilution............................. 20
Selected Consolidated Financial
Data................................ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business............................. 29
</TABLE>
<TABLE>
<S> <C>
Management......................... 39
Certain Relationships and Related
Transactions...................... 51
Principal Stockholders............. 54
Description of Capital Stock....... 56
Shares Eligible for Future Sale.... 59
Underwriting....................... 61
Notice to Canadian Residents....... 64
Legal Matters...................... 65
Experts............................ 65
Where You Can Find Additional
Information....................... 65
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 contained in this document may only
be accurate on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and our consolidated financial statements and
notes to those statements appearing elsewhere in this prospectus.
AvantGo, Inc.
We provide mobile infrastructure software and services that extend the
Internet and corporate applications beyond the desktop to handheld devices and
Internet-enabled phones. Our software and services bridge the gap between the
Internet, wireless and mobile technologies. Our AvantGo Enterprise software
products enable access to critical information and applications from mobile
devices to accelerate information flow between companies and their mobile
employees, customers, suppliers and business partners. Our AvantGo Mobile
Internet service, or AMI service, enables content providers and e-businesses to
extend their user reach, foster repeat use and increase consumer loyalty. Our
AMI service provides consumers with interactive and personalized Internet
content and Web-based applications on mobile devices from over 400 content
sources, or channels. To promote the use of our products and services, our
software is bundled with offerings from leading mobile hardware and software
providers, including Palm, Inc. and Microsoft Corp.
We license our AvantGo Enterprise software products to large global
companies such as American Express Travel-Related Services, Inc., Ford Motor
Company and McKessonHBOC. With our software products and services, our
enterprise customers can increase employee productivity and streamline business
processes such as billing, procurement, inventory control, manufacturing and
customer relationship management.
Through our AMI service, we generate placement and advertising revenue and
have revenue-sharing arrangements that provide the opportunity for us to earn
commissions on e-commerce transactions. Our content provider and e-business
customers use our AMI service and software to rapidly create a mobile
infrastructure and instantly gain access to our AMI user base. This user base
consists of over 700,000 registered users, of which over 475,000 have used our
AMI service at least once in the last 90 days. Our AMI service, which initially
offered channels from CNET, Inc., Excite, InfoWorld, Mercury Center, The New
York Times and Wired Digital, currently offers over 400 channels of content and
applications optimized for mobile devices.
Worldwide use of mobile communications is growing rapidly as mobile devices
become more widely accessible and affordable. Many individuals, accustomed to
accessing information, applications and services from the Internet and
corporate intranets via a desktop PC, are now able to gain access to this
information when away from their office or home. Dataquest estimates that there
were approximately 217 million digital wireless subscribers worldwide at the
end of 1998 and that this number will grow to approximately 828 million by the
end of 2003, of which an estimated 102 million will be wireless data users.
Businesses that choose to build mobile platforms face the challenge of
integrating their existing systems with the hundreds of thousands of potential
combinations of available mobile devices, applications and connectivity
options.
Our AvantGo Enterprise products and AMI service provide several key common
benefits to enterprises, content providers and e-businesses, including the
ability to:
. Deliver sophisticated applications. Our software is designed to overcome
mobile device limitations, including limited memory, processor
performance and available network communications bandwidth. Using our
software, mobile devices can store and display complex, table-formatted
content and graphics, and collect data through innovative methods such as
bar code scanning;
. Increase access to information. Our software is designed to keep
information up-to-date and readily accessible, even when a network or
wireless connection is unavailable; and
3
<PAGE>
. Develop and deploy mobile applications on an open, standards-based
platform. Our software enables mobile devices to support applications
that rely on existing Internet standards, such as hyper text mark-up
language, or HTML, extensible mark-up language, or XML, secure sockets
layer, or SSL, and JavaScript. As a result, software developers can build
and deploy applications on mobile devices using the same development
tools and publishing systems that they use for ordinary Web browsers and
PCs.
Our objective is to be the leading provider of mobile infrastructure
software and services that extend the reach of the Internet and corporate
applications to mobile devices. Key elements of our strategy include the
following:
. Increase compatibility through open standards, making it possible for
Web-based applications to run on a variety of mobile devices over all
connectivity options;
. Focus on the needs of enterprise customers by continuing to broaden the
functionality of our products. For example, we recently acquired
Globalware Computing, Inc. to enable our products to be used in
conjunction with Lotus Notes;
. Increase the available applications, content and features of our products
to expand our user base;
. Expand distribution of our products through relationships with device
manufacturers, software developers, mobile device operating system
vendors and wireless carriers; and
. Establish cooperative relationships with Internet, wireless and mobile
technology leaders to increase our revenue opportunities.
Acquisition of Globalware
On May 26, 2000, we completed our acquisition of Globalware Computing, Inc.,
or Globalware. Globalware is a supplier of wireless synchronization software
that enables much of the functionality of Lotus Notes to be used on handheld
devices. We believe our acquisition of Globalware will enable us to provide a
broader set of mobile applications to our enterprise customers. In this
transaction, we acquired all of the outstanding securities of Globalware in
exchange for 1,933,300 shares of our series E preferred stock. All shares of
our series E preferred stock will convert automatically into shares of our
common stock on a one-for-one basis upon the closing of this offering. We also
assumed all outstanding options to purchase Globalware common stock. We have
reserved 180,438 shares of our common stock for issuance upon the exercise of
these options. This transaction has been accounted for under the purchase
method of accounting.
We were incorporated in Delaware in June 1997 under the name Bombardier
Software, Inc., and changed our name to AvantGo, Inc. in January 1998. Our
principal offices are located at 1700 S. Amphlett Blvd., Suite 300, San Mateo,
California 94402, and our telephone number is (650) 638-3399. Our website is
located at avantgo.com. The information on our website does not constitute a
part of this prospectus.
"AvantGo" and the AvantGo logo are our trademarks and service marks. This
prospectus also contains trademarks and service marks of other companies, which
are the property of their respective owners.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered............ shares
Common stock to be outstanding
after this offering............ shares
Use of proceeds................. We intend to use the net proceeds of this
offering for general corporate purposes,
including investments in sales and marketing,
general and administrative activities and
product development.
Proposed Nasdaq National Market
symbol......................... AVGO
</TABLE>
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of May 26, 2000, and
excludes:
. 4,197,301 shares of our common stock issuable upon exercise of
outstanding stock options under our 1997 stock option plan as of May
26, 2000, at a weighted average exercise price of $2.07 per share;
. 180,438 shares of our common stock issuable upon exercise of
outstanding stock options assumed by us in connection with our
acquisition of Globalware;
. 387,205 shares of our common stock reserved for issuance under our
1997 stock option plan as of May 26, 2000;
. 1,500,000 shares of our common stock initially reserved for issuance
under our 2000 stock incentive plan;
. 350,000 shares of our common stock initially reserved for issuance
under our 2000 employee stock purchase plan; and
. 593,967 shares of our common stock issuable upon exercise of
outstanding warrants, with a weighted average exercise price of $
per share.
------------
Except as otherwise indicated, all information contained in this prospectus:
. assumes the conversion of all outstanding shares of our preferred
stock into shares of our common stock on a one-to-one basis upon the
closing of this offering;
. assumes the filing of our amended and restated certificate of
incorporation;
. reflects the 2-for-1 stock split of our outstanding common and
preferred stock in October 1999; and
. assumes no exercise of the underwriters' over-allotment option.
5
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
The following financial data, other than the pro forma data, include the
financial data of AvantGo and exclude the financial data of Globalware. Our pro
forma consolidated statements of operations data give effect to our acquisition
of Globalware, which closed on May 26, 2000, as if it occurred at the beginning
of the pro forma periods presented.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
----------------------------- -----------------------------------
1998 1999 1999 1999 2000 2000
------- ------- ----------- ----------- ----------- -----------
(pro forma) (pro forma)
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $ 387 $ 2,889 $ 4,324 $ 228 $ 1,661 $ 2,377
Costs and expenses...... 3,038 12,417 18,815 1,343 9,309 10,895
------- ------- -------- ------- ------- -------
Loss from operations.... (2,651) (9,528) (14,491) (1,115) (7,648) (8,518)
Net loss................ $(2,603) $(9,215) $(14,152) $(1,108) $(7,431) $(8,318)
======= ======= ======== ======= ======= =======
Net loss per share:
Basic and diluted....... $ (0.95) $ (2.11) $ (2.24) $ (0.31) $ (1.30) $ (1.09)
======= ======= ======== ======= ======= =======
Weighted average
shares................. 2,735 4,377 6,310 3,612 5,704 7,637
======= ======= ======== ======= ======= =======
Pro forma net loss per
share:
Basic and diluted....... $ (0.65) $ (0.41)
======= =======
Weighted average
shares................. 14,272 18,044
======= =======
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $30,424 $34,832
Working capital......... 33,329 37,569
Total assets............ 42,358 62,698
Long-term obligations,
net of current
portion................ 23 23
Total stockholders'
equity................. 34,949 54,909
</TABLE>
See Note 1 of Notes to Consolidated Financial Statements for information
concerning the computation of pro forma net loss per share and the calculation
of the number of shares used in that computation.
The Consolidated Balance Sheet pro forma data give effect to:
. the sale of 436,599 shares of series D preferred stock on April 7, 2000;
. our acquisition of Globalware, including a one-time charge for purchased
in-process research and development; and
. the conversion of all outstanding shares of our preferred stock into
shares of common stock upon the closing of this offering.
The Consolidated Balance Sheet pro forma as adjusted data give effect to the
foregoing and to the sale of shares of common stock in this offering at an
assumed initial public offering price of $ per share, less underwriting
discounts and commissions and estimated offering expenses.
6
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information contained
in this prospectus before deciding whether to purchase our common stock.
Risks Related to Our Business
We have a history of losses and anticipate increased losses in the future.
Since our inception, we have never been profitable. We incurred net losses
of approximately $2.6 million and $9.2 million for the years ended December 31,
1998 and 1999, respectively, and a net loss of $7.4 million for the quarter
ended March 31, 2000. From inception through March 31, 2000, we had an
accumulated deficit of $19.5 million. Our costs and operating expenses were
approximately $3.0 million and $12.4 million for the years ended December 31,
1998 and 1999, respectively, and were $9.3 million for the quarter ended
March 31, 2000. Our success will depend in large part upon our ability to
generate sufficient revenue to achieve profitability and to effectively
maintain existing relationships and develop new relationships with enterprise
customers, content providers and e-businesses. In particular, we intend to
expend significant financial resources on product development and sales and
marketing. As a result, we expect to incur additional losses and continued
negative cash flow from operations for the foreseeable future, and we may not
achieve or maintain profitability.
Because our quarterly operating results are volatile and difficult to predict,
period-to-period comparisons of our operating results are not necessarily
meaningful and you should not rely on them as indications of future
performance.
Our revenues consist primarily of royalties received from licensees of our
enterprise software, which accounted for over half of our revenues in the year
ended December 31, 1999 and the quarter ended March 31, 2000. We also obtain
significant revenues from professional services rendered to our enterprise
customers. In 1999 and during the quarter ended March 31, 2000, advertising and
placement fees from our AMI service also generated a portion of our revenue.
Because our licensing, professional services and AMI service revenues can vary
substantially from month to month and we expect to continue to rely on these
revenues, our future quarterly revenues and operating results may fluctuate
substantially. As a result of these factors, we believe that quarter-to-quarter
or other periodic comparisons of our revenue and operating results are not
necessarily meaningful, and that these comparisons may not be accurate
indicators of future performance. Examples of the factors that could cause our
quarterly results to vary include:
. failure to close key enterprise agreements as contemplated;
. termination of important contracts such as those with American Express
Travel-Related Services, Inc., Ford Motor Company and McKessonHBOC; and
. long sales cycles for our products.
Because our staffing and operating expenses are based on anticipated revenue
levels, and because a high percentage of our costs are fixed, small variations
in the timing of the recognition of specific revenue could cause significant
variations in operating results from quarter to quarter. If we are unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, any significant revenue shortfall would likely have an immediate
negative effect on our business. It is likely that in some future quarter or
quarters our operating results will be below public expectations. If this
occurs, we would expect to experience an immediate and significant decline in
the market price of our common stock.
7
<PAGE>
Our limited operating history makes an evaluation of our business and its
future prospects difficult.
We were incorporated in June 1997. We released our first software product
in May 1998. Because we are in an early stage of development, our business
model is not proven, particularly with respect to our AMI service.
Accordingly, our prospects are difficult to predict and may change rapidly.
Before investing, you should evaluate our prospects in light of the heightened
risks, expenses, delays, and difficulties we expect to encounter as we enter
new and rapidly evolving markets like the Internet and the wireless
communications industry.
We depend on our enterprise software as a primary source of our revenues, and
we do not know if businesses will adopt our enterprise products and related
services.
Our enterprise software, which consists of our AvantGo Enterprise
Interactive, AvantGo Enterprise Publisher, and AvantGo Enterprise Online
products, has accounted for over half of our revenues in the year ended
December 31, 1999 and in the quarter ended March 31, 2000. We expect that a
significant portion of our revenues, particularly over the next two years,
will depend upon the continued and growing market acceptance of our enterprise
software products. The life cycle of our products is particularly difficult to
estimate because of growing competition and the changing marketplace. Our
enterprise software may not achieve acceptance among businesses and other
organizations. A decline in the demand for our enterprise software or our
failure to successfully develop, introduce or market new or enhanced products
in a timely manner would harm our business.
The market for mobile devices is new, and our business could suffer if this
market does not develop as expected.
The emergence of markets for our software is critically dependent upon the
rapid expansion of the market for mobile devices such as personal digital
assistants, handheld computers, smart phones, pagers and other mobile devices.
This market has only recently emerged and is rapidly growing. This growth,
however, may not continue. Any slowdown in the growth of adoption of mobile
devices could harm our business.
Increasing competition could harm our ability to maintain or increase sales of
our products or reduce the prices we can charge for our products.
The market for our products and services is becoming increasingly
competitive, and the wireless market has attracted many start-ups, as well as
established companies that want to extend the capabilities of their products
and services to support handheld devices and Internet-enabled phones. We
expect that we will compete primarily on the basis of functionality, breadth
of software and service offerings, quality, reliability, scalability and
performance of our offerings, time-to-market advantages and price. As the
market matures, we will continue to both cooperate and compete with emerging
companies and established companies entering the wireless market.
Our enterprise software and services compete primarily with offerings from
the following types of companies:
. server synchronization software providers, including Palm, Inc.,
PUMATECH, Inc. and Oracle Corporation;
. handheld application development environment providers, including
PUMATECH, Inc., Aether Software, Metrowerks, Inc. and Microsoft Corp.;
and
. application service providers, such as Aether Systems, Inc.
Our AMI service competes primarily with the service offerings from the
following types of companies:
. value-added wireless service providers, such as Palm, Inc.'s Palm.Net and
OmniSky Corporation; and
. wireless Internet portals, such as InfoSpace, Inc. and Oracle
Corporation's Portal to Go.
8
<PAGE>
In the future, if our market continues to expand, we expect to face
increased competition from a number of new market entrants. Additionally, other
companies with whom we currently have relationships may choose to compete with
our products or services. For example, a manufacturer of mobile devices seeking
to increase market share for its hardware could bundle a competing Web browser
with its hardware at reduced rates to stimulate sales of its core product lines
and to create new revenue streams. This could reduce the amount we are able to
charge our enterprise customers for our products and reduce the numbers of
users of our AMI service, either of which would harm our business.
Many of our existing competitors as well as potential competitors have
substantially greater financial, technical, marketing and distribution
resources than we do. Several of these companies also have greater name
recognition and more established relationships with our target customers.
Furthermore, these competitors may be able to adopt more aggressive pricing
policies on products that compete with our enterprise software and offer more
attractive terms to customers, which may cause us to lose customers or limit
the amount we can charge customers for our products. In addition, current and
potential competitors may establish cooperative relationships among themselves
or with third parties to compete more effectively with us. Finally, existing
and potential competitors may develop enhancements to or future generations of
competitive products that will have better performance features than our
products.
A significant portion of our enterprise revenue comes from a small number of
customers, and any decrease in revenues from these customers could harm our
operating results.
We currently derive a significant portion of our enterprise software
revenues from a small number of major customers. For example, revenues from
Ford Motor Company and McKessonHBOC, our two largest customers, represented a
significant portion of our revenues in the quarter ended March 31, 2000. Any
disruption or termination of our commercial relationship with these customers
would harm our business.
Our future success will depend on our ability to anticipate and keep pace with
technological change, and if we experience delays in developing and introducing
software compatible with new products and technologies, our business would
suffer.
The market for mobile Internet software is becoming highly competitive,
characterized by evolving industry standards, rapid technological change and
frequent product introductions. To remain competitive, we must continuously
develop new products and services and adapt our software to function on new
devices and operating systems designed and marketed by other companies. The
development of such software and services can be difficult, time-consuming and
costly, and we could lose market share if we encounter delays in the
development and introduction of our future software products. Additionally, our
business could be seriously harmed if:
. competitors develop new technologies and products which provide
comparable functionality at reduced prices to our customers and potential
customers;
. we fail to anticipate technological trends or evolving industry standards
or to adapt our software and services to these new trends and standards;
. other companies develop products that render our software obsolete or
less desirable to consumers; or
. technical, legal, financial or other obstacles prevent us from improving
our software and services to adapt to changing market conditions.
The emergence of a dominant platform for mobile devices could reduce our
customer base and revenues.
The marketplace for mobile devices is currently characterized by a number of
competing operating systems and standards for handheld devices and cellular
telephones. Currently, our customers and potential customers often use a
variety of mobile devices with multiple connectivity options. One of the
primary value
9
<PAGE>
propositions of our products is their ability to operate across a wide variety
of platforms. If a dominant platform for mobile devices emerges, the demand for
interoperable software may decline and the need for our software may diminish.
We depend on our ability to successfully market the functionality of our
software.
Even if the market for mobile devices continues to expand, our success will
depend, among other things, on whether businesses and consumers adopt our
products and services for obtaining Web-based information and applications on
the Internet and intranets. We have expended considerable resources on sales
and marketing of our products and services: approximately $1.2 million and $4.3
million for the years ended December 31, 1998 and 1999, respectively, and
approximately $3.2 million for the quarter ended March 31, 2000. We expect that
these expenses will continue to increase as we grow. If our sales and marketing
efforts are unsuccessful, our business will suffer.
If we fail to maintain our existing relationships or enter into new key
relationships with leading hardware and software manufacturers, our brand
awareness and the use of our products and services would suffer.
The success of our product and service offerings depends, in large part, on
our ability to develop and maintain relationships with leading hardware and
software manufacturers, such as Palm, Inc. and Microsoft Corp., that bundle our
software with their product offerings. We depend on these relationships to:
. distribute our products to purchasers of mobile devices;
. increase usage of our AMI service;
. build brand awareness through product marketing; and
. cooperatively market our products and services.
All of our agreements with these companies are non-exclusive and have broad
rights of termination. In addition, these agreements do not require these
companies to bundle our software with all of their product offerings. For
example, our software is not bundled with the Palm, Inc. devices in the
Palm VII(TM) family, and Palm, Inc. may choose not to bundle our software with
future product offerings.
Some of these manufacturers, including Palm, Inc. and Microsoft Corp., have
services that compete with our AMI service. Any of these manufacturers may
choose either to promote its competing service or promote the services of one
or more of our other competitors, which could limit the growth of our AMI
service. If we fail to maintain these relationships or fail to enter into
relationships with other leading hardware or software manufacturers, the
distribution of our software to consumers and our AMI service would suffer.
Our success depends on strong performance by equipment manufacturers and
software companies with whom we have key relationships.
Because we depend on equipment manufacturers like Palm, Inc. and software
companies like Microsoft Corp. to help distribute our software and promote our
AMI service, the growth of our AMI service is dependent in part upon their
success. If the products which these companies sell, or the operating systems
upon which such products are based, were to lose popularity, or if any of these
equipment manufacturers or software companies cease to distribute our software
in significant volumes, our business would suffer.
We may not be able to maintain and expand our agreements with content providers
and e-businesses which may limit or reduce the use of our AMI service.
A significant portion of the traffic to our AMI service comes from the
existing users of our content providers and e-businesses that deliver more than
400 channels to our Web site. To expand our AMI service, we must maintain
quality relationships with these content providers and e-businesses and enter
into new
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<PAGE>
relationships that provide our users access to compelling content and services.
Our objective is to promote Web-based transactions effected through the use of
mobile devices and to obtain a share of the revenues generated by those
transactions. If we fail to add additional valuable content and services,
Internet users may be less likely to actively use our service and to engage in
such transactions, which, in turn, would harm our business.
All of our agreements with content providers and e-businesses survive for a
short period of time and are non-exclusive. These companies may choose not to
renew their agreements with us or may terminate their agreements at any time.
If any of these agreements terminate, we will experience a decline in the
number of Web sites that are optimized for use with mobile devices, and our
competitive position could suffer. Further, while we intend to pursue
additional relationships with content providers and e-businesses, we may not
experience sustained increases in user traffic from these affiliations.
Acquisitions may disrupt our business and may cause our existing stockholders
to suffer dilution.
We recently completed the acquisition of Globalware. As part of our business
strategy, we may acquire or make additional investments in businesses, products
and technologies that complement ours. We may experience difficulties
integrating Globalware's operations, or those of other companies we might
acquire, into ours. As a result, we may divert management attention to the
integration that would otherwise be available for the ongoing development of
our business. Acquisitions have inherent risks, including:
. risks related to the strategic utility of technology acquired;
. difficulties assimilating acquired operations, technologies or products;
. unanticipated costs; and
. adverse effects on relationships with customers, suppliers and employees.
We may not be successful in integrating the businesses, products,
technologies or personnel we acquire, and our failure to do so would harm our
business. Similarly, we cannot guarantee that we may not have to write off any
of our investments or that our investments will yield a significant return, if
any. In addition, to finance acquisitions, we may issue equity securities,
which may dilute your investment, or incur significant indebtedness, which
could harm our business.
Our future results could be harmed by risks associated with our expansion into
Europe and other international markets.
We sell our products in the United States and abroad. We anticipate that
revenue from international operations will represent an increasing portion of
our total revenue, and therefore our business will increasingly be subject to
the risks associated with doing business internationally. We expect that the
costs of developing overseas revenues will initially exceed those revenues and
that realization of associated revenues. Accordingly, our future results could
be harmed by a variety of factors, including:
. changes in foreign currency exchange rates;
. the adoption of incompatible platforms or standards;
. trade protection measures and import or export licensing requirements;
and
. potentially negative consequences from changes in tax laws.
If we fail to manage our planned future expansion effectively, we may not be
able to meet the needs of our customers or attract new customers.
We expect to continue to expand our operations for the foreseeable future.
For example, we have grown from 47 employees on May 31, 1999 to 188 employees
as of May 26, 2000. We expect to hire additional new
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<PAGE>
employees to support our professional services, product development, marketing
and administrative groups. Because of the technical nature of our products, we
anticipate that it will take several months to train new personnel. We have
limited experience in training large numbers of new staff.
We must also develop our operating, administrative, financial and accounting
systems and controls, locate additional office space and maintain close
coordination among our product development, accounting, finance, marketing, and
customer support operations. Failure to accomplish any of these objectives
would impede our ability to deliver products in a timely fashion, fulfill
existing customer commitments and attract and retain new customers, which would
harm our business.
Competition for personnel could harm our ability to develop or market new
products or provide professional services necessary to sustain our growth.
We may be unable to retain our key employees or to attract, assimilate or
retain other highly qualified employees in the future. We are based in Northern
California, where competition for employees with technical expertise is
intense, and we have from time to time experienced, and we expect to continue
to experience, difficulty in hiring and retaining employees with appropriate
qualifications. In particular, the mobile computer industry is a complex
industry that requires a unique knowledge base, and the loss of technical
knowledge and industry expertise among our key personnel, or our failure to
obtain necessary additional expertise, could result in delays in software
development, loss of sales and a diversion of management resources which could
harm our business.
Our success depends on retaining key personnel, particularly Felix Lin, Richard
Owen and Linus Upson.
Our future success depends to a significant extent on the continued services
of our senior management and other key personnel, particularly Felix Lin, our
chairman; Richard Owen, our chief executive officer; and Linus Upson, our
president and chief technology officer. The loss of the services of any person
on our management team or any other key employees would harm our business. We
have no employment agreements that prevent any of our key personnel from
terminating their employment at any time. We do not maintain key person life
insurance on any of our officers.
Our software may contain defects or errors which would delay shipments of our
products, harm our reputation and increase our costs.
Our software is complex as it must operate across a broad variety of
operating systems, devices and connectivity options and meet the stringent
requirements of our customers. We must develop our products and services
quickly to keep pace with the rapidly changing software and telecommunications
markets. Despite testing by our customers and us, software as complex as ours
is likely to contain undetected errors or defects, especially when first
introduced or when new versions are released. Our software may not be free from
errors or defects after delivery to customers has begun, which could result in
the rejection of our software or services, damage to our reputation, lost
revenue, diverted development resources and increased service and support
costs, any of which could harm our business.
Disruption of our services due to accidental or intentional security breaches
may harm our business.
Our operations depend upon our ability to maintain and protect our computer
systems, which are located at our corporate headquarters in San Mateo,
California and at facilities owned and operated by Level 3 Communications in
Sunnyvale, California. We also use InterNAP and Level 3 Communications as our
Internet service providers. We currently do not have redundant facilities for
our servers. Our systems therefore are vulnerable to damage from break-ins,
unauthorized access, vandalism, fire, floods, earthquakes, power loss,
telecommunications failures and similar events. Although we maintain insurance
against break-in, unauthorized access, vandalism, fires, floods, earthquakes
and general business interruptions, the amount of coverage may not be adequate
in any particular case, and will unlikely compensate us for all the damages
caused by such events.
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<PAGE>
We may be unable to prevent computer programmers or hackers from penetrating
our network security from time to time. Such an attack could seriously damage
our reputation, which would harm our business. In addition, because a hacker
who penetrates our network security could misappropriate proprietary
information or cause interruptions in our services, we might be required to
expend significant resources to protect against, or to alleviate, problems
caused by hackers. We might also face liability to persons harmed by such
misappropriation if it is determined that we did not exercise sufficient care
to protect our systems.
Increasing government regulation could cause demand for our products and
services to grow more slowly or to decline.
We are subject not only to regulations applicable to businesses generally,
but also to laws and regulations directly applicable to the Internet. Demand
for our software, and our ability to meet such demand, is subject to export
controls on hardware and on the encryption software incorporated into our
products. In addition, state, federal and foreign governments may adopt laws
and regulations governing any of the following issues:
. user privacy;
. taxation of electronic commerce;
. the online distribution of specific material or content; and
. the characteristics and quality of online products and services.
One or more states or the federal government could enact regulations aimed
at companies like us, which provide software that facilitates e-commerce and
the distribution of content over the Internet. The likelihood of such
regulation being enacted will increase as the Internet becomes more pervasive
and extends to more people's daily lives. Any such legislation, regulation or
taxation of electronic commerce could dampen the growth of the Internet and
decrease its acceptance as a communications and commercial medium. If such a
reduction in growth occurs, demand for our client software could decline
significantly.
We may be subject to liability for transmitting information, and our insurance
coverage may be inadequate to protect us from this liability.
We could be exposed to liability with respect to third-party information
that our users access with our software. Claimants might assert, among other
things, that, by directly or indirectly providing links to Web sites operated
by third parties, we should be liable for copyright or trademark infringement
or other wrongful actions by third parties through these Web sites. They could
also assert that our third-party information contains errors or omissions, and
consumers could seek damages for losses incurred if they rely upon that
information. Even if these claims do not result in liability to us, they would
likely divert management's attention and resources and we could incur
significant costs in investigating and defending against these claims. Although
we carry general liability insurance, our insurance may not cover potential
claims of this type or may not be adequate to cover all costs incurred in
defense of potential claims or to indemnify us for all liability that may be
imposed.
We rely on intellectual property rights, and we may not be able to obtain
patent or other protection for our technology, products or services.
We rely on a combination of patent, copyright, trademark and trade secret
laws, confidentiality procedures and contractual provisions to protect our
proprietary technology, products and services. We also believe that factors
such as the technological and creative skills of our personnel, new product
developments, frequent product enhancements and name recognition are essential
to establishing and maintaining a technology leadership position.
We seek to protect our proprietary software and written materials under
trade secret and copyright laws, which afford only limited protection. We
currently have no patents, but we have filed six non-provisional
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<PAGE>
applications and two provisional applications for United States patents and one
Patent Cooperation Treaty, or PCT, international application to protect the
following aspects of our technology: interactive applications for handheld
computers; customizing channels, content and data for mobile devices; enabling
on-device servers, offline forms and dynamic ad tracking on mobile devices;
syncing to mobile devices; administering channels, content and data for mobile
devices; Web content aggregation and development; and Web content delivery to
clients. Our patent applications may not be approved or issued or, if issued,
may not provide the scope of claims we seek. Furthermore, others may develop
technologies that are similar or superior to our technology or design around
any patents which may issue.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our software or to obtain and use information
that we regard as proprietary. In addition, the laws of some foreign countries
do not ensure that our means of protecting our proprietary rights in the United
States or abroad will be adequate. We have entered into source code escrow
agreements with a limited number of our customers and strategic partners
requiring release of source code in certain circumstances. Such agreements
generally provide that such parties will have a limited, non-exclusive right to
use such code in the event that there is a bankruptcy proceeding by or against
us, if we cease to do business or if we fail to meet our contractual
obligations. This may increase the likelihood of misappropriation by third
parties.
We may be sued by third parties for infringement of their proprietary rights,
and litigation or threatened litigation could require us to incur significant
litigation or licensing expenses, prevent us from selling our software or
require us to make expensive modifications to our software to avoid
infringement.
The wireless communications, handheld computers and software industries are
characterized by the existence of a large number of patents and frequent
litigation based on allegations of patent infringement or other violations of
intellectual property rights. As the number of participants in our market
increases, the likelihood of an intellectual property claim against us could
increase. We expect that we may increasingly be subject to infringement claims
as the number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming to defend, result in
costly litigation, divert management's attention and resources or cause product
release delays. In addition, such claims could require us to discontinue the
use of certain software code or processes, to cease the use and sale of
infringing products, to incur significant litigation costs and expenses and to
develop non-infringing technology or to obtain licenses to the alleged
infringing technology under which we might be required to pay expensive
royalties. We may be unable to develop alternative technologies or to obtain
such licenses or, if a license were obtainable, the terms might not be
commercially acceptable to us. In the event of a successful claim of product
infringement against us and our failure or inability to obtain a license or
develop or acquire non-infringing technology, our business would suffer.
We incorporate software licensed from third parties into our products, and if
we lose these licenses, our sales could be disrupted.
We currently license software from third parties to provide security and to
enable AvantGo users to access electronic mail, contacts and other personal
information. If we were found to be in breach of any of our license agreements,
or, in any event, upon termination, we would have to discontinue the use of the
licensed software, cease the use and sale of products containing such software,
and incur expenses to develop or obtain licenses to other technology. We may be
unable to develop alternative technologies or to obtain such licenses on
commercially reasonable terms.
Risks Related to This Offering
Our stock price could be volatile and could decline following this offering.
An active trading market for our common stock may never develop or be
sustained. The stock markets, particularly the Nasdaq National Market on which
we have applied to have our common stock listed, have
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<PAGE>
experienced significant price and volume fluctuations, and the market prices
of companies focused on the Internet and wireless communications have been
highly volatile. Furthermore, the market price of our common stock could
decline, and investors may not be able to resell their shares at or above the
initial public offering price. Even if an active trading market develops, the
market price of our common stock is likely to be highly volatile and could be
subject to wide fluctuations in response to factors such as:
. actual or anticipated variations in our quarterly operating results;
. announcements of new product or service offerings by us or our competitors;
. changes in the handheld and wireless device industries;
. technological innovations;
. competitive developments;
. changes in financial estimates by securities analysts; and
. changes in interest rates and other general economic conditions.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. Such litigation could result in substantial costs and a diversion
of our management's attention and resources.
Certain existing stockholders own a large percentage of our voting stock.
Upon completion of this offering, we anticipate that our executive officers,
directors and greater than 5% stockholders, and their affiliates, will, in the
aggregate, own approximately % of our outstanding common stock. As a
result, such persons, acting together, will have the ability to substantially
influence all matters submitted to the stockholders for approval, including
the election and removal of directors and any merger, consolidation or sale of
all or substantially all of our assets, and to control our management and
affairs. Accordingly, such concentration of ownership may have the effect of
delaying, deferring or preventing a change in control, impeding a merger,
consolidation, takeover or other business combination involving us or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our business, even if such a transaction would
be beneficial to other stockholders.
Future sales of our common stock may cause our stock price to decline.
Sales of significant amounts of our common stock in the public market after
this offering or the perception that such sales will occur could adversely
affect the market price of our common stock or our future ability to raise
capital through an offering of our equity securities. After the closing of
this offering, we will have approximately shares of common stock
outstanding. Of the outstanding shares, the shares sold in this offering will
be freely tradable, except for any shares purchased by our "affiliates" as
defined in Rule 144 of the Securities Act of 1933. Our remaining shares
oustanding will be restricted securities and will become eligible for sale
subject to the limitations of Rule 144. Sales of a large number of restricted
shares, or shares held by affiliates, could have an adverse effect on the
market price for our common stock. Substantially all of the holders of these
restricted securities, including our officers and directors, have entered into
lock-up agreements providing that, subject to certain limited exceptions, they
will not sell, directly or indirectly, any common stock without the prior
consent of Credit Suisse First Boston Corporation for a period of 180 days
from the date of this prospectus. Credit Suisse First Boston Corporation may
release these shares at any time without notice. Subject to the provisions of
Rules 144, 144(k) and 701, shares of common stock will be available for
sale in the public market, subject to compliance with certain volume
restrictions in the case of shares held by affiliates, upon expiration of this
180-day period.
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<PAGE>
In addition, as of May 26, 2000, there were outstanding options to purchase
4,197,301 shares of common stock which will be eligible for sale in the public
market from time to time, subject to vesting and the expiration of lock-up
agreements. In addition, certain stockholders, representing approximately
19,662,143 shares of common stock, including shares issuable upon the exercise
of certain warrants to purchase common stock, will be entitled to certain
demand and piggyback registration rights, subject to certain conditions.
We are uncertain of our ability to obtain additional financing for our future
capital needs.
We may need to raise additional funds in order to fund more rapid expansion,
to expand in marketing activities, to develop new or enhance existing services
or products, to respond to competitive pressures or to acquire complementary
services, businesses or technologies. Additional financing may not be available
on terms favorable to us, or at all. Our inability to obtain financing on
appropriate terms would harm our business.
Management has broad discretion to use the proceeds from this offering.
The net proceeds from the sale of the securities in this offering have not
been allocated for a particular purpose, and our management will have broad
discretion over the use of proceeds we raise in this offering. We intend to use
the net proceeds for working capital, and we may also use the net proceeds to
make investments in and acquisitions of complementary businesses, products or
technologies. You must rely on the judgment of management in the application of
the proceeds, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately.
Provisions in our charter documents and Delaware law could prevent or delay a
change in control, which could reduce the market price of our common stock.
Provisions of our certificate of incorporation and bylaws, and of Delaware
law, could limit the price that investors might be willing to pay in the future
for shares of our common stock and may have the effect of delaying or
preventing a change of control or changes in our management. These provisions:
. allow the board of directors to issue preferred stock without any vote or
further action by the stockholders;
. eliminate the right of stockholders to act by written consent without a
meeting;
. eliminate cumulative voting in the election of directors; and
. divide our board of directors into three classes, with each class serving
a staggered three-year term.
Provisions of Delaware law may discourage, delay or prevent someone from
acquiring or merging with us. These provisions prevent us from engaging, under
limited circumstances, in a merger or sale of more than 10% of our assets, with
a stockholder who owns 15% or more of our outstanding voting stock, as well as
affiliates and associates of such a stockholder, for three years following the
date that the stockholder became an owner of 15% or more of our outstanding
voting stock unless:
. the transaction is approved by the board before the date the interested
stockholder attained that status;
. upon the closing of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
. on or after the date the business combination is approved by the board
and authorized at an annual or special meeting of stockholders by at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
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<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our industry's actual results,
level of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed
or implied by such forward-looking statements. Such factors include, among
other things, those listed under "Risk Factors" and elsewhere in this
prospectus.
In some cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue," the negative of these
terms or other comparable terminology. These statements are only predictions.
Actual events or results may differ materially. In evaluating these statements,
you should specifically consider various factors, including the risks outlined
under "Risk Factors." These factors may cause our actual results to differ
materially from any forward-looking statements.
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. You should not place
undue reliance on these forward-looking statements, which apply only as of the
date of this prospectus.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock will be approximately $ million, based upon an assumed initial
public offering price of $ per share and after deducting the underwriting
discounts and commissions and estimated offering expenses. We estimate that
our net proceeds will be approximately $ million if the underwriters
exercise their over-allotment option in full.
We currently anticipate using the net proceeds of the offering for general
corporate purposes, including:
. approximately 40-60% for sales and marketing activities;
. approximately 5-20% for general and administrative activities; and
. approximately 15-40% for product development.
In addition, we may use a portion of the net proceeds of this offering to
acquire complementary technologies or businesses and enter into key
relationships. We have no current plans, agreements or commitments with
respect to any such acquisitions or additional key relationships. 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." Pending these
uses, we intend to invest these proceeds in short-term, investment-grade,
interest-bearing instruments, repurchase agreements or high-grade corporate
notes. Our management has broad discretion over the use of these proceeds and
it is possible that we may allocate these proceeds differently than investors
in this offering would have preferred.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock, and
we do not anticipate paying cash dividends in the foreseeable future. We
currently intend to retain future earnings, if any, to finance our operations
and the growth of our business.
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CAPITALIZATION
The following table sets forth the following information:
. our actual capitalization as of March 31, 2000;
. our pro forma capitalization after giving effect to (1) the sale of
436,599 shares of series D preferred stock on April 7, 2000; (2) our
acquisition of Globalware, including the issuance of 1,933,300 shares of
series E preferred stock on May 26, 2000 to the stockholders of
Globalware and an associated one-time charge for purchased in-process
research and development; and (3) the conversion of all outstanding
shares of convertible preferred stock into shares of common stock upon
the closing of this offering; and
. our pro forma as adjusted capitalization after giving effect to the
foregoing and to the sale of shares of common stock in this offering at
an assumed initial public offering price of $ per share, less
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
March 31, 2000
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
--------- --------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Long-term obligations, net of current
portion...................................... $ 23 $ 23 $ 23
Stockholders' equity:
Convertible preferred stock, $0.0001 par
value, 16,472,082 shares authorized and
issuable in series, 14,761,577 shares issued
and outstanding actual; 18,472,082 shares
authorized and no shares outstanding pro
forma; and 10,000,000 shares authorized and
no shares outstanding pro forma as adjusted.. 48,618 -- --
Common stock, $0.0001 par value, 40,000,000
shares authorized, 10,460,341 shares issued
and outstanding, actual; 45,000,000 shares
authorized, 27,591,817 shares issued and
outstanding, pro forma; 150,000,000 shares
authorized pro forma as adjusted; shares
issued and outstanding, pro forma as
adjusted..................................... 23,291 92,469
Notes receivable from stockholders............ (798) (798) (798)
Deferred stock compensation................... (15,164) (15,164) (15,164)
Revenue offset relating to warrant agreement.. (1,479) (1,479) (1,479)
Accumulated other comprehensive income........ 21 21 21
Accumulated deficit........................... (19,540) (20,140) (20,140)
--------- --------- --------
Total stockholders' equity................... 34,949 54,909
--------- --------- --------
Total capitalization......................... $ 34,972 $ 54,932 $
========= ========= ========
</TABLE>
The table sets forth the total number of outstanding shares of our common
and preferred stock as of March 31, 2000 and excludes:
. 3,931,579 shares of our common stock issuable upon exercise of
outstanding stock options under our 1997 stock option plan as of March
31, 2000, at a weighted average exercise price of $1.83 per share;
. 180,438 shares of our common stock issuable upon exercise of outstanding
stock options assumed by us in connection with our acquisition of
Globalware;
. 952,680 shares of our common stock reserved for issuance under our 1997
stock option plan as of March 31, 2000;
. 1,500,000 shares of our common stock initially reserved for issuance
under our 2000 stock incentive plan;
. 350,000 shares of our common stock initially reserved for issuance under
our 2000 employee stock purchase plan; and
. 593,967 shares of our common stock issuable upon exercise of outstanding
warrants, with a weighted average exercise price of $ per share.
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DILUTION
Our pro forma net tangible book value as of March 31, 2000 was approximately
$39.2 million, or $1.42 per share. Pro forma net tangible book value per share
gives effect to (1) our acquisition of Globalware, including the issuance of
1,933,300 shares of our series E preferred stock and an associated one-time
charge for purchased in-process research and development; (2) the issuance of
436,599 shares of our series D preferred stock on April 7, 2000; and (3) the
conversion of all outstanding shares of our preferred stock into shares of
common stock upon the closing of this offering, and represents the amount of
our total tangible assets less total liabilities, divided by the number of
shares of common stock outstanding as of March 31, 2000. After giving effect to
the sale of the shares of common stock offered hereby, less underwriting
discounts and commissions and estimated offering expenses, our pro forma net
tangible book value as of March 31, 2000 would have been $ million, or
approximately $ per share.
This represents an immediate increase in pro forma net tangible book value
per share of $ to existing stockholders and an immediate dilution per share
of $ to new investors purchasing shares in this offering. The following
table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book value per share as of March 31,
2000......................................................... $1.42
Increase per share attributable to new investors.............. $
-----
Pro forma net tangible book value per share after the offering.. $
----
Dilution per share to new investors............................. $
====
</TABLE>
The following table summarizes as of March 31, 2000, on the pro forma basis
described above, the number of shares of common stock purchased from us, the
total cash consideration paid and the average price per share paid by existing
stockholders, and by new investors purchasing shares of common stock in this
offering, less underwriting discounts and commissions and estimated offering
expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price Paid
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 27,591,817 % $68,415,000 % $
New investors.............. % % $
---------- --- ----------- --- ---
Total.................... % %
========== === =========== ===
</TABLE>
The foregoing discussion and computations assume no exercise of stock
options after March 31, 2000, and excludes the following:
. 3,931,579 shares of our common stock issuable upon exercise of
outstanding stock options under our 1997 stock option plan as of March
31, 2000, at a weighted average exercise price of $1.83 per share;
. 180,438 shares of our common stock issuable upon exercise of outstanding
stock options assumed by us in connection with our acquisition of
Globalware;
. 952,680 shares of our common stock reserved and available for issuance
under our 1997 stock option plan as of March 31, 2000;
. 1,500,000 shares of our common stock initially reserved for issuance
under our 2000 stock incentive plan;
. 350,000 shares of our common stock initially reserved for issuance under
our 2000 employee stock purchase plan; and
. 593,967 shares of our common stock issuable upon exercise of warrants
outstanding, with a weighted average exercise price of $ per share.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following financial data, other than the pro forma data, include the
financial data of AvantGo and exclude the financial data of Globalware. The
consolidated statement of operations data for the period from June 30, 1997
(inception) through December 31, 1997, and the years ended December 31, 1998
and 1999 and the related balance sheet data as of December 31, 1998 and 1999
are derived from the consolidated financial statements of AvantGo, which have
been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this prospectus. The selected balance sheet data as of December
31, 1997 are derived from audited financial statements not included in this
prospectus. The pro forma statement of operations data for the year ended
December 31, 1999 and the three months ended March 31, 2000 and as of March 31,
2000 is derived from the selected unaudited proforma condensed combined
financial information included elsewhere in this prospectus. The financial data
for the three months ended March 31, 1999 and 2000 and as of March 31, 2000 is
derived from unaudited financial statements included elsewhere in this
prospectus. We have prepared this selected information on the same basis as the
audited financial statements and have included all adjustments, consisting only
of normal recurring adjustments, that we consider necessary for such
presentation of the financial condition and operating results for such date and
periods. When you read this selected financial data, it is important that you
read the AvantGo historical financial statements and related notes included in
this prospectus, (as well as the section of this prospectus related to
Management's Discussion and Analysis of Financial Condition and Results of
Operations). Historical results are not necessarily indicative of future
results.
Our consolidated pro forma statement of operations data give effect to our
acquisition of Globalware, which closed on May 26, 2000, as if it occurred at
the beginning of the pro forma periods presented and should be read in
conjunction with the Selected Unaudited Pro Forma Condensed Combined Financial
Information and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
June 30, 1997
(inception)
to Year Ended December 31, Three Months Ended March 31,
December 31, ----------------------------- -----------------------------------
1997 1998 1999 1999 1999 2000 2000
------------- ------- ------- ----------- ----------- ----------- -----------
(pro forma) (unaudited) (unaudited) (pro forma)
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
License fees........... $ -- $ 189 $ 1,443 $ 2,878 $ 107 $ 753 $ 1,469
Services............... -- 198 1,446 1,446 121 908 908
------ ------- ------- -------- ------- -------- --------
Total revenues....... -- 387 2,889 4,324 228 1,661 2,377
Costs and expenses:
Cost of license fees... -- 10 60 60 4 27 27
Cost of services....... -- 210 1,312 1,312 127 547 547
Product development.... 140 1,108 2,745 3,138 447 1,145 1,211
Sales and marketing.... 61 1,229 4,291 4,744 442 3,246 3,373
General and
administrative........ 89 410 1,404 1,720 177 1,120 1,197
Amortization of
deferred stock
compensation.......... -- 71 2,605 2,626 146 3,224 3,236
Amortization of
goodwill and other
intangible assets..... -- -- -- 5,215 -- -- 1,304
------ ------- ------- -------- ------- -------- --------
Total costs and
expenses............ 290 3,038 12,417 18,815 1,343 9,309 10,895
------ ------- ------- -------- ------- -------- --------
Loss from operations.... (290) (2,651) (9,528) (14,491) (1,115) (7,648) (8,518)
Interest income
(expense), net......... (1) 48 313 339 7 217 200
------ ------- ------- -------- ------- -------- --------
Net loss................ $ (291) $(2,603) $(9,215) $(14,152) (1,108) $ (7,431) $ (8,318)
====== ======= ======= ======== ======= ======== ========
Net loss per share:
Basic and diluted...... $(0.20) $ (0.95) $ (2.11) $ (2.24) (0.31) $ (1.30) $ (1.09)
====== ======= ======= ======== ======= ======== ========
Weighted average
shares................ 1,464 2,735 4,377 6,310 3,612 5,704 7,637
====== ======= ======= ======== ======= ======== ========
Pro forma net loss per
share:
Basic and diluted...... $ (0.65) $ (0.41)
======= ========
Weighted average
shares................ 14,272 18,044
======= ========
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------- March 31, March 31,
1997 1998 1999 2000 2000
------ ------ ------- ----------- -----------
(unaudited) (pro forma)
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents... $1,024 $2,124 $ 5,835 $30,424 $34,832
Working capital............. 960 1,951 9,809 33,329 37,569
Total assets................ 1,136 2,434 12,499 42,358 62,698
Long-term obligations, net
of current portion......... -- 116 41 23 23
Total stockholders' equity.. 1,069 2,068 10,724 34,949 54,909
</TABLE>
See Note 1 of Notes to Consolidated Financial Statements for information
concerning the computation of pro forma net loss per share and the calculation
of the number of shares used in that computation.
The Consolidated Balance Sheet Pro forma data give effect to:
. the sale of 436,599 shares of series D preferred stock on April 7, 2000;
and
. our acquisition of Globalware, including a one-time charge for purchased
in-process research and development.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations in conjunction with our financial statements and related
notes. This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of factors
including those discussed in "Risk Factors," starting on page 7 and elsewhere
in this prospectus.
Overview
We provide mobile infrastructure software and services that extend the
Internet and corporate applications beyond the desktop to handheld devices and
Internet-enabled phones. Our AvantGo Enterprise products, which we license to
enterprises, are designed to accelerate information flow between companies and
their mobile employees, customers, suppliers and business partners. Our AMI
service enables content providers and e-businesses to extend their user reach,
foster repeat use and increase consumer loyalty.
We were incorporated in June 1997 as a Delaware corporation under the name
Bombardier Software, Inc. and changed our name to AvantGo, Inc. in January
1998. During the period from inception through May 1998, we were in a
development phase, and our operating activities related primarily to conducting
research, developing our product, building our corporate infrastructure and
raising capital. In September 1998, we launched our AvantGo Enterprise products
and services, which, to date, account for the majority of our revenues, before
giving effect to our acquisition of Globalware. In May 1999, we introduced our
AMI service. Although our revenues have increased each quarter since inception,
we have never been profitable. As of March 31, 2000, we had an accumulated
deficit of $19.5 million.
On May 26, 2000, we completed our acquisition of Globalware, a privately-
held Illinois company that develops software and provides consulting services
that extend business applications to handheld devices. This transaction has
been accounted for under the purchase method of accounting. In connection with
this transaction, for an aggregate purchase consideration of $17.1 million, we
issued 1,933,300 shares of our series E preferred stock to Globalware's
stockholders and assumed outstanding options that can be converted into 180,438
shares of our common stock. As a result of the acquisition, we expect to incur
merger-related costs of up to approximately $200,000 and to record
approximately $15.6 million of intangible assets and goodwill on our balance
sheet, including goodwill ($12.0 million), purchase of developed technology
($3.1 million) and assembled workforce ($530,000), which will result in
amortization expenses of approximately $3.0 million in 2000, $5.2 million in
2001, $5.2 million in 2002, and $2.2 million in 2003. We estimated that
approximately $600,000 of the $17.1 million purchase consideration represented
purchased in-process research and development that has not yet reached
technological feasibility and has no future use. Accordingly, this amount will
be charged to operations in the three months ended June 30, 2000. In addition,
we expect to incur increased product development expenses in the near term as
we integrate Globalware's technology into our products.
Our Business
Our primary sources of revenues are generated under our license agreements
and our services agreements. License revenues for our AvantGo Enterprise
products, which are typically based on fixed-fee agreements, are recognized
when we have executed an agreement with a customer, delivery and acceptance
have occurred, and the collection of the related receivable is deemed probable.
During the three months ended March 31, 2000, we entered into agreements with
American Express Travel-Related Services, Inc., Ford Motor Company and
McKessonHBOC, the revenues from which will be recorded over the terms of these
contracts because we have not yet determined vendor-specific objective evidence
of the value of the licenses. An aggregate of approximately $1.5 million of the
payments due to be received under our contract with McKessonHBOC during the
years ended December 31, 2000, 2001 and 2002 will be offset against a deferred
charge due to our
23
<PAGE>
issuance to McKessonHBOC of a warrant to purchase series D preferred stock.
Historically, our services revenue has consisted primarily of professional
services and maintenance fees. Revenue from professional services is recognized
on a monthly basis as the services are performed. Maintenance fees are
recognized ratably on a monthly basis over the course of the maintenance
period, typically twelve months. In the future, our services revenue will also
include amounts derived from the operation of our AMI service, which include
placement and advertising revenues, revenue sharing arrangements and
commissions on e-commerce transactions. Placement and advertising revenues will
be recognized ratably over the period of time in which placement or advertising
is provided.
The cost of license fees consists primarily of royalties paid to other
software vendors whose products are included in our enterprise software
products as well as costs incurred to manufacture, package and distribute our
enterprise software products and related documentation. Cost of services
includes cost of professional services, customer service and support and costs
related to running our AMI service. Cost of implementation and customer
services consist primarily of the cost of personnel. Cost of professional
services consists primarily of the cost of personnel and travel related
expenditures. Costs related to our AMI service consist of the cost of
personnel, co-location facilities and bandwidth.
Results of Operations
The following discussion relates to the historical operating results of
AvantGo without giving effect to the acquisition of Globalware. The following
table sets forth the percentage of total revenues for certain items in our
consolidated statement of operations for the years ended December 31, 1998 and
1999, respectively, and the quarters ended March 31, 1999 and 2000,
respectively.
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
--------------- -----------------------
1998 1999 1999 2000
------ ------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
License fees....................... 49% 50% 47% 45%
Services........................... 51 50 53 55
------ ------ ---- ----
Total revenues................... 100 100 100 100
Costs and expenses:
Cost of license fees............... 3 2 2 2
Cost of services................... 54 45 56 33
Product development................ 286 95 196 69
Sales and marketing................ 318 149 194 195
General and administrative......... 106 49 77 62
Amortization of goodwill and other
intangible assets................. -- -- -- --
Amortization of deferred stock
compensation...................... 18 90 64 194
------ ------ ---- ----
Total costs and expenses......... 785 430 589 555
------ ------ ---- ----
Loss from operations................. (685) (330) (489) (455)
Interest income (expense), net....... 12 11 3 13
------ ------ ---- ----
Net loss............................. (673)% (319)% (486)% (442)%
====== ====== ==== ====
</TABLE>
24
<PAGE>
Comparison of Three Months Ended March 31, 1999 and 2000
Revenues
License Fees. Actual license fees revenue increased approximately 604% from
approximately $107,000 for the quarter ended March 31, 1999 to approximately
$753,000 for the quarter ended March 31, 2000. This increase was primarily due
to subsequent releases of our enterprise product and increased and dedicated
sales efforts.
Services. Actual services revenue increased approximately 650% from
approximately $121,000 for the quarter ended March 31, 1999 to approximately
$908,000 for the quarter ended March 31, 2000. This increase was primarily due
to the increased demand for our professional services group and the May 1999
launch of our AMI service.
Costs and Expenses
Cost of License Fees. Actual cost of license fees increased approximately
575% from approximately $4,000 for the quarter ended March 31, 1999 to
approximately $27,000 for the quarter ended March 31, 2000. This increase was
primarily attributable to the increase in license fees during such period.
Cost of Services. Actual cost of services increased approximately 331% from
approximately $127,000 for the quarter ended March 31, 1999 to approximately
$547,000 for the quarter ended March 31, 2000. This increase was primarily due
to increased personnel expenditures for software support and professional
services and the launch and support of our AMI service.
Product Development. Actual product development expenses consist primarily
of compensation and related costs for product development personnel. Our actual
product development expenses increased approximately 156% from approximately
$447,000 for the quarter ended March 31, 1999 to approximately $1.1 million for
the quarter ended March 31, 2000. This increase was primarily a result of
increased hiring of engineers and product development personnel.
Sales and Marketing. Actual sales and marketing expenses include those
related to compensation, public relations and advertising, trade shows and
marketing materials. Our actual sales and marketing expenses increased
approximately 634% from approximately $442,000 for the quarter ended March 31,
1999 to approximately $3.2 million for the quarter ended March 31, 2000. This
increase was primarily a result of increased personnel-related expenses,
advertising and promotion costs.
General and Administrative. Actual general and administrative expenses
consist primarily of salaries, recruiting and related costs for general
corporate functions including executive, accounting and administrative
personnel, lease expenses, facilities costs and other miscellaneous general
corporate expenses. Our actual general and administrative expenses increased
approximately 533% from approximately $177,000 for the quarter ended March 31,
1999 to approximately $1.1 million for the quarter ended March 31, 2000. This
increase was due primarily to increased personnel related expenses.
Amortization of Deferred Stock Compensation. We are amortizing the amount of
the difference between the fair value of employee stock options and what were
considered to be the deemed fair values of our common stock on date of the
grants over vesting periods using a graded vesting method. We recognized
approximately $146,000 of related compensation expense during the quarter ended
March 31, 1999 and approximately $3.2 million during the quarter ended March
31, 2000.
Interest Income (Expense), Net. Actual net interest income increased
approximately 3000% from approximately $7,000 for the quarter ended March 31,
1999 to approximately $217,000 for the quarter ended March 31, 2000. This
increase was primarily due to increased cash balances as a result of our
private placement financing completed in March 2000.
25
<PAGE>
Comparison of Fiscal Years Ended December 31, 1998 and 1999
Revenues
License Fees. Our actual license fees revenue increased approximately 663%
from approximately $189,000 in 1998 to approximately $1.4 million in 1999. This
increase was primarily due to the release of our enterprise product and an
increase in dedicated sales efforts.
Services. Our services revenues increased approximately 630% from
approximately $198,000 in 1998 to approximately $1.4 million in 1999. This
increase in services revenue was primarily due to a full year of operations and
to the introduction of our AMI service.
Costs and Expenses
Cost of License Fees. Our cost of license fees increased approximately 500%
from $10,000 in 1998 to approximately $60,000 in 1999. This increase in cost of
license fees was primarily due to royalty payments to other software suppliers
whose software is part of our enterprise product.
Cost of Services. Our cost of services increased approximately 525% from
approximately $210,000 in 1998 to approximately $1.3 million in 1999. This
increase was primarily due to increased personnel in the consulting and web
operations groups.
Product Development. Our product development expenses increased
approximately 148% from approximately $1.1 million in 1998 to approximately
$2.7 million in 1999. This increase was primarily a result of increased hiring
of engineers and product development personnel.
Sales and Marketing. Our sales and marketing expenses increased
approximately 249% from approximately $1.2 million in 1998 to approximately
$4.3 million in 1999. This increase was primarily due to an increase in the
number of personnel and related costs.
General and Administrative. Our general and administrative expenses
increased approximately 242% from approximately $410,000 in 1998 to
approximately $1.4 million in 1999. This increase was primarily due to
increases in personnel costs resulting from increased hiring of administrative
personnel.
Amortization of Deferred-Stock Compensation. We recognized approximately
$71,000 of related compensation expense during the year ended December 31, 1998
and $2.6 million during the year ended December 31, 1999.
Interest Income (Expense), Net. Net interest income increased approximately
552% from approximately $48,000 in 1998 to approximately $313,000 in 1999. This
increase was primarily due to interest earned on increased cash balances as a
result of our private placement financings completed in June 1999.
Liquidity and Capital Resources
Since our inception, we have funded our operations primarily through private
sales of our equity securities. As of March 31, 2000, we had $30.4 million in
cash and cash equivalents. In March and April 2000, we sold an aggregate of
3,726,094 shares of our series D preferred stock for gross proceeds of
approximately $31.2 million.
Net cash used in operating activities totaled $2.4 million and $6.6 million
for the years ended December 31, 1998 and 1999, respectively, and $4.1 million
for the three months ended March 31, 2000. The principal use of cash in each of
these periods was to fund our losses from operations.
Net cash provided by financing activities totaled $28.3 million during the
three months ended March 31, 2000, $15.2 million for the year ended December
31, 1999 and $3.7 million for the year ended December 31, 1998. Net cash
provided by financing activities primarily consisted of the proceeds of
issuances of preferred stock and promissory notes in each of these periods and
included proceeds from a $300,000 equipment line of credit in 1999.
26
<PAGE>
Since our inception, our investing activities have consisted primarily of
purchases of fixed assets, principally computer hardware and software. Capital
expenditures totaled $778,000 in the three months ended March 31, 2000,
$871,000 for the year ended December 31, 1999 and $168,000 for the year ended
December 31, 1998. We expect that capital expenditures will increase with our
anticipated growth in operations, infrastructure and personnel both
domestically and internationally. Cash used in investing activities for the
year ended December 31, 1999 was primarily for the purchase of short-term
investments. For the three months ended March 31, 2000, we generated cash from
investment activities from the sale of short-term investments offset in part by
the purchase of property and equipment.
We currently anticipate that the net proceeds from this offering, together
with our current cash, cash equivalents, short-term investments and credit
facility, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. However, we
may need to raise additional funds in order to support more rapid expansion,
develop new or enhanced services and products, respond to competitive
pressures, acquire complementary businesses or technologies or take advantage
of unanticipated opportunities. Our future liquidity and capital requirements
will depend upon numerous factors, including costs and timing of expansion of
research and development efforts and the success of such efforts, the success
of our existing and new service offerings and competing technological and
market developments. Our forecast of the period of time through which our
financial resources will be adequate to support our operations is a forward-
looking statement that involves risks and uncertainties, and actual results
could vary. The factors described earlier in this paragraph will impact our
future capital requirements and the adequacy of our available funds. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our stockholders will be reduced, stockholders may
experience additional dilution in net book value per share or such equity
securities may have rights, preferences or privileges senior to those of our
stockholders. There can be no assurance that additional financing will be
available when needed on terms favorable to us, if at all.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements of all public registrants. Any change in our
revenue recognition policy resulting from the interpretation of SAB 101 would
be reported as a change in accounting principle in the quarter ending June 30,
2000. While we have not fully assessed the impact of the adoption of SAB 101,
we believe that implementation of SAB 101 will not have a material adverse
impact on our existing revenue recognition policies or our reported results of
operations for fiscal 2000.
In March 2000, the Emerging Issues Task Force of the FASB reached consensus
on Issue 00-2 "Accounting for Website Development Costs." ("EITF 00-2"). EITF
00-2 establishes how an entity should account for costs incurred to develop a
website. It requires that an entity capitalize costs during the Web application
and infrastructure and graphics development stages of development. The
consensus is effective for all costs incurred beginning after June 30, 2000,
although earlier adoption is encouraged. We are currently evaluating the
adoption of EITF 00-2 and its potential impact on its financial condition or
results of operations.
Market Risk
The following discussion analyzes our exposure to market risk related to
changes in interest rates and foreign currency exchange rates.
Foreign Exchange Rate Risk
To date, substantially all of our recognized revenue has been denominated in
U.S. dollars and generated primarily from customers in the United States, and
our exposure to foreign currency exchange rates has been immaterial. We expect,
however, that future product and service revenue may also be derived from
international markets and may be denominated in the currency of the applicable
market. As a result, our operating results
27
<PAGE>
may become subject to significant fluctuations based upon changes in 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 and services less competitive in international markets.
Although we will continue 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
At March 31, 2000, we had cash and cash equivalents of $30.4 million and
short-term investments of $2.8 million consisting of cash and highly liquid,
short-term investments. Our short-term investments will decline by an
immaterial amount if market interest rates increase, and therefore, our
exposure to interest rate changes is minimal. Declines of interest rates over
time will, however, reduce our interest income from our short-term investments.
Our outstanding notes payable and capital lease obligations are all at fixed
interest rates and therefore have minimal exposure to interest rate
fluctuations.
28
<PAGE>
BUSINESS
Overview
We provide mobile infrastructure software and services that extend the
Internet and corporate applications beyond the desktop to handheld devices and
Internet-enabled phones. Our software and services bridge the gap between the
Internet, wireless and mobile technologies. Our AvantGo Enterprise software
products enable access to critical information and applications from mobile
devices to accelerate information flow between companies and their mobile
employees, customers, suppliers and business partners. Our AvantGo Mobile
Internet service, or AMI service, enables content providers and e-businesses to
extend their user reach, foster repeat use and increase consumer loyalty. Our
AMI service provides consumers with interactive and personalized Internet
content and Web-based applications on mobile devices from over 400 content
sources, or channels. To promote the use of our products and services, our
software is bundled with offerings from leading mobile hardware and software
providers, including Palm, Inc. and Microsoft Corp.
We license our AvantGo Enterprise software products to large global
companies such as American Express Travel-Related Services, Inc., the Ford
Motor Company and McKessonHBOC. With our software products and services, our
enterprise customers can increase employee productivity and streamline business
processes such as billing, procurement, inventory control, manufacturing and
customer relationship management.
Through our AMI service, we generate placement and advertising revenue and
have revenue-sharing arrangements that provide the opportunity for us to earn
commissions on e-commerce transactions. Our content provider and e-business
customers use our AMI service and software to rapidly create a mobile
infrastructure and instantly gain access to our AMI user base. This user base
consists of over 700,000 registered users, of which over 475,000 have used our
AMI service at least once in the last 90 days. Our AMI service, which initially
offered channels from CNET Networks, Inc., Excite, InfoWorld, Mercury Center,
The New York Times and Wired Digital, currently offers over 400 channels of
content and applications optimized for mobile devices.
Industry Background
The Internet and private data networks, or intranets, have emerged as global
communications channels, enabling millions of people to conduct business and
share information electronically. International Data Corporation, or IDC,
estimates that there were approximately 240 million Internet users worldwide at
the end of 1999 and that the number of users will grow to 602 million by the
end of 2003. IDC further estimates that by 2003 there will be 106 million
intranet users in the United States alone.
The dramatic growth in the number of business and consumer Internet users
has led to a proliferation of Web-based applications. Businesses increasingly
depend upon data networks, not only for internal communication, but also to
conduct transactions and exchange information among corporate sites, remote
locations, telecommuting employees, business partners, suppliers and customers.
To reduce costs, increase productivity and widen accessibility, many businesses
increasingly use the Internet as a platform for traditional enterprise
applications such as customer relationship management, inventory control, human
resources management, enterprise resource planning and manufacturing.
Similarly, consumers are increasingly using the Internet as a personal resource
for communicating, publishing information and purchasing products and services.
Until recently, most businesses and consumers have been confined to accessing
these applications from desktop computers, or PCs.
At the same time, worldwide use of mobile communications is growing rapidly
as mobile devices become more broadly available and adopted, and as cellular
and other mobile communications services become more widely accessible and
affordable. Dataquest estimates that there were approximately 217 million
digital wireless subscribers worldwide at the end of 1998 and that this number
will grow to approximately 828 million by the end of 2003, of which 102 million
are estimated to be wireless data users. In addition to the growth of mobile
communications services, innovations in mobile device design and the creation
of wireless standards
29
<PAGE>
have brought forth the development of personal digital assistants, or PDAs,
Internet-enabled phones and two-way pagers. IDC estimates that the worldwide
shipments of smart handheld devices, which IDC defines to include handheld
companions or PDAs, smart phones and vertical application devices, such as
those used to track packages, will grow from approximately 8.9 million units in
1999 to approximately 35.5 million units in 2003.
Many individuals, accustomed to accessing information from the Internet and
corporate intranets via a desktop PC, are now able to gain access to this
information when away from the office. IDC forecasts that the remote and mobile
workforce in the United States will grow to 47.1 million, or approximately 37%
of the total U.S. workforce population, by the end of 2003. Many businesses are
extending applications, content and services beyond the desktop to their mobile
constituents, both to accelerate the dissemination of information across the
enterprise to employees and to create closer relationships with their
customers, suppliers and business partners. Similarly, many content providers
and e-businesses are seeking to enhance their customer relationships and
increase traffic to their Web sites by extending Web-based content and commerce
to mobile devices.
Many businesses have invested heavily in their information technology
infrastructure. In order to build a mobile platform, these businesses now face
the challenge of integrating their existing systems with the hundreds of
thousands of potential combinations of available mobile devices, applications
and connectivity options:
. Proliferation of mobile devices. The demand for mobile devices has
spawned the growth in the number of mobile device designs and features
now available. Manufacturers of mobile devices have based their designs
on a number of different mobile operating systems, including Palm OS,
Windows CE, EPOC, RIM and embedded phone operating systems. These devices
differ significantly in their available processing power, memory, screen
size and battery life. Typically, developers are required to write and
maintain separate versions of applications for each device design.
. Multitude of applications. Companies and individuals access a variety of
Web-based and enterprise applications and content. Accessing these
applications and content from mobile devices presents complex challenges.
For example, these applications, most of which were originally created
for desktop use, must conform to the smaller screen sizes and differing
data input capabilities of the mobile devices.
. Variety of connectivity options. Mobile devices can access the Internet
and intranets through many connectivity alternatives, including wireless
modems, infrared connectors, dial-up modems, desktop synchronization
cradles and shared access terminals. The many different types of
communications networks, each with its own architecture, technologies,
hardware requirements and communications protocols, create additional
complex challenges when extending applications and content to mobile
devices. These challenges are amplified by incompatible networks across
wide geographic regions and inconsistent network services across coverage
areas.
Businesses extending applications to a mobile environment require a mobile
solution that supports all of the potential combinations of mobile devices,
applications and connectivity options.
The AvantGo Solution
We provide mobile infrastructure software and services that extend the
Internet and corporate applications beyond the desktop to handheld devices and
Internet-enabled phones. Our AvantGo Enterprise software products are designed
to accelerate information flow between companies and their mobile employees,
customers, business partners and suppliers. Our AMI service is designed to
permit content providers and e-businesses to extend their user reach, foster
repeat use and increase consumer loyalty. Our AMI service provides consumers
with access to interactive and personalized Internet content and Web-based
applications on handheld devices and Internet-enabled phones from over 400
content sources, or channels.
30
<PAGE>
Our AvantGo Enterprise products and AMI service provide several key common
benefits to enterprises, content providers and e-businesses, including the
ability to:
. Deliver sophisticated applications. Our software incorporates advanced
compression, formatting and application partitioning techniques designed
to overcome mobile device limitations including limited memory, processor
performance and available network communications bandwidth. Using our
software, mobile devices can store and display complex, table-formatted
content and graphics, collect data using innovative methods such as
integrated bar-code scanners, and allow efficient pen-based interaction
through touch-sensitive displays that can, for example, capture
signatures electronically.
. Increase access to information. Our software is designed to keep
information up-to-date and readily accessible, even when a network or
wireless connection is unavailable. Our software allows individuals to
update, add and remove applications and services with one-button
simplicity. Additionally, administrators can use our software to remotely
deliver the information individuals need.
. Develop and deploy mobile applications on a standards-based platform. Our
software is designed to enable mobile devices to support applications
that rely on existing Internet standards, such as hyper text mark-up
language, or HTML, extensible mark-up language, or XML, secure sockets
layer, or SSL, and JavaScript. As a result, software developers can build
and deploy applications on mobile devices using the same development
tools and publishing systems that they use for ordinary Web browsers and
PCs.
Our software and services also deliver distinct benefits to both our AvantGo
Enterprise customers that license our software to reach employees, customers
and business partners, and to content providers and e-businesses that use our
AMI service to reach their customer base.
Benefits to enterprise customers
. Increased productivity. Our AvantGo Enterprise software is designed to
increase productivity and the return on existing IT investments by
accelerating information flow within organizations and among customers,
business partners and suppliers. Our software and services also
streamline business processes such as billing, procurement, inventory
control and customer relationship management by replacing traditional
paper-based processes with those using mobile devices. Our software
allows access to information from a mobile device in situations where
network connections are slow or unavailable.
. Open, standards-based architecture. We deliver an open, standards-based
architecture that gives companies flexibility in selecting from among a
wide range of mobile platform options. Our software and services simplify
integration with existing systems and allow our customers to leverage
their IT investments to rapidly deploy a mobile infrastructure solution.
. Centralized administration. Our enterprise software and services enable
businesses to centrally manage and remotely support their mobile
workforces using a Web browser. For example, our software enables
businesses to update applications and remotely deploy them to dispersed
mobile devices from a single location. Our software also simplifies
information management and maintenance by allowing organizations to
create user accounts, define user groups and control access.
Benefits to content providers and e-businesses
. Cost savings and faster time to market. Instead of devoting significant
resources to build a mobile network that may not operate over multiple
connectivity combinations, Internet content providers and e-businesses
can use our software and services to rapidly create a mobile
infrastructure. As a result, content providers and e-businesses can
quickly meet the mobile computing needs of their user base while focusing
on their core businesses rather than on the complex connectivity
challenges involved in building a mobile infrastructure.
. Network effect. We have built a network of over 400 content channels and
over 475,000 active AMI users. By expanding our user base, we encourage
additional content providers and e-businesses to
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deliver their offerings through our AMI service in order to reach this
growing audience. In turn, a wider selection of content providers and e-
businesses attract more users to our service. As a result, existing
content providers and e-businesses have the opportunity to instantly
extend their brand and service offerings to a wide consumer audience.
. Revenue opportunities. We believe our AMI user base increases the range
of potential revenue opportunities for content providers and e-businesses
through means such as advertising, subscriptions and product and service
sales.
Strategy
Our objective is to be the leading provider of mobile infrastructure
software and services that extend the reach of the Internet and business
applications to mobile devices. Key elements of our strategy include the
following:
Increase compatibility through the use of open standards. We intend to make
it possible for Web-based applications to run on a wide variety of mobile
devices, whether wireless or requiring desktop synchronization. We believe that
our focus on open standards will encourage application developers to create
products and services that rely on our software for a wide range of mobile
devices. Additionally, through our open, standards-based architecture, we seek
to attract content providers and e-businesses to deliver personalized
information, services and applications to any mobile device.
Focus on the needs of enterprise customers. We license our enterprise
software to businesses in industries that both invest heavily in technology and
have large numbers of mobile customers or employees. Drawing on our experience
developing enterprise software, we intend to expand our enterprise customer
base by supporting additional mobile devices and introducing new applications,
content and services to better meet the needs of these companies. We also will
continue to invest in our professional services organization to serve
enterprise customers with consulting, outsourcing and support needs.
Expand applications, content and features to increase user base. We intend
to expand our user base and enhance our compelling user experience by
continuing to improve the functionality of our enterprise software and services
for our enterprise customers and the range of content for our AMI users. Toward
this end, we will continue to build relationships with third-party software
developers to use our infrastructure to deliver new applications with mobile
capabilities. An increase in available applications, content and features will
enable us to extend the benefits of our products and services across a greater
number of organizations in a wide range of industries, thereby attracting new
users and increasing associated revenue opportunities.
Expand distribution of our products through strategic relationships. We
intend to continue to actively pursue additional distribution and bundling
relationships with device hardware manufacturers and software developers,
mobile device operating system vendors and wireless carriers. We believe that
maintaining and developing these relationships will encourage widespread market
penetration of our software and increase our brand awareness and user base.
Establish cooperative relationships to increase revenue opportunities. We
seek to create revenue opportunities for content providers and e-businesses
through advertising and e-commerce, wireless carriers through increased airtime
and hardware and software manufacturers through increased product sales.
Through these industry relationships, we seek to increase our user base and the
market adoption of our products and services. Additionally, our relationships
with content providers and e-businesses have the potential to increase our own
revenue opportunities through revenue-sharing arrangements and advertising and
placement fees.
Products and Services
Our infrastructure software and services, which are based on common
technology, provide the foundation for our AvantGo Enterprise software products
and AMI service. We also offer professional services to help customers deploy
and maintain our software and services.
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AvantGo Enterprise Software Products
Our AvantGo Enterprise Interactive and AvantGo Enterprise Publisher, both of
which reside on the customer's corporate network, enable organizations to
extend interactive enterprise applications and data to mobile workers, through
either a wireless connection or through desktop synchronization. AvantGo
Enterprise Interactive allows enterprise customers to run applications on
mobile devices, including sales force automation, document publishing and
travel, expense management applications, field service maintenance, inventory
management and logistics. Our AvantGo Enterprise Publisher, our read-only
version of AvantGo Enterprise Interactive, allows enterprise customers to run
applications on mobile devices, including knowledge management, document
publishing and data reporting.
Our AvantGo Enterprise Online service, hosted in our operations center,
allows organizations to run the same types of applications as our AvantGo
Enterprise software without operating our server software on their network.
We license our AvantGo Enterprise Interactive and AvantGo Enterprise
Publisher products to our enterprise customers, and our AvantGo Enterprise
Online is made available to enterprises on a subscription basis.
AvantGo Mobile Internet Service
Our AMI service allows Internet users with a handheld device or Internet-
enabled phone to access Web-based services and content through a wireless
connection or desktop synchronization. Our AMI service allows Internet users to
interact with Web-based applications and services and enter information into
mobile devices for posting onto the Web.
Companies delivering content and applications through our AMI service have
the opportunity to increase their visibility by purchasing AMI advertising and
premium placement on our Web site. Additionally, we receive a share of revenue
generated by channel providers with content on our service. These agreements,
which typically are non-exclusive and have one-year renewable terms, stipulate
that the content provider may offer unlimited content on our AMI service.
Currently over 400 content channels are optimized for mobile devices through
our AMI service. We also currently have over 700,000 registered users and over
475,000 active users of our AMI service. Through a simple point-and-click
process, individuals can select the "channels" of content, applications and
services that they wish to have delivered to their mobile devices.
AvantGo Professional Services
We employ a professional services team that is focused on integrating our
software with our customers' systems and providing consulting services for our
enterprise and AMI customers on a fee-for-service basis. AvantGo Professional
Services offerings include implementation, consulting, training and technical
support, and within each offering, customers have the opportunity to choose the
level of service that best meets their needs. Our service and support
professionals may assist customers in every phase and stage of mobile solution
development and delivery, including design, implementation and deployment of
mobile architectures and applications.
Globalware Products
On May 26, 2000, we completed our acquisition of Globalware. Globalware's
Pylon Conduit and Pylon Pro software products enable much of the functionality
of Lotus Notes to be used on mobile devices. Globalware's Pylon Server product
enables users of handheld devices to synchronize between a PC and a centrally
configured server. We sell our Pylon Conduit and Pylon Pro pre-packaged
software products and license our Pylon Server product. We believe our
acquisition of Globalware will enable us to provide a broader set of
applications to our enterprise customers.
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Sales and Marketing
We maintain two marketing organizations, one to address our enterprise
business and one to address our AMI service. Our marketing efforts on both our
enterprise business and our AMI service focus on cooperative marketing and
trade shows in conjunction with our hardware, software and service partners.
Enterprise
We sell software products, hosted services and professional services to
enterprise customers through our direct sales force in North America and third-
party resellers. Organized into three geographic areas, our United States
direct sales organization consists of sales representatives and technical sales
consultants/engineers located in field sales offices and corporate sales
representatives located at our corporate headquarters. We also manage our
European sales and marketing effort through AvantGo Europe, Ltd., our U.K.
subsidiary. We augment our sales efforts with customer service and ongoing
technical support. We also have a business development organization that
pursues and establishes distribution and marketing relationships with
enterprise software vendors. We intend to increase the number of sales offices
in the United States and Europe. We are also expanding our relationships with
value-added resellers and systems integrators to increase indirect distribution
channels for our enterprise software.
AvantGo Mobile Internet
We have a team of professionals that markets our AMI service on an ongoing
basis to branded content providers and e-businesses to encourage them to
participate in co-marketing and promotional activities. We have focused our
recent marketing efforts on increasing the amount of content and services
available through our AMI service by advertising and entering into co-marketing
relationships with manufacturers of wireless data communications equipment and
wireless carriers. Our professional sales team also pursues distribution
relationships with hardware manufacturers, Internet portals and e-commerce
vendors.
Key Relationships
We have entered into agreements with major hardware and software producers
to bundle or integrate our software with their mobile devices and software
products. We have also entered into joint software development projects to
integrate our software and AMI content and services with the products of
software and device vendors. We believe that these relationships are integral
to our success because they expose our service offerings to a wide array of
users and tie our service into integral elements of the mobile device
architecture. In addition, we have entered into various agreements with
McKessonHBOC that provide for license revenues to us through McKessonHBOC's use
of our enterprise products and for the broad development of health-oriented
content to be managed by McKessonHBOC and distributed through our AMI service.
Microsoft Corporation. Our software is integrated into Microsoft's Pocket
Internet Explorer browser that ships on new Windows-Powered Pocket PC devices
from leading manufacturers, including Hewlett-Packard Company, Compaq Computer
Corporation, Casio, Inc. and Symbol Technologies, Inc. Our software is also
available on other hardware platforms running the Microsoft Windows CE
operating system, including Handheld PCs, the Handheld PC Pro and the Palm-
sized PC. We continue to explore co-marketing opportunities with Microsoft
designed to more broadly distribute our software to companies and OEMs as well
as to increase internal deployment of our software within Microsoft's host of
products. Our agreement with Microsoft, which has a two year renewable term,
provides for Microsoft to incorporate our software with its Windows CE
operating system on a non-exclusive basis. As of May 26, 2000, Microsoft owns
approximately 4.63% of our outstanding voting stock.
Palm, Inc. Palm, Inc. is a provider of handheld computers, including the
Palm III(TM), Palm V(TM) and Palm VII(TM) series of handheld computers. Our
software is compatible with every handheld device that runs on the Palm OS
operating system, and is bundled with most of the Palm, Inc. devices in the
Palm III(TM) and Palm V(TM) families. In 1997, we also licensed our Java
Development Kit to Palm, Inc., which is now marketed
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by Palm, Inc. as the Windows Java Conduit Development Kit. Under our agreement
with Palm, Inc., Palm, Inc. bundles our software with their Palm(TM) devices on
a non-exclusive basis. As of May 26, 2000, 3Com, a majority owner of Palm,
Inc., owns approximately 2.32% of our outstanding voting stock.
McKessonHBOC. McKessonHBOC is a global pharmaceutical supply management and
healthcare information technology company. Since October 1998, McKessonHBOC has
been using our AvantGo Enterprise software and our AvantGo professional
services to develop and deliver a "closed loop" inventory management system. In
addition to streamlining the product delivery process, McKessonHBOC expects
that our AvantGo Enterprise software will help improve their operational
efficiency, reduce operating costs, and increase customer satisfaction. In
addition, McKessonHBOC will manage the content development relationships and
licensing and revenue agreements with content providers who deliver healthcare
content, services and applications for our AMI service. Our license agreement
with McKessonHBOC, which has a three year term, provides that McKessonHBOC will
license our AvantGo Enterprise Server and AvantGo Client software on equipment
owned by McKessonHBOC for use by McKessonHBOC employees and contractors. As of
May 26, 2000, McKessonHBOC owns approximately 2.18% of our outstanding voting
stock.
Technology
Our technology builds upon the prevailing open standards to deliver
Internet-based services and applications to handheld devices and Internet-
enabled phones. The software and services built using our technology take into
account the specific capabilities of mobile devices, wireless data networks and
Internet-based applications. Our software products allow mobile devices with
limited memory, low processing power and unreliable or limited network access
to effectively interact with systems and applications designed to serve
personal computers with high-speed, reliable Internet access.
[GRAPHIC APPEARS HERE]
Components of AvantGo Server
Our AvantGo Server is designed to be modular, expandable, flexible, scalable
and reliable. The modular architecture allows AvantGo Server to be deployed in
configurations ranging from simple single-server configurations to large-scale
clustered, fault-tolerant, multi-server configurations. AvantGo Server runs on
Microsoft's Windows NT and Windows 2000, Sun Microsystems' Solaris operating
system, Linux, and FreeBSD and is designed to meet the reliability and
performance requirements of large enterprises as well as our AMI service.
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Server Core. Our AvantGo Server core provides an extensible framework for
server-side modules that act on the behalf of mobile devices. Since wireless
networks have limited bandwidth and mobile devices have limited processing
power and memory capacity, server-side modules are used to offload processor or
memory intensive tasks from the mobile device. This architecture also optimizes
the utilization of high latency, low bandwidth wireless networks since data
objects can be processed on the server before being transmitted to the mobile
device. Our AvantGo Server core provides reliable and secure communication
abstractions so that server-side modules are not encumbered with the multitude
of different Internet and wireless protocols, as well as the many device-
specific communications issues. Our AvantGo Server core can integrate with
existing directory services such as LDAP and Windows NT Domains for user and
group authentication and administration.
Server-side Web Module. Our AvantGo server-side Web module extends our
server core to provide both real-time wireless access to the Web, as well as to
allow mobile devices without wireless capabilities to synchronize with Web-
based applications and services. By offloading the processing of standard HTML
from the mobile device and offloading the standard HTTP and secure sockets
layer, or SSL communication with existing Web servers, the server-side Web
module allows mobile devices to access all existing Internet-based
applications, content and services. Depending upon the capabilities of the
mobile device and on user preferences, the server-side Web module can perform
batch synchronization, real-time "proxy" browsing, data compression and custom
transformation of HTML, JavaScript, GIF, JPEG and other Internet-standard data
objects.
Server-side Administration Module. Administrators can use the server-side
administration module to target applications, content or services to particular
users or groups of users, as well as control user preferences and settings. The
server-side administration module provides facilities for installing and
upgrading software on mobile devices in addition to reporting on user activity.
At the discretion of the server administrator, end users can also self-
administer their settings and preferences with the server-side administration
module. Both server administrators and end users can access the server-side
administration module with any Web browser.
Components of AvantGo Client.
Client Core. Our AvantGo Client core provides an extensible framework for
client-side modules that allows the user to interact with various applications,
content and services on the mobile device. Our AvantGo Client core software is
not required to interact with our AvantGo Server. Devices such as Internet-
enabled phones can access a subset of the AvantGo Server functionality even
though they lack our AvantGo Client software. As part of providing a framework
for client-side modules, the AvantGo Client core transforms directives from our
AvantGo Server into the appropriate commands recognizable by the specific
device.
Client-side Web Module. AvantGo provides a client-side Web module to display
and navigate Web content including text, graphics and hyper-text links. The
client-side Web module also supports the execution of standard JavaScript along
with platform-specific native code to provide the user with an interactive
experience even if a device lacks real-time wireless capabilities.
Additionally, HTML forms can be queued by the client-side Web module for later
transmission from mobile devices with or without wireless connectivity.
Competition
The market for our products and services is becoming increasingly
competitive, and the wireless market has attracted many start-ups, as well as
established companies that want to extend the capabilities of their products
and services to support handheld devices and Internet-enabled phones. We expect
that we will compete primarily on the basis of functionality, breadth of
software and service offerings, quality, reliability, scalability and
performance of our offerings, time-to-market advantages and price. As the
market matures, we will continue to both cooperate and compete with emerging
companies and established companies entering the wireless market.
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Our enterprise software and services compete primarily with offerings from
the following types of companies:
. server synchronization software providers, including Palm, Inc.,
PUMATECH, Inc. and Oracle Corporation;
. handheld application development environment providers, including
PUMATECH, Inc., Aether Software, MetroWerks, Inc. and Microsoft Corp.;
and
. application service providers, such as Aether Systems, Inc.
Our AMI service competes primarily with the service offerings from the
following types of companies:
. value-added wireless service providers, such as Palm, Inc.'s Palm.Net and
OmniSky Corporation; and
. wireless Internet portals, such as InfoSpace, Inc. and Oracle
Corporation's Portal to Go.
In addition, companies with whom we currently have relationships may
terminate their relationship with us and compete with us. Also, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to compete more
effectively. Finally, existing and potential competitors may develop
enhancements to or future generations of competitive products that will have
better performance features than our products.
Many of our existing and potential competitors have substantially greater
financial, technical, marketing and distribution resources then we do.
Additionally many of these companies have greater name recognition and more
established relationships with our target enterprise customers. Furthermore,
these companies may be able to adopt more aggressive pricing policies and
offer customers more attractive terms than we can.
Intellectual Property Rights
We regard our intellectual property protection for our proprietary
technology, products and services as critical to our success. To protect our
proprietary technology, products and services, we rely on a combination of
patent, trademark, copyright and trade secret protection and confidentiality
and license agreements with our employees, customers, business affiliates and
others. Despite these precautions, others may be able to gain access to and
use our trade secrets without our authorization, may infringe our intellectual
property rights or may violate contractual provisions protecting our
intellectual property. If we are unable to adequately protect our intellectual
property, it could materially affect our financial performance. In addition,
potential competitors may be able to develop non-infringing technologies or
services similar or superior to ours.
We have filed six non-provisional patent applications and two provisional
patent applications in the United States, and one Patent Cooperative Treaty
(International) application, directed to aspects of our core technologies. We
do not know if these or other applications will ever be issued or, if issued,
whether they will contain claims with the scope that we seek, or whether they
will survive legal challenges that may be brought. Any such legal challenges,
whether or not successful, may be expensive to defend.
We have applied for registration in the United States and internationally
of several of our trademarks and service marks including the AvantGo circle
logo and the name "AvantGo." We have notified two companies that they have
conducted business using trademarks that we consider to be deceptively similar
to our trademarks and service marks.
We have applied for and obtained copyright registration in the United
States for our AvantGo Enterprise software products.
We also license some of our intellectual property to others, including our
AvantGo Client technology and various trademarks and copyrighted material.
While we attempt to ensure that the quality of our brand is maintained, others
might take actions that materially harm the value of either these proprietary
rights or our reputation.
We license technology from others, including some portions of our
compression-decompression technology, security and encryption technology and
PIM technology. If these technologies become unavailable
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to us, we would need to license other technology and redesign or redevelop
portions of our system. Although we are generally indemnified against claims
that technology licensed to us infringes the intellectual property rights of
others, such indemnification is not always available for all types of
intellectual property and in some cases the scope of such indemnification is
limited.
Even if we receive broad indemnification, third party indemnitors may not
have the financial resources to fully indemnify us in the event of
infringement, resulting in substantial exposure to us. We cannot be assured
that infringement claims arising from the incorporation of this technology will
not be asserted or prosecuted against us. These claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources in addition to potential redevelopment costs and delays,
all of which could materially adversely affect our business, operating results
and financial condition.
We attempt to avoid infringing the proprietary rights of others, although we
have not done an exhaustive patent search. Our competitors may claim that we
are infringing their intellectual property and, if they are successful, we may
be unable to obtain a license or similar agreement to use the technology we
need to conduct our business.
Employees
As of May 26, 2000, we had 188 full-time employees, 59 in research and
development, 60 in sales and marketing, 40 in professional services and 29 in
general and administrative. None of our employees is subject to a collective
bargaining agreement, and we have never experienced a work stoppage. We believe
that our relations with our employees are good.
Facilities
Our principal headquarters are in San Mateo, California, where we lease
approximately 25,000 square feet. We also lease a facility in Hayward,
California of approximately 83,000 square feet.
Legal Proceedings
We are not a party to any pending material legal proceedings. However, we
may from time to time become a party to various legal proceedings arising in
the ordinary course of our business.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth the name, age and position of each of our
executive officers and directors as of May 26, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Felix Lin............... 36 Co-Founder and Chairman of the Board of Directors
Richard Owen............ 35 Chief Executive Officer and Director
Linus Upson............. 29 Co-Founder, President, Chief Technology Officer and Director
Thomas F. Hunter........ 54 Chief Financial Officer
Christopher B. 32 Director
Hollenbeck(2)..........
Dennis Jones(1)......... 47 Director
Robert J. Lesko(1)(2)... 57 Director
Gregory L. Waldorf(1)... 31 Director
Jeffrey T. Webber(2).... 47 Director
Peter H. Ziebelman...... 44 Director
</TABLE>
---------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Felix Lin is one of our co-founders and has served as one of our executive
officers and directors since July 1997. Mr. Lin has served as our chairman of
the board since February 2000. From July 1997 to February 2000, Mr. Lin was our
chief executive officer. Mr. Lin has also served as chairman of the board,
president and chief executive officer, and as the sole director of our
Globalware subsidiary since May 26, 2000. Prior to founding AvantGo, from
October 1994 to June 1997, Mr. Lin was the director of internet strategy for
Versant Object Technology. Mr. Lin served as database product marketing manager
at NeXT Computer, Inc. from February 1992 until October 1994. From October 1990
to January 1992, Mr. Lin was product manager at Cadre Technology (now Sterling
Software). From June 1988 to June 1990, Mr. Lin was a principal consultant and
consulting manager for Oracle Consulting Group at Oracle Corporation. Mr. Lin
holds a B.S. degree in Electrical Engineering, and a Master of Science in
Computer Science from the Massachusetts Institute of Technology, and a Master
of Science in Management from the Massachusetts Institute of Technology Sloan
School of Management.
Richard Owen has served as our chief executive officer and as one of our
directors since February 2000 and has been employed by us since January 2000.
From September 1998 to December 1999, Mr. Owen served as vice president of Dell
Online Worldwide for Dell Computer Corporation. From July 1992 to September
1998, Mr. Owen served in a variety of roles, including international business
development, director of supply chain integration and general manager of Japan
Home and Small Office Sales at Dell Computer Corporation. From 1987 to 1990,
Mr. Owen was an information technology consultant with KPMG Management
Consultants in London, England. Mr. Owen is also a director of FTD.com, Inc.
Mr. Owen holds a Bachelors Degree in Mathematics and Economics from Nottingham
University in England and a Master of Science in Management from the
Massachusetts Institute of Technology Sloan School of Management.
Linus Upson is one of our co-founders and has served as our president and as
one of our directors since July 1997. Mr. Upson has also served as our chief
technology officer since February 1998. From March 1997 to July 1997, Mr. Upson
was not employed. From May 1996 to March 1997, Mr. Upson was a software
engineer at Netscape Communications. From January 1996 to April 1996, Mr. Upson
was a software engineer at Netcode Corporation. From January 1995 to January
1996, Mr. Upson was a consultant for his own company, Virtual Pages, Inc. From
April 1993 to January 1995, Mr. Upson was a software engineer at NeXT Computer,
Inc.
Thomas F. Hunter has served as our chief financial officer since August
1999. From June 1991 to August 1999, Mr. Hunter operated his own company,
Images of Nature Galleries in Palo Alto, California and
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Los Gatos, California. From April 1986 to June 1991, Mr. Hunter was self-
employed as a management consultant. From April 1985 until March 1986, Mr.
Hunter served as President of American Supercomputers, Inc. From April 1977 to
April 1985, Mr. Hunter was employed by First Data Resources, most recently as
executive vice president and chief financial officer. From April 1969 through
April 1977, Mr. Hunter held various positions with International Business
Machines Corporation, including sales manager, staff instructor and sales
representative. Mr. Hunter holds both a Bachelor of Science in Commerce and an
M.B.A. from Santa Clara University.
Christopher B. Hollenbeck has been one of our directors since May 1998.
Since July 1998, Mr. Hollenbeck has been a principal of H&Q Venture Associates,
LLC, a venture capital firm, and has been one of two investment managers for
Adobe Ventures. From June 1996 to June 1998, Mr. Hollenbeck served as a vice
president in Hambrecht & Quist's Venture Capital department. Prior to joining
Hambrecht & Quist's Venture Capital department, from 1990 to 1996, Mr.
Hollenbeck worked in Hambrecht & Quist's Mergers & Acquisitions department and
Corporate Finance department. Mr. Hollenbeck also serves as a director of ESPS,
Inc. and several private companies. Mr. Hollenbeck holds a B.A. degree in
American Studies from Stanford University.
Dennis Jones has been one of our directors since April 2000. Since January
1998, Mr. Jones has been the executive vice president of information
technology, and chief information officer of FedEx Corporation, a global
transportation company and the corporate parent of the Federal Express
Corporation. From December 1991 to January 1998, Mr. Jones served as the senior
vice president of information and telecommunications and as the chief
information officer for the Federal Express Corporation. Mr. Jones currently
serves as a director of webMethods, Inc. and one private company. Mr. Jones
received a B.B.A. degree and a Master of Science in Accounting and Finance from
the University of Memphis.
Robert J. Lesko has been one of our directors since July 1998. Since January
1999, Mr. Lesko has been the chief executive officer of Lesko Associates, Inc.,
a private investment and consulting firm. From September 1997 to December 1998,
Mr. Lesko was a corporate officer of AT&T and led the global consulting and
integration business within AT&T Solutions, a wholly owned subsidiary of AT&T,
where he also served on the board of directors. From March 1996 to August 1997,
Mr. Lesko led the financial services industry global consulting practice at
AT&T Solutions. From September 1984 to March 1996, Mr. Lesko was a management
consulting partner at Deloitte and Touche, where he led the U.S. Banking
Practice. From 1974 to 1983, Mr. Lesko was the founder and chief executive
officer of Software Architecture & Engineering, Inc. Mr. Lesko received his
B.S. degree in Mechanical Engineering from the University of Notre Dame and an
M.B.A. degree from the Wharton School at the University of Pennsylvania.
Gregory L. Waldorf has been one of our directors since June 1999. Since
March 2000, Mr. Waldorf has been a general partner at Charles River Ventures, a
venture capital firm. From January 1998 to February 2000, Mr. Waldorf was a
research analyst at Pacific Edge Investment Management, Inc. From September
1997 to December 1997, Mr. Waldorf was a consultant for Pacific Edge Investment
Management, Inc. From October 1996 to September 1997, Mr. Waldorf served as
vice president of business development at PowerAgent, Inc. From June 1995 to
September 1996, Mr. Waldorf was a principal of Arctic Orchard, LLC. From 1983
to 1990, Mr. Waldorf co-founded and held various positions, most recently as
president, at 32 Bit Solutions, Inc. and its predecessor entities. Mr. Waldorf
serves as a director of several private companies. Mr. Waldorf holds a B.A.
degree in Political Science from the University of California, Los Angeles and
an M.B.A. degree from Stanford University.
Jeffrey T. Webber has served on our board of directors since October 1999.
Since October 1999, Mr. Webber has served as a managing director of the general
partner of The Entrepreneurs' Growth Fund, L.P. Since September 1999, Mr.
Webber has served as a managing director of the general partner of The
Entrepreneurs' Fund II, L.P. Since February 1997, Mr. Webber has served as a
managing director of The Entrepreneurs' Fund, L.P. The Entrepreneurs' Funds are
early stage venture capital funds. Mr. Webber founded, and since January 1991
has served as president of, R. B. Webber & Company, which provides strategic
planning consulting services to high technology companies. Mr. Webber also
serves on the board of directors of
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Commerce One, Inc., Persistence Software, Inc., Sagent Technology, Inc., and
several private companies. Mr. Webber holds a B.A. degree in American Studies
from Yale University.
Peter Ziebelman has been one of our directors since October 1997. Mr.
Ziebelman is a co-founder of 21st Century Internet Venture Partners, a venture
capital firm and since November 1996 has been one of its general partners. From
1988 to October 1996, Mr. Ziebelman was a partner of Thompson Clive Venture
Capital, an international venture capital firm. Mr. Ziebelman serves on the
board of directors of Vicinity Corporation and several private companies. Mr.
Ziebelman holds a B.S. in Computer Science and Psychology from Yale University,
and a Master of Science in Management from Stanford Graduate School of
Business.
Board Composition
Our amended and restated certificate of incorporation, to be effective upon
the closing of this offering, and our bylaws both provide that our board of
directors will be divided into three classes of directors, each with differing
terms of office. Following the completion of this offering, our board of
directors will assign each member of our board of directors to one of the three
classes. Class I members' terms will expire at the first annual meeting of our
stockholders held after this initial classification. Class II members' terms
will expire at the next annual meeting of our stockholders thereafter. Class
III members' terms will expire at the next subsequent meeting of our
stockholders thereafter. At each annual meeting of stockholders after the
initial classification, the successors to directors whose term will then expire
will be elected to serve from the time of election and qualification until the
third annual meeting following election. In addition, our bylaws provide that
the authorized number of directors may be changed only by resolution of the
board of directors or by the vote of a majority of the stockholders at the
stockholders' annual meeting. The classification of our board of directors may
have the effect of delaying or preventing changes in our control or management.
Holders of 100% of our preferred stock and holders of approximately 37.75%
of our common stock have agreed to vote their shares pursuant to the terms of
an amended and restated voting agreement dated as of March 8, 2000. Pursuant to
such agreement, such holders have agreed to vote their shares to maintain the
authorized number of directors at nine and to elect the following designees to
our board of directors:
. two members designated by Messrs. Lin and Upson, and Rafael Weinstein
(currently Messrs. Lin and Upson);
. our chief executive officer (currently Mr. Owen);
. one 21st Century Internet Fund, L.P. designee (currently Mr. Ziebelman);
. one Adobe Ventures II, L.P. designee (currently Mr. Hollenbeck);
. one Sleepy Hollow Investment Partnership, L.P. designee (or, if Sleepy
Hollow's ownership falls below 200,000 shares of our stock, a designee of
the holders of a majority of our series C preferred stock then
outstanding) (currently Mr. Waldorf); and
. three independent directors designated by a majority of the directors
(currently Messrs. Jones, Lesko and Webber).
The voting agreement will terminate upon consummation of this offering.
Our executive officers are chosen by, and serve at the discretion of, our
board of directors. There are no family relationships among any of our
directors and executive officers.
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<PAGE>
Board Committees
Our board of directors has an audit committee and a compensation committee.
Audit Committee. The audit committee members are currently Dennis Jones,
Robert J. Lesko and Gregory L. Waldorf. The audit committee has the authority
and responsibility to:
. recommend which firm to engage as an external auditor and whether to
terminate that relationship;
. review the external auditor's compensation, proposed terms of engagement
and independence;
. review the appointment and replacement of the senior internal auditing
executive, if any;
. serve as a liaison between the external auditor and our board of
directors and between the senior internal auditing executive, if any, and
our board of directors;
. review the results of each external audit, management's responses to the
external auditor's recommendations relating to each audit, the internal
auditing department's reports that are material to us as a whole, and our
management's responses to those reports;
. review our annual financial statements and any significant disputes
between our management and the external auditor arising from the
preparation of such financial statements;
. consider, in consultation with the external auditor and the senior
internal auditing executive, if any, the adequacy of our internal
financial controls;
. consider major changes and important questions regarding which auditing
and accounting principles and practices we should follow when preparing
our financial statements;
. review our procedures for preparing published financial statements and
related management commentaries; and
. meet periodically with our management to review our major financial risk
exposures.
Compensation Committee. The Compensation Committee members are Christopher
B. Hollenbeck, Robert J. Lesko and Jeffrey T. Webber. The Compensation
Committee has the authority and responsibility to:
. review and recommend to our board of directors, or determine, our senior
management's annual salaries, bonuses, stock options and other direct and
indirect benefits;
. review new executive compensation programs;
. periodically review the operation of executive compensation programs to
determine whether they are properly coordinated;
. establish and periodically review policies for the administration of
executive compensation programs;
. modify any executive compensation programs that yield payments and
benefits that are not reasonably related to executive performance; and
. establish and periodically review policies related to management
perquisites.
Compensation Committee Interlocks and Insider Participation
The current members of the compensation committee of our board of directors
are Christopher B. Hollenbeck, Robert J. Lesko and Jeffrey T. Webber. Mr.
Hollenbeck was appointed to the compensation committee in July 1998. Messrs.
Lesko and Webber were appointed to the compensation committee in May 2000. From
July 1998 to May 2000, Felix Lin and Peter Ziebelman also served on our
compensation committee.
Mr. Lin has been one of our executive officers since July 1997. Mr. Lin has
also been an executive officer of Globalware, one of our subsidiaries, since
May 2000. None of the other individuals that has served on our compensation
committee has at any time been an officer or employee of us or any of our
subsidiaries.
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<PAGE>
Mr. Hollenbeck is a principal of H&Q Venture Associates, LLC. We have issued
and sold 258,588 shares of our series C preferred stock and 172,244 shares of
our series D preferred stock to Adobe Ventures II, L.P. H&Q Venture Associates,
LLC is the general partner of Adobe Ventures II, L.P. In addition, we have
issued and sold 61,414 shares of our series C preferred stock and 40,909 shares
of our series D preferred stock to H&Q AvantGo Investors, L.P., of which H&Q
Venture Associates is also the general partner.
Mr. Ziebelman is a founding partner at 21st Century Internet Fund, L.P. We
have issued and sold 4,105,750 shares of our series A preferred stock, 943,396
shares of our series B preferred stock, 691,994 shares of our series C
preferred stock and 322,966 shares of our series D preferred stock to 21st
Century Internet Fund, L.P.
No other interlocking relationships or inside participation exist between
our board of directors or compensation committee and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
Director Compensation
We do not currently compensate our directors for their service as members of
our board of directors. However, we reimburse non-employee directors for
certain expenses in connection with attendance at board and committee meetings.
We do not provide additional compensation for committee participation or
special assignments of the board of directors. In the past, we have granted
options to purchase shares of our common stock pursuant to our 1997 stock
option plan to the following non-employee directors: Dennis Jones, Robert
Lesko, Gregory Waldorf and Jeffrey Webber.
In May 2000, our board of directors adopted our stock option grant program
for non-employee directors. The program will be administered under our 2000
stock incentive plan. Under this program, each non-employee director will
receive a nonqualified stock option to purchase 50,000 shares of our common
stock upon initial election or appointment to the board of directors after this
offering. The options will vest and become exercisable in 48 equal monthly
installments beginning one month after the grant date. Thereafter, beginning
with the next annual meeting of our stockholders, each non-employee director
will automatically receive an additional option to purchase 7,500 shares of our
common stock immediately following each year's annual meeting of stockholders.
These latter option grants will be immediately vested and exercisable. The
exercise price for all options granted under the program will be the fair
market value of the common stock on the date of grant. If we sell all or
substantially all of our assets or we merge or consolidate with or into another
corporation, all options granted under this program will automatically
accelerate and become 100% vested and exercisable. Options will have a ten-year
term, except that options will expire three months after a non-employee
director ceases services as a director, or in the case of such director's
disability, retirement or death, one year after the date of such director's
disability, retirement or death.
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<PAGE>
Executive Compensation
The following table sets forth the total compensation received for services
rendered to us during the fiscal years ended December 31, 1999, 1998 and 1997
by our chief executive officer and our other executive officers who received
salary and bonus for such fiscal year in excess of $100,000 on an annualized
basis. The executive officers listed in the table below are referred to as the
"Named Executive Officers."
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------------- ---------------------
Name and Principal Securities Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
------------------ ---- ---------- --------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
Felix Lin(1)............ 1999 112,500 15,000 -- --
Chairman of the Board
Richard Owen(2)......... 1999 -- -- -- --
Chief Executive Officer
Linus Upson(3).......... 1999 102,750 10,000 -- --
President
Thomas Hunter(4)........ 1999 47,250 -- 293,500 --
Chief Financial Officer
</TABLE>
---------------------
(1) Mr. Lin served as our chief executive officer from our inception through
February 2000. Effective as of April 1, 2000, (a) we increased Mr. Lin's
salary to $175,000 on an annualized basis; and (b) Mr. Lin is eligible to
receive an annual bonus of $50,000.
(2) Mr. Owen was appointed as our chief executive officer in February 2000. On
an annualized basis, Mr. Owen's salary is $250,000. Pursuant to an offer
letter signed by us, Mr. Owen is eligible to receive an annual bonus of up
to $100,000. Mr. Owen was also reimbursed for relocation expenses in the
amount of approximately $90,000.
(3) Effective as of April 1, 2000, we increased Mr. Upson's salary to $150,000
on an annualized basis.
(4) Mr. Hunter was hired as our Chief Financial Officer in August 1999. On an
annualized basis, Mr. Hunter's salary for our fiscal year ended December
31, 1999 would have been $140,000.
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<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain summary information concerning grants
of stock options to each of the Named Executive Officers for our fiscal year
ended December 31, 1999. We have never granted any stock appreciation rights.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Price
Appreciation
for Option
Individual Grant Term(2)
--------------------------------- ---------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration
Name Granted(#) 1999(1) ($/Sh) Date 5%($) 10%($)
---- ---------- ------------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Felix Lin......... -- -- -- -- -- --
Richard Owen(3)... -- -- -- -- -- --
Linus Upson....... -- -- -- -- -- --
Thomas Hunter(4).. 293,500 7.54% $1.75 9/21/09 323,014 818,585
</TABLE>
---------------------
(1) Based on an aggregate of 3,891,000 shares underlying options granted by us
during our fiscal year ended December 31, 1999. Of the options granted,
3,703,000 were granted to employees, 80,000 were granted to members of our
board of directors and 108,000 were granted to our consultants.
(2) Potential gains are net of the exercise price, but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of the future
common stock price. Actual gains, if any, on stock option exercises depend
on our future performance, overall market conditions and the option
holder's continued employment through the vesting period.
(3) On January 25, 2000, we granted Mr. Owen an option to purchase 1,800,000
shares of common stock at an exercise price of $2.25 per share, the fair
market value of the shares. See "--Employment Contracts, Termination of
Employment and Change-In-Control Arrangements."
(4) See "--Employment Contracts, Termination of Employment and Change-In
Control Agreements." See also "Certain Relationships and Related
Transactions--Loans to Executive Officers."
Fiscal Year-End Option Values
The following table provides certain summary information concerning stock
options held as of December 31, 1999 by each of the Named Executive Officers.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Securities Underlying in-the-Money
Shares Unexercised Options Options
Acquired on at Fiscal Year-End(#) At Fiscal Year-End ($)(3)
Exercise Value ---------------------------- -------------------------
Name (#) Realized ($)(1) Exercisable(2) Unexercisable Exercisable Unexercisable
---- ----------- --------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Felix Lin............... -- -- -- -- -- --
Richard Owen (4)........ -- -- -- -- -- --
Linus Upson............. -- -- -- -- -- --
Thomas Hunter........... 57,142 $28,571 236,358 -- $118,179 --
</TABLE>
---------------------
(1) Based on $2.25 per share, the fair market value of our common stock as of
the date of exercise as determined by our board of directors, minus $1.75
per share, the per share exercise price of the options multiplied by the
number of shares issuable upon exercise of the option.
(2) The options are immediately exercisable for all of the option shares, but
any unvested shares purchased under those options are subject to repurchase
by us at the original exercise price paid per share if the employee ceases
service with us prior to vesting in the shares.
45
<PAGE>
(3) Based on the fair market value of our common stock as of the fiscal year
ended December 31, 1999 ($2.25) minus the per share exercise price of the
options multiplied by the number of shares issuable upon exercise of the
option.
(4) On January 25, 2000, we granted Mr. Owen an option to purchase 1,800,000
shares of our common stock at an exercise price of $2.25 per share. This
option is exercisable at any time, but vests with respect to 25% of the
shares on the one-year anniversary of the date of grant and 2.0833% of the
shares monthly thereafter. Vesting will accelerate under some circumstances
pursuant to a change of control agreement between Mr. Owen and us. See "--
Employment Contracts, Termination of Employment and Change-In-Control
Arrangements." Mr. Owen exercised 444,444 of his option shares on January
25, 2000.
Stock Plans
1997 Stock Option Plan. Our 1997 stock option plan was adopted by the board
of directors and approved by our stockholders in October 1997. As amended, our
1997 stock option plan authorizes the issuance of up to a total of 9,213,600
shares of common stock. As of May 26, 2000, options to purchase 4,197,301
shares of common stock at a weighted average exercise price of $2.07 per share
were outstanding, 3,701,344 shares had been exercised and were outstanding,
387,205 shares remained available for future option grants and we exercised our
repurchase right on 927,750 shares of common stock purchased pursuant to
options issued under our 1997 stock option plan, and such shares are no longer
available for issuance under our 1997 stock option plan.
The purpose of our 1997 stock option plan is to attract and retain the best
available personnel, to provide additional incentives to our employees and
consultants and to promote the success of our business. Our 1997 stock option
plan allows the plan administrator to grant incentive and non-qualified stock
options. Unless terminated earlier, our 1997 stock option plan will terminate
in October 2007.
Our 1997 stock option plan may be administered by our board of directors or
a committee of our board of directors, and is currently administered by our
board of directors. As the plan administrator, our board of directors has
exclusive authority to determine the terms of the options granted under our
1997 stock option plan, including the number of shares subject to an option, as
well as the exercise price per share, term, exercisability and vesting of the
option.
The exercise price of all incentive stock options granted under our 1997
stock option plan must be at least equal to the fair market value of our common
stock on the date of grant. The exercise price of any incentive stock option
granted to an optionee who owns stock representing more than 10% of the total
combined voting power of all classes of our outstanding capital stock or any of
our parent or subsidiary corporations must equal at least 110% of the fair
market value of the common stock on the date of grant. In addition, non-
statutory stock options granted under our 1997 stock option plan must be
granted with an exercise price equal to at least 85% of the fair market value
of our common stock on the date of grant, unless granted to a 10% stockholder,
in which case the exercise price must be at least 110% of the fair market value
of our common stock on the date of grant. Payment of the option exercise price
may be made in cash or such other consideration as determined by the
administrator. Each of the options granted under our 1997 stock option plan is
nontransferable.
Options granted under our 1997 stock option plan generally may be exercised
immediately after the grant date, but to the extent the shares subject to an
option are not vested as of the date of such exercise, we retain a right to
repurchase any shares that remain unvested at the time of the optionee's
termination of employment by paying an amount equal to the exercise price times
the number of unvested shares. Options granted under our 1997 stock option plan
generally vest at the rate of 1/4th of the total number of shares subject to
the options twelve months after the date of grant, and 1/48th of the total
number of shares subject to the options each month thereafter.
If we sell all or substantially all of our assets, or we merge or
consolidate with or into another corporation, all options outstanding under our
1997 stock option plan will be assumed or equivalent options substituted by
46
<PAGE>
the successor corporation, unless such successor corporation does not agree to
such assumption or substitution, in which case the options terminate upon
consummation of the transaction.
Simultaneous with the effectiveness of this offering, our board of directors
will suspend our 1997 stock option plan and no further grants will be made
thereunder. After the effectiveness of this offering, any shares reserved but
not granted under our 1997 stock option plan or returned to our 1997 stock
option plan upon termination of options, up to a maximum of 1,500,000 shares,
will become available for future grant under our 2000 stock incentive plan.
2000 Stock Incentive Plan. Our 2000 stock incentive plan was adopted by our
board of directors on May 19, 2000 and is expected to be approved by our
stockholders in June 2000, to be effective upon completion of this offering.
The purpose of our 2000 stock incentive plan is to enhance long-term
shareholder value by offering opportunities to our officers, directors,
employees, consultants, agents and independent contractors to participate in
our growth and success, and to encourage them to remain in our service and to
own our stock. Our 2000 stock incentive plan provides for awards of stock
options and stock. Our board of directors has reserved a total of 1,500,000
shares of common stock, plus:
. any shares reserved but not granted under our 1997 stock option plan or
returned to our 1997 stock option plan upon termination of options, up to
a maximum of 1,500,000 shares; and
. an automatic annual increase (to be added on the first day of our fiscal
year beginning in 2001), equal to the lesser of (1) 5% of the common
shares outstanding as of the end of the preceding fiscal year on a fully
diluted basis; (2) 2,500,000; and (3) such lesser amount determined by
the board of directors. Any shares from increases in previous years that
are not actually issued shall be added to the aggregate number of shares
available for issuance under the 2000 stock incentive plan.
As of May 26, 2000, no options or restricted stock were outstanding under our
2000 stock incentive plan.
Stock Options. Our stock incentive plan provides for the granting to
employees, including officers and directors, of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code and for the granting to
our employees and consultants, agents and independent contractors, including
non-employee directors, of nonqualified stock options. To the extent an
optionee would have the right in any calendar year to exercise for the first
time one or more incentive stock options for shares having an aggregate fair
market value (determined for each share as of the date the option to purchase
the shares was granted) in excess of $100,000, any such excess options shall be
treated as nonqualified stock options. Unless terminated earlier, our 2000
stock incentive plan will terminate in May 2010.
Our 2000 stock incentive plan will be administered by our board of directors
or a committee or committees of the board of directors. The compensation
committee of our board of directors will administer our 2000 stock incentive
plan. The plan administrator has exclusive authority to determine the terms of
the options granted under our 2000 stock incentive plan, including the number
of shares subject to an option, as well as the exercise price per share, term,
exercisability and vesting of the option. For incentive stock options, the
exercise price must equal or exceed the fair market value of the common stock
on the date of grant and the exercise price must be 110% of fair market value
for an individual owning more than 10% of the total voting power of all classes
of our stock.
The term of options granted under our 2000 stock incentive plan cannot
exceed ten years, or five years in the case of an incentive stock option
granted to a 10% stockholder. Optionees may not transfer options other than by
will or the laws of descent or distribution, with the provision that the plan
administrator may grant limited transferability rights in certain circumstances
to the extent permitted by Section 422 of the Internal Revenue Code. We expect
that options granted under our 2000 stock incentive plan generally will vest at
the rate of 1/4th of the total number of shares subject to the options twelve
months after the date of grant, and 1/48th of the total number of shares
subject to the options each month thereafter.
47
<PAGE>
Stock Awards. The plan administrator is authorized under our 2000 stock
incentive plan to issue shares of our common stock to eligible participants
with terms, conditions and restrictions established by the plan administrator
in its sole discretion. Restrictions may be based on continuous service with us
or the achievement of performance goals. Holders of restricted stock are our
stockholders and have, subject to certain restrictions, all the rights of
stockholders with respect to such shares.
Adjustments. The plan administrator will make proportional adjustments to
the aggregate number of shares subject to and issuable under our 2000 stock
incentive plan, the exercise prices thereof, and to outstanding awards in the
event of stock splits or other capital adjustments.
Corporate Transactions. If we sell all or substantially all of our
outstanding securities or assets, or we merge or consolidate with or into
another corporation, all options outstanding under our 2000 stock incentive
plan will be assumed, continued or equivalent options substituted by the
successor corporation, unless such successor corporation does not agree to such
assumption or substitution, in which case each outstanding option and
restricted stock award will terminate. In the event of a proposed dissolution
or liquidation, the plan administrator shall notify each participant as soon as
practicable before such transaction. The plan administrator in its discretion
can allow a participant to exercise an option until ten days prior to such
proposed dissolution or liquidation with respect to such unvested shares as the
plan administrator shall determine. Unexercised options will terminate
immediately prior to the dissolution or liquidation. The plan administrator may
also provide that any forfeiture provisions applicable to stock awards may
lapse contingent on the occurrence of the proposed transaction at the time and
in the manner contemplated.
2000 Employee Stock Purchase Plan. Our 2000 employee stock purchase plan was
adopted by the board of directors on May 19, 2000 and is expected to be
approved by our stockholders in June 2000. A total of 350,000 shares of common
stock have been reserved for issuance under our 2000 employee stock purchase
plan, plus an automatic annual increase to be added as of the first day of our
fiscal year beginning in 2001 equal to the lesser of:
. 700,000 shares;
. 1% of the outstanding common shares at the end of the immediately
preceding fiscal year on a fully diluted basis; and
. A lesser amount determined by the board of directors.
The 2000 employee stock purchase plan, which is intended to qualify under
Section 423 of the Code, will be implemented by an offering period commencing
on the date of the closing of this offering and ending on January 31, 2002.
Each subsequent offering period will have a duration of twenty-four months.
Each offering period after the first offering period will commence on February
1 and August 1 of each year. Each offering period will consist of four
consecutive purchase periods of six months duration, with the last day of each
period being designated a purchase date. The plan administrator may establish
different terms for different offerings, and different commencement and ending
dates for future offerings, subject to certain limitations. The first purchase
period within the first offering period will commence on the date this offering
closes, and will end on July 31, 2001, with subsequent purchase periods ending
on the date every six months thereafter. The compensation committee of our
board of directors will administer the 2000 employee stock purchase plan. Our
employees (including officers and employee directors), or employees of any
United States subsidiary or any subsidiary designated by our board of directors
or its compensation committee, are eligible to participate in the 2000 employee
stock purchase plan if they are employed by us or any such subsidiary for at
least 20 hours per week and more than five months per year and do not own stock
possessing 5% or more of the voting power of our voting stock. The 2000
employee stock purchase plan permits eligible employees to purchase common
stock through payroll deductions, which may not exceed 15% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
our common stock at the beginning of the offering period or the purchase date.
If the fair market value of the common stock on a purchase date is less than
the fair market value at the beginning of the offering period, a new twenty-
four month offering period will automatically begin
48
<PAGE>
on the first business day following the purchase date with a new fair market
value. Employees may end their participation in the offering at any time during
the offering period, and participation ends automatically on termination of
employment with us. If not terminated earlier, the 2000 employee stock purchase
plan will have a term of 10 years.
The 2000 employee stock purchase plan provides that if we merge with or into
another corporation or we sell all or substantially all of our assets, each
right to purchase stock under the 2000 employee stock purchase plan will be
assumed or an equivalent right substituted by the successor corporation, unless
the successor corporation refuses to assume or substitute in which event the
offering period then in progress shall be shortened. The board of directors has
the power to amend or terminate the 2000 employee stock purchase plan as long
as such action does not adversely affect any outstanding rights to purchase
stock thereunder.
Employee Benefit Plans
401(k) Plan. We maintain our 401(k) Plan, a defined contribution 401(k)
salary reduction plan intended to qualify under Section 401 of the Internal
Revenue Code. Our employees are eligible to participate in the 401(k) Plan on
the first day of each month coinciding with or immediately following the date
of their employment. A participating employee, by electing to defer a portion
of his or her compensation, may make pre-tax contributions to the 401(k) Plan,
subject to limitations under the Internal Revenue Code, of a percentage (not to
exceed 15%) of his or her total compensation. Employee contributions and the
investment earnings thereon will be fully vested at all times. We are not
required to contribute to the 401(k) Plan and have made no contributions since
the inception of the 401(k) Plan other than employees' salary deferrals.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
On August 11, 1997, we entered into a common stock purchase agreement with
Mr. Lin, pursuant to which Mr. Lin purchased 1,920,000 shares of our common
stock. Originally, 75% of the purchased stock was restricted stock, subject to
our right of repurchase at the original purchase price upon the termination of
Mr. Lin's employment. Our right of repurchase lapses as to 1/48th of the
restricted stock monthly after June 17, 1997, so that our right of repurchase
completely expires on June 17, 2001, provided that Mr. Lin continues to be
employed by us. As of May 26, 2000, 520,000 shares originally issued to Mr. Lin
remain subject to this right of repurchase.
On August 11, 1997, we entered into a common stock purchase agreement with
Mr. Upson, pursuant to which Mr. Upson purchased 1,920,000 shares of our common
stock. Originally, 75% of the purchased stock was restricted stock, subject to
our right of repurchase at the original purchase price upon the termination of
Mr. Upson's employment. Our right of repurchase lapses as to 1/48th of the
restricted stock monthly after May 10, 1997, so that our right of repurchase
completely expires on May 10, 2001, provided that we continue to employ Mr.
Upson. As of May 26, 2000, 480,000 shares originally issued to Mr. Upson remain
subject to this right of repurchase.
On October 13, 1997, we entered into an amended and restated change of
control agreement with each of Messrs. Lin and Upson. Under the terms of these
agreements, our right of repurchase with respect to Mr. Lin's and Mr. Upson's
respective shares of common stock will completely expire if, within one year
after a change of control (as defined in such agreements), Mr. Lin or Mr.
Upson, as the case may be, experience an involuntary termination (as defined in
such agreements).
In September 1999, we issued Mr. Hunter an option to purchase 293,500 shares
of our common stock under our 1997 stock option plan, at an exercise price of
$1.75 per share. The shares under the option are immediately exercisable.
However, the shares that Mr. Hunter purchases before vesting are subject to our
right of repurchase at the exercise price. 1/4th of the shares under Mr.
Hunter's option vest and cease to be subject to our right of repurchase on
August 16, 2000 and 1/48th of the shares vest and cease to be subject to our
right of repurchase on the 16th of each month thereafter, provided that we
continue to employ Mr. Hunter.
49
<PAGE>
In December 1999, we entered into an employment offer letter with Mr. Owen
whereby Mr. Owen will serve as our chief executive officer. Mr. Owen's
employment is "at-will" and may be terminated by him or us at any time with or
without cause. Pursuant to the agreement, Mr. Owen is paid an annual base
salary of $250,000 and was reimbursed for relocation expenses. Mr. Owen is also
eligible for an annual bonus of up to $100,000.
Pursuant to Mr. Owen's offer letter, in January 2000 we granted Mr. Owen an
option to purchase 1,800,000 shares of our common stock under our 1997 stock
option plan, at an exercise price of $2.25 per share. The shares under the
option are immediately exercisable. However, the shares that Mr. Owen purchases
before vesting are subject to our right of repurchase at the exercise price.
1/4th of the shares subject to the option vest and cease to be subject to our
right of repurchase on April 24, 2001 and 1/48th of the shares vest and cease
to be subject to our right of repurchase monthly thereafter, provided that we
continue to employ Mr. Owen.
In January 2000, we entered into a change of control agreement with Mr.
Owen. Under the terms of this agreement, if Mr. Owen experiences an involuntary
termination (as defined in such agreement) within one year after a change of
control (as defined in such agreement), our repurchase rights with respect to
Mr. Owen's restricted stock will lapse completely. If Mr. Owen is terminated
without cause at any time prior to a change of control or after the one year
period immediately following a change of control, our repurchase rights with
respect to 25% of the restricted stock originally sold to Mr. Owen will lapse.
Limitation of Liability and Indemnification Matters
Our amended and restated certificate of incorporation 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 for breach of their duty of loyalty to the corporation or its
stockholders, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, unlawful payments of dividends or
unlawful stock repurchases or redemptions, or any transaction from which the
director derived an improper personal benefit. Such limitation of liability
does not apply to liabilities arising under the federal or state securities
laws and does not affect the availability of equitable remedies such as
injunctive relief or rescission.
Our amended and restated bylaws provide that we shall indemnify our
directors, officers, employees and other agents to the fullest extent permitted
by law. We believe that indemnification under our amended and restated bylaws
covers at least negligence and gross negligence on the part of indemnified
parties. Our amended and restated 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 the
amended and restated bylaws permit such indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our certificate of
incorporation and amended and restated bylaws. These agreements, among other
things, indemnify our directors and executive officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred
by any such person in any action or proceeding arising out of an individual's
status or service as a director, officer, employee, agent or fiduciary of us,
any of our subsidiaries or any other company or enterprise to which the person
provides services at our request. In addition, we plan to obtain and maintain
director and officer insurance in amounts deemed appropriate by our board of
directors. We believe that the provisions of our certificate of incorporation,
bylaws, indemnification agreements and director and officer insurance policies
are necessary to attract and retain qualified persons as directors and
executive officers.
At present, there is no pending litigation or proceeding involving any of
our directors or officers in which indemnification is required or permitted,
and we are not aware of any threatened litigation or proceeding that may result
in a claim for such indemnification.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the beginning of our last fiscal year, there has not been, nor is
there currently proposed, any transaction or series of similar transactions to
which we were or are to be a party in which the amount involved exceeds $60,000
and in which any director, executive officer or holder of more than 5% of any
class of our voting securities or members of such person's immediate family had
or will have a direct or indirect material interest other than (i) compensation
agreements and other arrangements, which are described in "Management," and
(ii) the transactions described below.
Series C Preferred Stock
In June 1999, we issued and sold 3,736,040 shares of our series C preferred
stock, in the aggregate, in a private placement at a per share purchase price
of $3.94, including sales to the following entities:
. We issued and sold 258,588 shares of our series C preferred stock to
Adobe Ventures II, L.P., one of our 5% stockholders. We also issued and
sold 61,414 shares of our series C preferred stock to H&Q AvantGo
Investors, L.P. Christopher Hollenbeck, one of our directors, is a
principal of H&Q Venture Associates, LLC, the general partner of both
Adobe Ventures II, L.P. and H&Q AvantGo Investors, L.P.
. We issued and sold 691,994 shares of our series C preferred stock to 21st
Century Internet Fund, L.P., one of our 5% stockholders. Peter Ziebelman,
one of our directors, is one of 21st Century Internet Fund, L.P.'s
founding partners.
. We issued and sold 507,614 shares of our series C preferred stock to
Sleepy Hollow Investment Partnership, L.P. Gregory Waldorf, one of our
directors, is a limited partner of Fayez Sarofim Investment Partnership
#5, L.P., Sleepy Hollow Investment Partnership, L.P.'s general partner.
. We issued and sold 101,524 and 25,380 shares of our series C preferred
stock, respectively, to The Entrepreneurs' Fund, L.P. and RBW
Investments, LLC. Jeffrey Webber, one of our directors, is a managing
director of the general partner of The Entrepreneurs' Fund, L.P., and is
the managing director of RBW Investments, LLC.
All of the shares of series C preferred stock will automatically convert
into an aggregate of 3,736,040 shares of our common stock upon the completion
of this offering. The holders of our series C preferred stock are entitled to
registration rights regarding the shares of common stock issued or issuable
upon conversion.
Series D Preferred Stock
In March and April 2000, we issued and sold 3,726,094 shares of our series D
preferred stock, in the aggregate, in a private placement at a per share
purchase price of $8.36, including sales to the following entities and
individual:
. We issued and sold 172,244 shares of our series D preferred stock to
Adobe Ventures II, L.P., one of our 5% stockholders. We also issued and
sold 40,909 shares of our series D preferred stock to H&Q AvantGo
Investors, L.P. Christopher Hollenbeck, one of our directors, is a
principal of H&Q Venture Associates, LLC, the general partner of both
Adobe Ventures II, L.P. and H&Q AvantGo Investors, L.P.
. We issued and sold 322,966 shares of our series D preferred stock to 21st
Century Internet Fund, L.P., one of our 5% stockholders. Peter Ziebelman,
one of our directors, is one of 21st Century Internet Fund, L.P.'s
founding partners.
. We issued and sold 215,311 shares of our series D preferred stock to
Sleepy Hollow Investment Partnership, L.P. Gregory Waldorf, one of our
directors, is a limited partner of Fayez Sarofim Investment Partnership
#5, L.P., Sleepy Hollow Investment Partnership, L.P.'s general partner.
. We issued and sold 8,927 shares of our series D preferred stock to
Jeffrey Webber, one of our directors. We also issued and sold 215,311,
41,865, 41,865 and 9,046 shares of our series D preferred stock,
51
<PAGE>
respectively, to The Entrepreneurs' Growth Fund, L.P., The Entrepreneurs'
Fund, L.P., The Entrepreneurs' Fund II, L.P., and RBW Investments, LLC.
Mr. Webber is a managing director of the general partner of each of The
Entrepreneurs' Growth Fund, L.P., The Entrepreneurs' Fund, L.P. and The
Entrepreneurs' Fund II, L.P., and is a managing director of RBW
Investments, LLC.
All of the shares of series D preferred stock will automatically convert
into an aggregate of 3,726,094 shares of our common stock upon the completion
of this offering. The holders of our series D preferred stock are entitled to
registration rights regarding the shares of common stock issued or issuable
upon conversion.
Loans to Executive Officers
In December 1999 and in March 2000, we loaned $99,998 and $103,311,
respectively, to Thomas Hunter, our chief financial officer in conjunction with
the exercise of options. Each of the notes evidencing this indebtedness is a
full recourse promissory note and is secured by a pledge agreement. Each of the
notes accrues interest at the rate of 6% per year. The principal balance and
accrued interest on each of the notes is due on December 7, 2004 and March 26,
2005, respectively, subject to limited exceptions.
Options to Purchase Common Stock
Stock option grants to our directors and executive officers that have an
aggregate exercise price of $60,000 or more that were made subsequent to the
beginning of our last fiscal year are as follows:
. In April 1999, we granted Jeffrey Webber, one of our directors, an option
to purchase 24,000 shares of our common stock under our 1997 stock option
plan, at an exercise price of $0.125 per share. In October 1999, we
granted Mr. Webber an additional option to purchase 40,000 shares of our
common stock at an exercise price of $2.25 per share.
. In September 1999, we granted Thomas Hunter, our chief financial officer,
an option to purchase 293,500 shares of our common stock under our 1997
stock option plan, at an exercise price of $1.75 per share. In December
1999 and in March 2000, Mr. Hunter exercised portions of his option by
purchasing 57,142 shares and 59,035 shares, respectively, of our common
stock. Mr. Hunter paid for such shares with promissory notes. See "--
Loans to Executive Officers." Mr. Hunter's purchased shares have not yet
vested and remain subject to our right of repurchase upon the termination
of Mr. Hunter's services to us. See "Management--Executive Compensation."
. In January 2000, we granted Richard Owen, our chief executive officer and
a director, an option to purchase 1,800,000 shares of our common stock
under our 1997 stock option plan, at an exercise price of $2.25. Also in
January 2000, Mr. Owen exercised part of his option by purchasing 444,444
shares of our common stock. Mr. Owen's purchased shares of our common
stock have not yet vested and remain subject to our right of repurchase
upon the termination of Mr. Owen's services to us. See "Management--
Executive Compensation."
. In April 2000, we granted Dennis Jones, one of our directors, an option
to purchase 50,000 shares of our common stock under our 1997 stock option
plan, at an exercise price of $2.90 per share.
All of these option grants were issued at the fair market value of a share
of our common stock as of the date of grant as determined by our board of
directors.
Other Transactions
We have entered into two consulting agreements with R. B. Webber & Company,
Inc., pursuant to which R. B. Webber & Company, Inc. has provided consulting
services to us with respect to the development of our business plan and the
performance of a market study. We paid R. B. Webber & Company, Inc. $127,542 in
1999 for such services. Through April 2000, we paid R. B. Webber & Company,
Inc. an additional $102,883 for such services. Jeffrey Webber, one of our
directors, is the President of R. B. Webber & Company, Inc.
52
<PAGE>
In May 1999, we entered into a Content Agreement with Federal Express
Corporation whereby Federal Express Corporation agreed to pay us $95,000 for
the performance of our obligations under such agreement. Dennis Jones, one of
our directors, is the executive vice president of information technology and
chief information officer of FedEx Corporation, the corporate parent of the
Federal Express Corporation. This agreement expired in May 2000.
We have entered into indemnification agreements with our officers and
directors containing provisions that require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
from their status or service as officers or directors, other than liabilities
arising from willful misconduct of a culpable nature, and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified.
We believe that the terms of the transactions described above were no less
favorable to us than we would have obtained from an unaffiliated third party.
Any future transactions between us and any of our officers, directors or
principal stockholders will be on terms no less favorable to us than could be
obtained from unaffiliated third parties and will be approved by a majority of
the independent and disinterested members of the board of directors.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of May 26, 2000 (i) by each person or entity
known by us to own beneficially more than 5% of our common stock; (ii) by each
of our directors; (iii) by each of our Named Executive Officers; and (iv) by
all of our executive officers and directors as a group.
<TABLE>
<CAPTION>
Percentage of Shares
Outstanding(1)(2)
Shares Beneficially -------------------------
Name and Address of Beneficial Owned Prior to Before After
Owners The Offering Offering Offering
------------------------------ ------------------- ----------- ----------
<S> <C> <C> <C>
21st Century Internet Fund, 6,064,106 22.14%
L.P.(3).......................
2 South Park, 2nd Floor
San Francisco, CA 94107
Entities affiliated with Adobe 2,891,645 10.56%
Ventures II, L.P.(4)(5).......
c/o Hambrecht & Quist, Inc.
One Bush Street, 18th Floor
San Francisco, CA 94104
Chris Hollenbeck(5)............ 2,891,645 10.56%
c/o Hambrecht & Quist, Inc.
One Bush Street, 18th Fl.
San Francisco, CA 94104
Thomas Hunter(6)............... 293,500 1.06%
Dennis Jones(7)................ 50,000 *
c/o Federal Express
Corporation
942 S. Shady Grove Rd.
Memphis, TN 38120
Robert Lesko(8)................ 40,000 *
Felix Lin(9)................... 1,993,522 7.28%
Richard Owen(10)............... 1,800,000 6.26%
Linus Upson(11)................ 1,998,552 7.3%
Gregory Waldorf(12)............ 759,925 2.77%
c/o Fayez Sarofim
1811 North Blvd.
Houston, TX 77098
Jeff Webber(13)................ 507,918 1.85%
c/o RBW Investments, LLC
1717 Embacadero Rd., Suite
2000
Palo Alto, CA 94303
Rafael Weinstein(14)........... 1,724,000 6.29%
Peter Ziebelman(3)............. 6,064,106 22.14%
c/o 21st Century Internet
Fund, LP
2 South Park, 2nd Floor
San Francisco, CA 94107
All directors and executive 27,078,889 93.32%
officers as a group (10
persons)......................
</TABLE>
---------------------
* Less than 1% of the outstanding shares of common stock.
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<PAGE>
(1) Based on 27,407,320 shares of our common stock outstanding on May 26, 2000
prior to the offering, after giving effect to the sale and issuance of (1)
1,933,300 shares of series E preferred stock on May 26, 2000 to the
stockholders of Globalware in connection with our acquisition of
Globalware; and (2) 436,599 shares of series D preferred stock on April 7,
2000, and based on shares of our common stock outstanding after this
offering. Shares of common stock subject to options that are exercisable
within 60 days of May 26, 2000 are deemed beneficially owned by the person
holding such options for the purpose of computing the percentage of
ownership of such person but are not treated as outstanding for the
purpose of computing the percentage for any other person. Except pursuant
to applicable community property laws or as indicated in the footnotes to
this table, each stockholder identified in the table possesses sole voting
and investment power with respect to all shares of common stock as shown
as beneficially owned by such stockholder. Unless otherwise indicated, the
address of each of the individuals listed in the table is c/o AvantGo,
Inc., 1700 South Amphlett Boulevard, Suite 300, San Mateo, California
94402.
(2) Assumes the Underwriters' over-allotment option is not exercised.
(3) Peter Ziebelman, one of our directors, is a general partner of 21st
Century Internet Fund, L.P. Mr. Ziebelman disclaims beneficial ownership
of the shares held by 21st Century Internet Fund, L.P. except to the
extent of his pecuniary interest therein.
(4) Includes 2,317,624 shares held by Adobe Ventures II, L.P. and 574,021
shares held by H&Q AvantGo Investors, L.P.
(5) Chris Hollenbeck, one of our directors, is a principal of H&Q Venture
Associates, LLC. Mr. Hollenbeck disclaims beneficial ownership of the
shares held by affiliates of H&Q Venture Associates, LLC, except to the
extent of his pecuniary interest therein.
(6) Includes 177,323 shares of common stock issuable upon exercise of
immediately exercisable options. All 293,500 shares are subject to our
right of repurchase.
(7) Represents 50,000 shares of common stock issuable upon exercise of
immediately exercisable options, all of which have not yet vested.
(8) Includes 20,012 shares of common stock that are subject to our right of
repurchase.
(9) Includes 520,000 shares of common stock that are subject to our right of
repurchase and 3,000 shares of common stock which Mr. Lin holds as
custodian for his minor son.
(10) Includes 1,355,556 shares of common stock issuable upon exercise of
immediately exercisable options. All 1,800,000 shares are subject to our
right of repurchase.
(11) Includes 480,000 shares of common stock that are subject to our right of
repurchase.
(12) Includes 722,925 shares held by Sleepy Hollow Investment Partnership, L.P.
Mr. Waldorf is one of our directors and is also a limited partner of Fayez
Sarofim Investment Partnership #5, L.P., Sleepy Hollow Investment
Partnership, L.P.'s general partner. Mr. Waldorf disclaims beneficial
ownership of the shares held by Sleepy Hollow Investment Partnership,
L.P., except to the extent of his pecuniary interest therein. Also
includes 26,668 shares of common stock that are subject to our right of
the purchase.
(13) Includes 443,918 shares held by The Entrepreneurs' Fund, L.P., The
Entrepreneurs' Fund II, L.P., The Entrepreneurs' Growth Fund, L.P. and RBW
Investments LLC. Mr. Webber, one of our directors, is a managing director
of the general partner of the Enterpreneurs' Funds and is the managing
director of RBW Investments LLC, and disclaims beneficial ownership of the
shares held by such funds, except to the extent of his pecuniary interest
therein. Mr. Webber owns 64,000 shares of common stock issuable upon
exercise of immediately exercisable options, all of which have not yet
vested.
(14) Includes 550,000 shares of common stock that are subject to our right of
repurchase.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon the consummation of this offering and giving effect to the filing of
our seventh amended and restated certificate of incorporation, our authorized
capital stock will consist of 150,000,000 shares of common stock, $0.0001 par
value per share, and 10,000,000 shares of undesignated preferred stock, $0.0001
par value per share. The rights and preferences of our preferred stock may be
established from time to time by our board of directors. The following is a
summary description of our capital stock. Our amended and restated bylaws and
our seventh amended and restated certificate of incorporation provide further
information about our capital stock.
Common Stock
As of May 26, 2000, there were 27,407,320 shares of common stock
outstanding, after giving effect to the sale and issuance of (1) 1,933,300
shares of series E preferred stock on May 26, 2000 to stockholders of
Globalware in connection with our acquisition of Globalware; (2) 436,599 shares
of series D preferred stock on April 7, 2000, that were held of record by
approximately 201 stockholders; and (3) the conversion of all outstanding
shares of our preferred stock into shares of common stock upon the closing of
this offering. There will be shares of common stock outstanding after
giving effect to this offering, assuming no exercise of the underwriters' over-
allotment option and no exercise or conversion of outstanding convertible
securities after May 26, 2000.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The common stock does not have
cumulative voting rights. Subject to preferences to which holders of preferred
stock issued after the sale of the common stock offered hereby may be entitled,
the holders of common stock are entitled to receive ratably dividends, if any,
as may be declared from time to time by our board of directors out of funds
legally available therefor. In the event of our liquidation, dissolution or
winding up, the holders of our common stock would be entitled to share ratably
in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, in any, then outstanding. The common
stock has no preemptive or conversion rights or other subscription rights. No
redemption or sinking fund provisions apply to our common stock. All
outstanding shares of our common stock are fully paid and non-assessable, and
the shares of common stock to be issued upon completion of this offering will
be fully paid and non-assessable.
Preferred Stock
Our board of directors has the authority to issue our preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without further vote or action by our stockholders. The issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in
control without further action by the stockholders and may harm the voting
power and other rights of our common stockholders. We do not have current plans
to issue any of our preferred stock.
Registration Rights
Pursuant to the terms of an investors' rights agreement among us and the
holders of registrable securities, after the closing of this offering, the
holders of shares of the outstanding common stock or their permitted
transferees, including shares issuable upon the exercise of certain warrants,
are entitled to certain rights with respect to the registration of such shares
under the Securities Act of 1933, as amended. These registration rights include
the following:
. The holders of a majority of the registrable securities may require us,
subject to certain limitations, to file up to 2 registration statements
covering at least 33% of the outstanding registrable securities.
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<PAGE>
. The holders of registrable securities are entitled to piggyback
registration rights. This means that if we propose to register any of our
securities under the Securities Act, either for our own account or for
the account of other security holders exercising registration rights, the
holders of such piggyback registration rights will be entitled to receive
notice of such registration and will be entitled to include their shares
in such registration. These rights are subject to certain limitations,
including the right of the underwriters to exclude registrable securities
from this offering.
. At any time after we become eligible to file a registration statement on
Form S-3, the holders of at least 30% of our registrable securities may
require us to file up to two registration statements on Form S-3 under
the Securities Act in any 12 month period for a public offering of the
registrable securities where the reasonably anticipated aggregate
offering price would exceed $250,000, net of any underwriter's discounts
or commissions.
Each of the foregoing registration rights is subject to certain conditions
and limitations, including the right of the underwriters in any underwritten
offering to limit the number of shares to be included in such registration. All
registration rights terminate five years from the effective date of this
offering or when the shares held by such holder may be sold under Rule 144
during any three-month period. We are generally required to bear all of the
expenses of all such registrations, except underwriting discounts and
commissions. Registration of any of the shares entitled to registration rights
would result in such shares becoming freely tradable without restriction under
the Securities Act immediately upon effectiveness of such registration. The
investors' rights agreement also contains a commitment of us to indemnify the
holders of registration rights, subject to certain limitations.
Anti-Takeover Effects of Provisions of the Certificate of Incorporation, Bylaws
and Delaware Law
Certificate of Incorporation and Bylaws
Our seventh amended and restated certificate of incorporation provides that
all stockholder actions must be effected at a duly called meeting and not by
written consent. Our current bylaws and seventh amended and restated
certificate of incorporation also provide that, upon the closing of this
offering, the board of directors will be divided into three classes of
directors with each class serving a staggered three-year term. These provisions
of our certificate of incorporation could discourage potential acquisition
proposals and could delay or prevent a change in control. These provisions are
intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies formulated by the
board of directors. They are also intended to discourage certain types of
transactions that may involve an actual or threatened change of control of the
company. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal. They are also intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for our shares and,
as a consequence, they may inhibit fluctuations in our shares' market price
that otherwise could result from actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management.
Amendment to these provisions requires the approval by holders of at least a
majority of the outstanding common stock.
Delaware Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the time that such stockholder became an
interested stockholder, unless:
. Prior to such time the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. Upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation
57
<PAGE>
outstanding at the time the transaction commenced, excluding for purposes
of determining the number of shares outstanding those shares owned (x) by
persons who are directors and also officers and (y) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer; or
. At or subsequent to such time the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Subject to certain exceptions, a business combination generally includes a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder. In general, an interested stockholder is (i) a person
who owns, or within three years prior did own, 15% or more of the corporation's
outstanding voting stock and (ii) affiliates and associates of such person.
Transfer Agent and Registrar
Upon the closing of this offering, the transfer agent and registrar for our
common stock will be ChaseMellon Shareholder Services, LLC.
Listing on Nasdaq National Market
We have applied for the listing of our common stock on The Nasdaq Stock
Market's National Market under the trading symbol "AVGO."
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. We
cannot predict the effect that sales of shares or the availability of shares
for sale will have on the market price of our common stock. Sales of
substantial amounts of our common stock in the public market, or the perception
that sales might occur, could adversely affect the market price of our common
stock. Sales of substantial amounts of common stock in the public market after
the restrictions on resale described below lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon the closing of this offering, we expect to have outstanding
shares of our common stock, assuming no exercise of the underwriters' option
and no exercise of other outstanding options. All of the shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, except shares purchased by our "affiliates," as that
term is defined in Rule 144 under the Securities Act. Affiliates are generally
individuals or entities that control, are controlled by, or under common
control with us and may include our directors, officers and significant
stockholders. Shares of common stock purchased by our affiliates will be
"restricted securities" under Rule 144. Restricted securities may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 promulgated under the Securities Act.
Lock-Up Agreements
Prior to the closing of this offering, all of our officers and directors,
and more than 95% of our security holders, will have signed agreements under
which they may not, for a period of 180 days after the date of this prospectus,
directly or indirectly transfer or dispose of, any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock. The shares could be available for resale immediately upon the
expiration of the 180-day period if they are available for resale under Rule
144.
Rule 144
In general, under Rule 144, 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 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 after this offering closes; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
the notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner-of-sale provisions, notice
requirements and to the availability of current public information about us.
Rule 144(k)
Under paragraph (k) of Rule 144, persons who are not our affiliates at any
time during the 90 days preceding a sale and who have beneficially owned the
shares proposed to be sold for at least two years are entitled to sell such
shares without complying with the manner-of-sale, public information, volume
limitation or notice provisions of Rule 144. The two-year holding period
includes the holding period of any of the shares' prior owners not our
affiliate. Therefore, unless otherwise restricted, shares covered by Rule
144(k) may be sold immediately upon the closing of this offering unless subject
to other restrictions such as lock-up agreements.
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Rule 701
Under Rule 701, employees, consultants or advisors who are not our
affiliates and who purchased shares from us in connection with a compensatory
stock or option plan or other written agreement are eligible to resell such
shares 90 days after the date of this prospectus in reliance on Rule 144, but
without compliance with other restrictions, including the holding period,
contained in Rule 144. Employees, consultants or advisors who are affiliates
remain subject to all Rule 144 restrictions except the holding period.
In addition, we intend to file a registration statement under the Securities
Act as promptly as possible after the effective date of this offering to
register all shares of common stock reserved for issuance under our 1997 stock
option plan, all shares reserved for issuance under our 2000 employee stock
purchase plan, and all shares reserved for issuance under our 2000 stock
incentive plan. As a result, immediately after the 180-day restrictive
agreements described above expire, any options exercised under our 1997 stock
option plan or any other benefit plan after the effectiveness of such
registration statement will also be freely tradable in the public market,
except that shares held by affiliates will still be subject to the volume
limitation, manner of sale, notice and public information requirements of Rule
144 unless otherwise resalable under Rule 701. As of May 26, 2000, there were
outstanding options to purchase 4,197,301 shares of our common stock under our
1997 stock option plan and 387,205 shares were available for future grant.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Merrill, Lynch, Pierce,
Fenner & Smith Incorporated and U.S. Bancorp Piper Jaffray Inc. are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................
U.S. Bancorp Piper Jaffray Inc. ...................................
Total.........................................................
===
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We 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 for a period of 180 days after the date of this
prospectus, 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 of 1933 relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or
61
<PAGE>
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without, in each case, the prior written consent of
Credit Suisse First Boston Corporation, except issuances pursuant to the
exercise of employee stock options outstanding on the date hereof.
Our officers and directors and substantially all of our other security
holders have agreed that for a period of 180 days after the date of this
prospectus 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 which 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.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and other
persons associated with us who have expressed an interest in purchasing common
stock in the offering. The number of shares available for sale to the general
public in the offering will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act of 1933, or to contribute to payments which 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.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include the following:
. the information included in this prospectus and otherwise available to
the representatives;
. market conditions for initial public offerings;
. 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 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, as follows:
. 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.
62
<PAGE>
. 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 stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market, subject to official notice of issuance,
or otherwise and, if commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on 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. Any Internet distributions
will be allocated by the representatives of the underwriters on the same basis
as other allocations.
63
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
re-sales 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 such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such 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 such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or 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 such 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 pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such 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 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.
64
<PAGE>
LEGAL MATTERS
Perkins Coie LLP, Menlo Park, California will pass upon the validity of the
shares of common stock offered hereby for us. As of the consummation of this
offering, Perkins Coie LLP will own an aggregate of 12,690 shares of series C
preferred stock and 5,981 shares of series D preferred stock through an
investment entity. Ralph L. Arnheim III, our secretary, is a partner of Perkins
Coie LLP and a limited partner of that firm's investment partnership. Sterne,
Kessler, Goldstein & Fox P.L.L.C., special patent counsel to us, will pass on
certain intellectual property matters. A number of directors of Sterne,
Kessler, Goldstein & Fox P.L.L.C. jointly own 5,981 shares of our series D
preferred stock through an investment entity. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of December 31, 1998 and 1999 and for the period from
June 30, 1997 (inception) through December 31, 1997 and for the years ended
December 31, 1998 and 1999, and the financial statements of Globalware as of
December 31, 1998 and 1999 and for each of the three years in the period ended
December 31, 1999, as set forth in their reports. We have included our
financial statements and the financial statements of Globalware in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's reports, given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
For more information with respect to us and the common stock offered by this
prospectus, see the registration statement and the exhibits and schedule filed
by us with the Securities and Exchange Commission on Form S-1 under the
Securities Act. This prospectus, which constitutes part of the registration
statement, does not contain all of the information set forth in the
registration statement and the related exhibits and schedules. Some items are
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission. In addition, this prospectus summarizes certain contracts
and other documents. If you wish to review such contracts or documents in full,
we refer you to copies of them filed as exhibits to the registration statement.
You may read and copy the registration statement and its exhibits and schedules
at the public facilities maintained by the Securities and Exchange Commission
in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Securities and Exchange Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. You may obtain copies of all or any part of the registration statement
from these offices upon the payment of the fees prescribed by the Securities
and Exchange Commission. The Securities and Exchange Commission maintains a Web
site that contains reports regarding registrants that file electronically with
the Securities and Exchange Commission, including our registration statement on
Form S-1. The address of the site is http://www.sec.gov.
In addition, as a result of this offering, we will become subject to the
full information reporting requirements of the Securities Exchange Act of 1934,
as amended. Pursuant to these requirements, we will file periodic reports,
proxy statements and other information with the Securities and Exchange
Commission. In the future, you may also obtain copies of these documents at the
Securities and Exchange Commission, as described above.
65
<PAGE>
AVANTGO, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AvantGo, Inc.:
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-7
Notes to Consolidated Financial Statements............................... F-8
Globalware Computing, Inc.:
Report of Ernst & Young LLP, Independent Auditors........................ F-22
Balance Sheets........................................................... F-23
Statements of Operations................................................. F-24
Statement of Stockholders' Equity........................................ F-25
Statements of Cash Flows................................................. F-26
Notes to Financial Statements............................................ F-27
Selected Unaudited Pro Forma Condensed Combined Financial Information:
Introduction............................................................. F-32
Selected Unaudited Pro Forma Condensed Combined Balance Sheet at March
31, 2000................................................................ F-33
Selected Unaudited Pro Forma Condensed Combined Statement of Operations
for the twelve months ended December 31, 1999........................... F-34
Selected Unaudited Pro Forma Condensed Combined Statement of Operations
for the three months ended March 31, 2000............................... F-35
Notes to Selected Unaudited Pro Forma Condensed Combined Financial
Information............................................................. F-36
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AvantGo, Inc.
We have audited the accompanying consolidated balance sheets of AvantGo,
Inc. as of December 31, 1998 and 1999, and the related consolidated statements
of operations, stockholders' equity and cash flows for the period from June 30,
1997 (inception) through December 31, 1997 and for the years ended December 31,
1998 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AvantGo, Inc.
at December 31, 1998 and 1999, and the results of its operations and its cash
flows for the period from June 30, 1997 (inception) through December 31, 1997
and for the years ended December 31, 1998 and 1999, in conformity with
accounting principles generally accepted in the United States.
Walnut Creek, California
March 31, 2000
F-2
<PAGE>
AVANTGO, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
December 31, Stockholders'
----------------- March 31, Equity March
1998 1999 2000 31, 2000
------- -------- ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........ $ 2,124 $ 5,835 $ 30,424
Short-term investments........... -- 3,975 2,807
Accounts receivable, net of
allowance of $50,000 in 1999 and
$163,000 in 2000................ 52 1,478 7,235
Prepaid expenses and other
current assets.................. 25 255 249
------- -------- --------
Total current assets............ 2,201 11,543 40,715
Property and equipment, net....... 185 893 1,554
Deposits and other assets......... 48 63 89
------- -------- --------
Total assets...................... $ 2,434 $ 12,499 $ 42,358
======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities..................... $ 114 $ 1,173 $ 1,219
Accrued compensation and related
benefits........................ 39 239 685
Current portion of capital lease
obligations..................... 10 4 3
Current portion of borrowings
under bank line of credit
agreement....................... 71 71 71
Deferred revenue................. 16 247 5,408
------- -------- --------
Total current liabilities....... 250 1,734 7,386
Capital lease obligations, less
current portion.................. 4 -- --
Borrowings under bank line of
credit agreement, net of current
portion.......................... 112 41 23
Commitments
Stockholders' Equity:
Convertible preferred stock,
$0.0001 par value, issuable in
Series: 16,472,082 shares
authorized; 7,736,042,
11,472,082 and 14,761,577
shares issued and outstanding
at December 31, 1998, 1999, and
March 31, 2000, respectively
(10,000,000 authorized; no
shares outstanding pro forma).. 4,807 19,480 48,618 $ --
Common stock, $0.0001 par value;
40,000,000 shares authorized;
7,864,120, 9,630,062 and
10,460,341 shares issued and
outstanding at December 31,
1998, 1999 and March 31, 2000,
respectively (150,000,000
authorized; 25,221,918 shares
outstanding pro forma)......... 540 10,928 23,291 71,909
Notes receivable from
stockholders..................... -- (100) (798) (798)
Deferred stock compensation....... (385) (7,475) (15,164) (15,164)
Revenue offset relating to warrant
agreements....................... -- -- (1,479) (1,479)
Accumulated deficit............... (2,894) (12,109) (19,540) (19,540)
Accumulated other comprehensive
income........................... -- -- 21 21
------- -------- -------- --------
Total stockholders' equity...... 2,068 10,724 34,949 $ 34,949
------- -------- -------- ========
Total liabilities and
stockholders' equity........... $ 2,434 $ 12,499 $ 42,358
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
AVANTGO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period from
June 30, 1997
(Inception) Year Ended Three Months Ended
through December 31, March 31,
December 31, ---------------- --------------------
1997 1998 1999 1999 2000
------------- ------- ------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.......... $ -- $ 189 $ 1,443 $ 107 $ 753
Services.............. -- 198 1,446 121 908
------ ------- ------- --------- ---------
Total revenues...... -- 387 2,889 228 1,661
Costs and expenses:
Cost of license fees.. -- 10 60 4 27
Cost of services...... -- 210 1,312 127 547
Product development... 140 1,108 2,745 447 1,145
Sales and marketing... 61 1,229 4,291 442 3,246
General and
administrative....... 89 410 1,404 177 1,120
Amortization of
deferred stock
compensation......... -- 71 2,605 146 3,224
------ ------- ------- --------- ---------
Total costs and
expenses........... 290 3,038 12,417 1,343 9,309
------ ------- ------- --------- ---------
Loss from operations.... (290) (2,651) (9,528) (1,115) (7,648)
Other income (expense):
Interest income
(expense), net....... (1) 48 313 7 217
------ ------- ------- --------- ---------
Net loss............ $ (291) $(2,603) $(9,215) $ (1,108) $ (7,431)
====== ======= ======= ========= =========
Net loss per share:
Basic and diluted..... $(0.20) $ (0.95) $ (2.11) $ (0.31) $ (1.30)
====== ======= ======= ========= =========
Pro forma basic and
diluted.............. $ (0.65) $ (0.41)
======= =========
Shares used in
calculation of net loss
per share:
Basic and diluted..... 1,464 2,735 4,377 3,612 5,704
====== ======= ======= ========= =========
Pro forma basic and
diluted.............. 14,272 18,044
======= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
AVANTGO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Convertible Notes Deferred Revenue Accumulated
Preferred Stock Common Stock Receivable Stock Offset Accumu- Other
Comprehensive ---------------- ----------------- from Compen- Relating to lated Comprehensive
Income (Loss) Shares Amount Shares Amount Stockholders sation Warrants Deficit Income (Loss)
------------- --------- ------ --------- ------ ------------ -------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock to
founders........ -- $ -- 6,578,000 $ 33 $ -- $ -- -- $ -- $ --
Issuance of
Series A
preferred stock,
net of issuance
costs........... 4,105,750 1,227 -- -- -- -- -- -- --
Issuance of
Series A
preferred stock
in exchange for
cancellation of
notes payable... 328,406 100 -- -- -- -- -- -- --
Net loss and
comprehensive
loss............ -- -- -- -- -- -- -- (291) --
--------- ------ --------- ----- ------- ------- --- ------ -------
BALANCES AT
DECEMBER 31,
1997............ 4,434,156 1,327 6,578,000 33 -- -- -- (291) --
Issuance of
Series B
preferred stock,
net of issuance
costs........... 3,301,886 3,480 -- -- -- -- -- -- --
Exercise of
stock options... -- -- 1,698,120 63 -- -- -- -- --
Repurchase of
common stock.... -- -- (412,000) (12) -- -- -- -- --
Deferred stock
compensation.... -- -- -- 456 -- (456) --
Amortization of
deferred stock
compensation.... -- -- -- -- -- 71 -- -- --
Net loss and
comprehensive
loss............ -- -- -- -- -- -- -- (2,603) --
--------- ------ --------- ----- ------- ------- --- ------ -------
BALANCES AT
DECEMBER 31,
1998............ 7,736,042 4,807 7,864,120 540 -- (385) -- (2,894) --
Issuance of
Series C
preferred stock,
net of issuance
costs........... 3,659,898 14,373 -- -- -- -- -- -- --
Issuance of
Series C
preferred stock
in exchange for
cancellation of
notes payable... 76,142 300 -- -- -- -- -- -- --
Exercise of
stock options... -- -- 1,805,942 694 (100) -- -- --
Repurchase of
common stock.... -- -- (40,000) (1) -- -- -- -- --
Deferred stock
compensation.... -- -- -- 9,695 -- (9,695) -- -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- 2,605 -- -- --
Net loss and
comprehensive
loss............ -- -- -- -- -- -- -- (9,215) --
--------- ------ --------- ----- ------- ------- --- ------ -------
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C> <C>
Issuance of
common stock to
founders........ $ 33
Issuance of
Series A
preferred stock,
net of issuance
costs........... 1,227
Issuance of
Series A
preferred stock
in exchange for
cancellation of
notes payable... 100
Net loss and
comprehensive
loss............ (291)
------------- ---
BALANCES AT
DECEMBER 31,
1997............ 1,069
Issuance of
Series B
preferred stock,
net of issuance
costs........... 3,480
Exercise of
stock options... 63
Repurchase of
common stock.... (12)
Deferred stock
compensation....
Amortization of
deferred stock
compensation.... 71
Net loss and
comprehensive
loss............ (2,603)
------------- ---
BALANCES AT
DECEMBER 31,
1998............ 2,068
Issuance of
Series C
preferred stock,
net of issuance
costs........... 14,373
Issuance of
Series C
preferred stock
in exchange for
cancellation of
notes payable... 300
Exercise of
stock options... 594
Repurchase of
common stock.... (1)
Deferred stock
compensation.... --
Amortization of
deferred stock
compensation.... 2,605
Net loss and
comprehensive
loss............ (9,215)
------------- ---
</TABLE>
F-5
<PAGE>
AVANTGO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(Continued)
(In thousands, except share data)
<TABLE>
<CAPTION>
Convertible Notes Deferred Revenue
Preferred Stock Common Stock Receivable Stock Offset Accumu-
Comprehensive ------------------ ------------------- from Compen- Relating to lated
Income (Loss) Shares Amount Shares Amount Stockholders sation Warrants Deficit
------------- ---------- ------- ---------- ------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
DECEMBER 31,
1999............. 11,472,082 19,480 9,630,062 10,928 (100) (7,475) -- (12,109)
Issuance of
common stock in
exchange for
services......... -- -- 12,500 96 -- -- -- --
Issuance of
Series D
preferred stock,
net of issuance
costs
(unaudited)...... 3,289,495 27,458 -- -- (342) -- -- --
Exercise of
stock options
(unaudited)...... -- -- 825,279 1,526 (356) -- -- --
Repurchase of
common stock
(unaudited)...... -- -- (7,500) (13) -- -- -- --
Deferred stock
compensation
(unaudited)...... -- -- -- 10,754 -- (10,754) -- --
Amortization of
deferred stock
compensation
(unaudited)...... -- -- -- -- -- 3,065 -- --
Issuances of
Series D warrant
(unaudited)..... -- 159 -- -- -- -- -- --
Deferred revenue
relating to
warrants
(unaudited)..... -- 1,521 -- -- -- -- (1,521) --
Amortization of
warrant
(unaudited)..... 42
Net loss
(unaudited)...... $(7,431) -- -- -- -- -- -- -- (7,431)
Unrealized gain
on investment
(unaudited)...... 21 -- -- -- -- -- -- -- --
-------
Comprehensive
loss
(unaudited)...... $(7,407) -- -- -- -- -- -- -- --
======= ---------- ------- ---------- ------- ----- -------- ------- --------
BALANCES AT MARCH
31, 2000
(unaudited)...... 14,761,577 $48,618 10,460,341 $23,291 $(798) $(15,164) $(1,479) $(19,540)
========== ======= ========== ======= ===== ======== ======= ========
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders'
Income (Loss) Equity
------------- -------------
<S> <C> <C> <C>
BALANCES AT
DECEMBER 31,
1999............. -- 10,724
Issuance of
common stock in
exchange for
services......... -- 96
Issuance of
Series D
preferred stock,
net of issuance
costs
(unaudited)...... -- 27,116
Exercise of
stock options
(unaudited)...... -- 1,170
Repurchase of
common stock
(unaudited)...... -- (13)
Deferred stock
compensation
(unaudited)...... -- --
Amortization of
deferred stock
compensation
(unaudited)...... -- 3,065
Issuances of
Series D warrant
(unaudited)..... -- 159
Deferred revenue
relating to
warrants
(unaudited)..... -- --
Amortization of
warrant
(unaudited)..... 42
Net loss
(unaudited)...... -- (7,431)
Unrealized gain
on investment
(unaudited)...... 21 21
Comprehensive
loss
(unaudited)...... -- --
------------- -------------
BALANCES AT MARCH
31, 2000
(unaudited)...... $21 $34,949
============= ============= ===
</TABLE>
See accompanying notes.
F-6
<PAGE>
AVANTGO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Period from
June 30, 1997
(Inception) Year Ended Three Months
through December 31, Ended March 31,
December 31, ----------------- ----------------
1997 1998 1999 1999 2000
------------- ------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................. $ (291) $(2,603) $ (9,215) $(1,108) $(7,431)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation.............. 5 50 163 21 117
Amortization of deferred
stock compensation and
other.................... -- 71 2,605 146 3,224
Deferred revenue relating
to warrants.............. -- -- -- -- 42
Issuance of common stock
in exchange for
services................. -- -- -- -- 96
Changes in operating
assets and liabilities:
Accounts receivable...... -- (52) (1,426) (78) (5,757)
Prepaid expenses and
other current assets.... (2) (22) (230) (43) 6
Deposits and other
assets.................. (42) (6) (15) -- (26)
Accounts payable and
accrued liabilities..... 28 84 1,059 (22) 46
Accrued compensation and
related benefits........ 8 32 200 42 446
Deferred revenue......... -- 16 231 10 5,161
------ ------- -------- ------- -------
Net cash used in
operating activities... (294) (2,430) (6,628) (1,032) (4,076)
INVESTING ACTIVITIES:
Purchase of property and
equipment................ (38) (168) (871) (72) (778)
Cash paid for
investments.............. -- -- (10,000) -- --
Proceeds from
investments.............. -- -- 6,025 -- 1,189
------ ------- -------- ------- -------
Net cash (used in)
provided by investing
activities............. (38) (168) (4,846) (72) 411
FINANCING ACTIVITIES:
Borrowings under bank line
of credit agreement...... -- 189 -- -- --
Repayment of obligations
under bank line of credit
agreement................ -- (6) (71) (18) (18)
Principal payments on
capital lease
obligations.............. (4) (16) (10) (4) (1)
Proceeds from issuance of
convertible preferred
stock, net............... 1,227 3,480 14,373 -- 27,116
Proceeds from issuance of
notes payable............ 100 -- 300 -- --
Proceeds from issuance of
common stock, net........ 33 51 593 35 1,157
------ ------- -------- ------- -------
Net cash provided by
financing activities... 1,356 3,698 15,185 13 28,254
------ ------- -------- ------- -------
Increase (decrease) in cash
and cash equivalents...... 1,024 1,100 3,711 (1,091) 24,589
Cash and cash equivalents
at beginning of period.... -- 1,024 2,124 2,124 5,835
------ ------- -------- ------- -------
Cash and cash equivalents
at end of period.......... $1,024 $ 2,124 $ 5,835 $ 1,033 $30,424
====== ======= ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Property and equipment
purchased under capital
lease obligations........ $ 34 $ -- $ -- $ -- $ --
====== ======= ======== ======= =======
Issuance of preferred
stock in exchange for
convertible notes
payable.................. $ 100 $ -- $ 300 $ -- $ --
====== ======= ======== ======= =======
Issuance of preferred
stock for notes
receivable from
stockholders............. $ -- $ -- $ -- $ -- $ 342
====== ======= ======== ======= =======
Deferred stock
compensation related to
grants of options for
common stock............. $ -- $ 456 $ 9,695 $ -- $10,913
====== ======= ======== ======= =======
Issuance of common stock
for notes receivable from
stockholder.............. $ -- $ -- $ 100 $ -- $ 356
====== ======= ======== ======= =======
Revenue offset relating to
warrants................. $ -- $ -- $ -- $ -- $ 1,521
====== ======= ======== ======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid during the
period for interest...... $ 1 $ 12 $ 18 $ 5 $ 3
====== ======= ======== ======= =======
Warrant issued in
connection with a content
service agreement........ $ -- $ -- $ -- $ -- $ 159
====== ======= ======== ======= =======
</TABLE>
See accompanying notes.
F-7
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
AvantGo, Inc. (the "Company") was incorporated on June 30, 1997 in Delaware.
The Company provides mobile infrastructure software and services that extend
the internet and corporate applications beyond the desktop to handheld devices
and internet enabled phones. In May 1999, the Company launched AvantGo.com, a
free service for accessing personalized Web content from leading partners.
Basis of Presentation
The Company has incurred operating losses to date and has an accumulated
deficit of $19,540,000 as of March 31, 2000. The Company's activities have been
primarily financed through private placements of equity securities. The Company
may need to raise additional capital through the issuance of debt or equity
securities. Such financing may not be available on terms acceptable to the
Company, if at all.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
The functional currency of the Company's foreign subsidiary is the local
currency. The Company translates all assets and liabilities to U.S. dollars at
the current exchange rates as of the applicable balance sheet date. Revenue and
expenses are translated at the average exchange rate prevailing during the
period. Gains and losses resulting from the translation for the foreign
subsidiary's financial statements have not been material to date. Net gains and
losses resulting from foreign exchange transactions were not significant during
any of the periods presented.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported results of operations during the
reporting period. Actual results could differ from those estimates.
Interim Financial Information
The interim financial information as of March 31, 2000 and for the three
months ended March 31, 1999 and 2000 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of its consolidated financial position at
that date and its consolidated results of operations and cash flows for those
periods. Operating results for the three months ended March 31, 2000 are not
necessarily indicative of results that may be expected for any future periods.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with
insignificant interest rate risk and original maturities of three months or
less at the date of purchase and are stated at cost, which approximate fair
value. Cash equivalents consist principally of investments in short-term money
market instruments.
F-8
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
Short-Term Investments
Short-term investments consist principally of commercial paper and corporate
notes with original maturities greater than 90 days and are stated at amounts
that approximate fair market value. The Company accounts for its short-term
investments in accordance with Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet
date. The Company classifies its short-term investments as available-for-sale.
Available-for-sale investments are recorded at fair value with unrealized gains
and losses reported in the statement of stockholders' equity. Fair values of
investments are based on quoted market prices, where available. Realized gains
and losses, which have been immaterial to date, are included in interest and
other income and are derived using the specific identification method for
determining the cost of investments sold. Dividend and interest income is
recognized when earned.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of three years. Equipment under capital leases are
amortized over the shorter of the estimated useful life or the life of the
lease. Useful lives are evaluated regularly by management in order to determine
recoverability in light of current technological conditions.
Software Development Costs
The Company accounts for software development costs in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("FASB
86"), under which certain software development costs incurred subsequent to the
establishment of technological feasibility are capitalized and amortized over
the estimated lives of the related products. Technological feasibility is
established upon completion of a working model. Through March 31, 2000, costs
incurred subsequent to the establishment of technological feasibility have not
been significant and all software development costs have been charged to
product development expense in the accompanying consolidated statements of
operations.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, short-term
investments and accounts receivable. Cash and cash equivalents and short term
investments are deposited with two high-credit quality financial institutions.
Accounts receivable consists of balances due from a limited number of
customers. The Company markets, sells and grants credit to its customers
without requiring collateral or third-party guarantees. To date, all of the
Company's customers are companies who do business on the Internet. The Company
monitors its exposure for credit losses and maintains appropriate allowances.
To date, the Company has not experienced any material losses with respect to
its accounts receivable. For the year ended December 31, 1999 two customers
accounted for 25% and 15% of total revenues. For the three months ended March
31, 2000 one of these customers and one new customer accounted for 30% and 15%,
respectively of total revenues.
Revenue Recognition
The Company licenses software under non-cancelable license agreements and
provides services including training, installation, consulting and maintenance,
consisting of product support services and unspecified
F-9
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
product updates. The Company also sells placement service contracts which
provide customers with priority visibility on the Company's web-site.
License revenues are recognized when a non-cancelable license agreement has
been signed, the software product has been shipped, there are no uncertainties
surrounding product acceptance, the fees are fixed or determinable,
collectibility is probable, and vendor-specific objective evidence exists to
allocate the total fee to elements of the arrangement. In instances where no
vendor-specific objective evidence exists and the only undelivered element is
maintenance, revenue is recognized ratably over the term of the agreement. The
Company's agreements with its customers and resellers do not contain product
return rights. Revenues from maintenance, which consist of fees of ongoing
support and product updates, are recognized ratably over the term of the
contract, typically one year. Revenues from placement agreements are recognized
ratably over the service period, which in most instances is between six months
and one year. Consulting revenues are primarily related to implementation
services performed on a time-and materials basis under separate service
arrangements. Training revenue are generated from classes offered both on-site
and at customer locations. Revenues from consulting and training services are
recognized as the services are performed.
Stock-Based Compensation
The Company accounts for employee stock options using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and has adopted the
disclosure-only alternative of FASB Statement No. 123, "Accounting for Stock-
Based Compensation" ("FASB 123").
Advertising Expense
The cost of advertising is expensed as incurred. Advertising costs, which
are included in sales and marketing expense, were approximately $52,000,
$51,000 and $91,000 for the period from June 30, 1997 (inception) through
December 31, 1997 and for the years ended December 31, 1998 and 1999,
respectively, including $83,000 resulting from non-monetary transactions for
the year ended December 31, 1999.
Net Loss Per Share
Basic and diluted net loss per share information for all periods is
presented under the requirement of FASB Statement No. 128, "Earnings per Share"
("FASB 128"). Basic earnings per share has been computed using the weighted-
average number of shares of common stock outstanding during the period, less
shares that may be repurchased, and excludes any dilutive effects of options,
warrants, and convertible securities. Potentially dilutive securities have also
been excluded from the computation of diluted net loss per share as their
inclusion would be antidilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will automatically
convert to common shares upon completion of the Company's initial public
offering, using the if-converted method (Note 6).
F-10
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
The calculation of historical and pro forma basic and diluted net loss per
share is as follows (in thousands, except share and per share amounts):
<TABLE>
<CAPTION>
Period from
June 30, 1997
(Inception) Three Months Ended
through Year Ended December 31, March 31,
December 31, ----------------------- ----------------------
1997 1998 1999 1999 2000
------------- ----------- ------------ --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Historical:
Net loss............... $ (291) $ (2,603) $ (9,215) $ (1,108) $ (7,431)
Weighted average shares
of common stock
outstanding........... 5,210,720 7,419,275 8,924,914 8,027,709 10,177,905
Less weighted average
shares that may be
repurchased........... 3,746,429 4,684,523 4,548,317 4,415,658 4,473,994
--------- ----------- ------------ --------- -----------
Weighted average shares
of common stock
outstanding used in
computing basic and
diluted net per loss
share................. 1,464,291 2,734,752 4,376,597 3,612,051 5,703,911
========= =========== ============ ========= ===========
Basic and diluted net
loss per share........ $ (0.20) $ (0.95) $ (2.11) $ (0.31) $ (1.30)
========= =========== ============ ========= ===========
Pro forma:
Net loss............... $ (9,215) $ (7,431)
============ ===========
Weighted-average shares
used in computing
basic and diluted net
loss per share (from
above)................ 4,376,597 5,703,911
Adjustment to reflect
the effect of the
assumed conversion of
preferred stock from
the date of issuance.. 9,895,780 12,339,641
------------ -----------
Weighted-average shares
used in computing pro
forma basic and
diluted net per loss
share................. 14,272,377 18,043,552
============ ===========
Pro forma basic and
diluted net loss per
share................. $ (0.65) $ (0.41)
============ ===========
</TABLE>
If the Company had reported net income, the calculation of historical and
pro forma diluted earnings per share would have included approximately an
additional 485, 2,011,900, 4,769,427, 2,501,393, and 6,636,283 common
equivalent shares related to the outstanding stock options and warrants not
included above (determined using the treasury stock method) for the period from
June 30, 1997 (inception) through December 31, 1997, and the years ended
December 31, 1998 and 1999 and for the three months ended March 31, 1999 and
2000, respectively.
Comprehensive Income (Loss)
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. The only item of other
comprehensive income (loss) which the Company currently reports is unrealized
gain (loss) on investments, which is included in accumulated other
comprehensive income (loss) in the consolidated statements of stockholders'
equity.
F-11
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
Income Taxes
The Company accounts for income taxes in accordance with FASB Statement No.
109, "Accounting for Income Taxes" ("FASB 109"), which requires the use of the
liability method in accounting for income taxes. Under FASB 109, deferred tax
assets and liabilities are measured based on differences between the financial
reporting and tax bases of assets and liabilities using enacted tax rates and
laws that are expected to be in effect when the differences are expected to
reverse.
Segment Information
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (FASB 131). FASB 131 changes the way
companies report selected segment information in annual financial statements
and requires companies to report selected segment information in interim
financial reports to stockholders. FASB 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company adopted FASB 131 in the year ended December 31, 1998.
The Company has only one operating segment, and therefore there is no impact on
the Company's financial statements of adopting FASB 131.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements of all public registrants. Any change in the
Company's revenue recognition policy resulting from the interpretation of SAB
101 would be reported as a change in accounting principle in the quarter ending
June 30, 2000. While the Company has not fully assessed the impact of the
adoption of SAB 101, management believes that implementation of SAB 101 will
not have a material adverse impact on their existing revenue recognition
policies or their reported results of operations for fiscal 2000.
In March 2000, the Emerging Issues Task Force of the FASB reached consensus
on Issue 00-2 "Accounting for Website Development Costs." ("EITF 00-2"). EITF
00-2 establishes how an entity should account for costs incurred to develop a
website. It requires that an entity capitalize costs during the web application
and infrastructure and graphics development stages of development. The
consensus is effective for all costs incurred beginning after June 30, 2000,
although earlier adoption is encouraged. The Company is currently evaluating
the adoption of EITF 00-2 and its potential impact on its financial condition
or results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
------------
1998 1999
---- ------
<S> <C> <C>
Computers and equipment.................................... $220 $ 915
Furniture, fixtures and improvements....................... 20 196
---- ------
240 1,111
Less accumulated depreciation.............................. (55) (218)
---- ------
$185 $ 893
==== ======
</TABLE>
F-12
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
3. INCOME TAXES
There has been no provision for U.S. federal, state or foreign income taxes
for any period as the Company has incurred operating losses in all periods and
for all jurisdictions.
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. Significant components
of the Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 1,117 $ 3,542
Other................................................. 21 360
------- -------
Total deferred tax assets.............................. 1,138 3,902
Valuation allowance.................................... (1,138) (3,902)
------- -------
Net deferred tax assets................................ $ -- $ --
======= =======
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net
deferred tax assets have been fully offset by a valuation allowance. The
valuation allowance increased by $1,138,000 and $2,764,000 during the years
ended December 31, 1998 and 1999, respectively.
As of December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $8.9 million, which expire in
fiscal years 2012 through 2019. The Company also had net operating loss
carryforwards for state income tax purposes of approximately $8.9 million,
expiring in fiscal year 2005. There can be no assurance that the Company will
realize the benefit of the net operating loss carryforwards.
Utilization of the Company's net operating loss carryforwards may be subject
to a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code and similar state provisions. Such an
annual limitation could result in the expiration of the net operating loss
carryforwards before utilization.
4. BANK LINE OF CREDIT AGREEMENT
In January 1998, the Company entered into a line of credit agreement with a
bank which provides for borrowings of up to $300,000. Borrowings of $112,000
were outstanding under the line of credit at December 31, 1999. Borrowings
under the line of credit bear interest at the bank's prime plus 0.5% (9.25% at
December 31, 1999). The line of credit matures in July 2001 and borrowings are
payable in 32 equal monthly installments commencing in December 1998.
Outstanding borrowings under the agreement are collateralized by substantially
all the Company's assets.
5. CONVERTIBLE NOTES PAYABLE
In April 1999, the Company issued a convertible note payable to a vendor in
exchange for $300,000 in cash. The note payable bore interest at 8% per year
and was convertible into shares of Series C preferred stock
F-13
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
at $3.94 per share at the option of the payee and upon the sale of such shares
by the Company. However, no interest was payable by the Company in case of
conversion. The note payable was converted into 76,142 shares of the Company's
Series C convertible preferred stock in connection with the Company's sale of
the preferred stock in June 1999.
6. STOCKHOLDERS' EQUITY
Stock Split
In July 1999, the Board of Directors approved a two-for-one split of its
common and preferred stock. All references in the financial statements to
number of shares, per share amounts, stock option data and fair value of the
Company's common and preferred stock have been restated for the effect of the
stock split.
Common Stock Issued to Founders
In August and September 1997, the Company issued 5,600,000 shares and
872,000 shares of common stock respectively, to the founders at $0.005 per
share, which the Company determined to be the fair value of the common stock
upon the formation of the Company. These common shares are subject to
repurchase rights which allow the Company to repurchase the shares at $0.005
per share in the event of termination of employment, death or disability, and
which generally expire 25% after the first year and ratably over three years
thereafter. At December 31, 1999, 1,871,500 shares were subject to repurchase
rights.
Preferred Stock
Preferred stock consists of the following by series (in thousands):
<TABLE>
<CAPTION>
Shares Issued
---------------------------------------
December 31, March 31,
Authorized --------------------- ----------- Liquidation
Series Shares 1998 1999 2000 Preference
------ ---------- ----- ------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
A 4,434 4,434 4,434 4,434 $ 1,300
B 3,302 3,302 3,302 3,302 3,500
C 3,736 -- 3,736 3,736 14,700
D 5,000 -- -- 3,290 27,500
------ ----- ------ ------ -------
16,472 7,736 11,472 14,762 $47,000
====== ===== ====== ====== =======
</TABLE>
Each share of preferred stock is convertible, at the option of the holder,
into one share of the Company's common stock, subject to certain anti-dilution
provisions. Additionally, conversion is automatic upon the closing of a
qualified public offering of common stock with net proceeds of at least
$20,000,000 or a public offering price of not less than $8.36 per share.
The holders of shares of Series A, B, C and D convertible preferred stock,
in preference to the holders of any other stock of the Company, are entitled to
receive dividends at the rates of $0.0245, $0.08450, $0.3152 and $0.668 per
annum, respectively (as adjusted for any stock dividends, combinations or
splits with respect to such shares). Such dividends are payable only when, as
and if declared by the Board of Directors, but only out of funds that are
legally available, and are noncumulative. No dividends have been declared as of
December 31, 1999.
F-14
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of Series A, B, C and D
convertible preferred stock are entitled to receive, prior and in preference to
any distribution of the assets of the Company to the holders common stock, by
reason of their ownership, an amount equal to the sum of $0.30, $1.06, $3.94
and $8.36 for each share, respectively, plus any declared but unpaid dividends
with respect to such shares. The remaining assets, if any, are to be
distributed ratably to the holders of common stock. If, upon the occurrence of
a liquidation event, the assets and funds distributed among the holders of
convertible preferred stock are insufficient to permit the payment to holders
of the full preferential amount, then all assets and funds of the Company
legally available for distribution are to be distributed ratably among the
holders of convertible preferred stock, in proportion to the preferential
amount each such holder is otherwise entitled to receive.
The holders of preferred stock are entitled to the number of votes equal to
the number of shares of common stock into which each share of preferred stock
could be converted.
Stock Option Plan
The Company has reserved 7,413,600 shares of common stock under the 1997
Stock Option Plan (the "Plan"). The Plan provides for incentive stock options,
as defined by the Internal Revenue Code, to be granted to employees, at an
exercise price not less than 100% of the fair value at the grant date as
determined by the Board of Directors, unless the optionee is a 10% shareholder,
in which case the option price will not be less than 110% of such fair market
value. The Plan also provides for nonqualified stock options to be issued to
employees and consultants at an exercise price of not less than 85% of the fair
value at the grant date. Options granted generally have a maximum term of 10
years from grant date, are immediately exercisable and generally vest over a
four year period. The plan provides that shares issued under the plan prior to
vesting are subject to repurchase by the Company upon termination of employment
at the original price paid for the shares. The repurchase rights lapse at the
rate of 25% after one year and ratably on a monthly basis for three years
thereafter. As of December 31, 1999, 2,668,378 shares were subject to
repurchase.
A summary of the Company's stock option activity under the Plan is as
follows:
<TABLE>
<CAPTION>
Weighted-
Number of Average
Shares Exercise Price
---------- --------------
<S> <C> <C>
Granted......................................... 4,000 $0.03
----------
Outstanding at December 31, 1997.................. 4,000 0.03
Granted......................................... 2,295,320 0.06
Exercised....................................... (1,698,120) 0.04
Canceled........................................ (60,000) 0.13
----------
Outstanding at December 31, 1998.................. 541,200 0.12
Granted......................................... 3,891,000 1.09
Exercised....................................... (1,805,942) 0.38
Canceled........................................ (30,000) 0.13
----------
Outstanding at December 31, 1999.................. 2,596,258 1.40
Granted (unaudited)............................. 2,214,100 2.36
Exercised (unaudited)........................... (825,279) 1.85
Canceled (unaudited)............................ (53,500) 1.75
----------
Balance at March 31, 2000 (unaudited)............. 3,931,579 $1.83
==========
</TABLE>
F-15
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
--------------------------------------------------------
Weighted-Average Weighted-
Remaining Average
Range of Number of Contractual Life Exercise
Exercise Prices Shares (in Years) Price
--------------- --------- ---------------- ---------
<S> <C> <C> <C>
$0.03--0.75 612,000 9.01 $0.17
1.25--2.25 1,984,258 9.72 1.78
---------
2,596,258
=========
</TABLE>
Shares Reserved for Future Issuance
As of December 31, 1999, shares of common stock reserved for future issuance
were as follows:
<TABLE>
<S> <C>
Stock options available for grant.................................... 1,313,280
Stock options outstanding............................................ 2,596,258
Conversion of preferred stock........................................ 11,472,082
----------
Total shares reserved for future issuance............................ 15,381,620
==========
</TABLE>
Pro Forma Disclosure of the Effect of Stock-Based Compensation
Pro forma information regarding results of operations and net loss per share
is required by FASB 123, which also requires that the information be determined
as if the Company had accounted for its employee stock options under the fair
value method of FASB 123. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions: a risk-free interest rate of 6.0%, no dividend
yield, a weighted average expected life of the option of 4.5 years and
volatility factors of 0, 0 and 0.7 for the period from June 30, 1997
(inception) through December 31, 1997 and the years ended December 31, 1998 and
1999, respectively.
The option valuation models are developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the options. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under those plans
calculated using the minimum value method of FASB 123, the Company's net loss
and pro forma basic and diluted net loss per share would have been increased to
the pro forma amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Period from Year Ended
June 30, 1997 December 31,
(Inception) through -----------------
December 31, 1997 1998 1999
------------------- -------- --------
<S> <C> <C> <C>
Pro forma net loss................... $ (291) $(2,532) $(6,411)
Pro forma basic and diluted net loss
per share........................... $(0.20) $ (0.95) $ (1.46)
</TABLE>
F-16
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
The weighted average fair value of options granted, which is the value
assigned to the options under FASB 123, was $0.14, $0.29 and $3.18 for options
granted during the period from June 30, 1997 (inception) through December 31,
1997 and the years ended December 31, 1998 and 1999, respectively.
The pro forma impact of options on the net loss for the period from June 30,
1997 (inception) through December 31, 1997 and the years ended December 31,
1998 and 1999 is not representative of the effects on net income (loss) for
future years, as future years will include the effects of additional years of
stock option grants.
Deferred Stock Compensation
The Company recorded deferred stock compensation of $456,000 and $8,186,000
during the years ended December 31, 1998 and 1999, respectively, representing
the difference between the exercise price and the deemed fair value for
financial accounting purposes of the Company's common stock on the date the
stock options were granted. In the absence of a public market for the Company's
common stock, the deemed fair value was based on the price per share of recent
preferred stock financings, less a discount to give effect to the superior
rights of the preferred stock. These amounts are being amortized by charges to
operations over the vesting periods of the individual stock options using a
graded vested method. Such amortization amounted to approximately $71,000 and
$2,432,000 for the years ended December 31, 1998 and 1999, respectively and
$2,551,000 for the quarter ended March 31, 2000.
The Company also recorded deferred stock compensation of approximately
$1,509,000 in the year ended December 31, 1999 relating to consultant options.
This amount was computed using the Black-Scholes option valuation model; it
will be remeasured at each measurement date, and the related amortization will
be charged to operations over the term of the related consulting agreements.
Such amortization amounted to approximately $173,000 for the year ended
December 31, 1999 and $514,000 for the quarter ended March 31, 2000. The
assumptions used to compute the value of the options at the grant date under
Black-Scholes are as follows: expected volatility, 0.7; expected life, 5 years;
expected dividend yield, 0%; and risk-free interest rate, 6.0%.
Notes Receivable From Stockholders
In December 1999, an officer of the Company purchased a total of 57,142
shares of the Company's common stock in exchange for a full recourse promissory
note. The note bears interest at 6% per annum, with interest and principal
payable in December 2004. The note is secured by the common shares purchased by
the officer.
In January 2000, an officer of the Company purchased a total of 112,500
shares of the Company's common stock in exchange for a full recourse promissory
note. The note bears interest at 6% per annum, with interest and principal
payable in January 2005. The note is secured by the common shares purchased by
the officer.
In March 2000, the Company issued 40,909 shares of Series D convertible
preferred stock to a certain investor in exchange for a promissory note. The
note is repayable on demand, anytime after March 31, 2000. The note was repaid
in April 2000.
In March 2000, an officer of the Company purchased a total of 59,035 shares
of the Company's common stock in exchange for a full recourse promissory note.
The note bears interest at 6% per annum, with interest and principle payable in
March 2005. The note is secured by the common shares purchased by the officer.
F-17
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
7. COMMITMENTS
Leases
The Company leases its facility under a noncancelable operating lease
through 2002. Rent expense under operating lease arrangements amounted to
$14,000, $109,000 and $374,000 for the period from June 30, 1997 (inception)
through December 31, 1997 and the years ended December 31, 1998 and 1999,
respectively. Capital lease obligations represent the present value of future
rental payments under capital lease agreements for equipment. The original cost
and accumulated amortization on the equipment under capital leases is $16,000
and $11,000 at December 31, 1999. Future minimum payments under operating and
capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
<S> <C> <C>
Year ending December 31,
2000...................................................... $ 638 $ 5
2001...................................................... 662 --
2002...................................................... 171 --
------ -----
$1,471 5
====== -----
Less amount representing interest............................. 1
-----
Present value of net minimum capital lease payments........... $ 4
=====
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan that allows eligible employees to contribute
up to 15% of their pretax salary, subject to annual limits. Contributions by
the Company are at the discretion of the Board of Directors. No discretionary
contributions have been made by the Company to date.
9. SUBSEQUENT EVENTS (UNAUDITED)
Facility Lease
On March 31, 2000, the Company entered into a new lease agreement for new
corporate headquarters in Hayward, California. The facility is under
construction and is expected to be completed in August 2000. The lease expires
seven years after occupancy. As part of this lease, the Company agreed to
provide letters of credit totaling $3.25 million as a security deposit. Future
minimum payments under this operating lease total approximately $11.9 million.
Series D Preferred Stock
In April 2000, the Company sold an additional 436,599 shares of Series D
convertible preferred stock at $8.36 per share and received approximately
$3,650,000 in cash.
F-18
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
Warrants
On February 1, 2000, the Company issued a warrant to purchase 117,558 shares
of series D preferred stock at an exercise price of $8.36 per share. The
warrant was issued in connection with a Content and Service agreement. A total
of 58,779 shares vested at the closing of the Company's Series D Preferred
Stock financing in March 2000. The remaining shares vest on the earlier of one
year from the issue date or the effective date of the Company's Registration
Statement with respect to an initial public offering. The warrant is non
forfeitable and exercisable up to the earlier of three years after the final
vesting date or the closing date of the Company's initial public offering of
its shares of common stock which yields minimum aggregate proceeds of
$10.0 million. The fair value of $437,000 was estimated using the Black-Scholes
valuation model with the following assumptions: risk-free interest rate of
6.50%, expected life of 3 years, expected dividend yield of 0%, and volatility
of 70%. The fair value of this warrant is being charged to operations over the
term of the business arrangement.
The company issued a second warrant on February 1, 2000 to purchase 117,558
shares of Capital Stock at the average fair value of the company's common stock
over the most recent twenty business days before the vesting date. The warrant
vests one year after the issue date in the event the company fails to enter
into a definitive agreement with this third party to which the Company agrees
to purchase a minimum of $1,000,000 of advertising within one year. If the
Company enters into this Advertising Agreement prior to the vesting date, this
warrant expires on the effective date of the Advertising Agreement. The Company
has determined that the possibility of this warrant ever vesting is remote and
has recorded no value for this warrant.
In March 2000, the company entered into a software license agreement and
three year Channel Management Agreement (Agreements). In connection with these
agreements, the company issued a warrant to purchase 358,851 shares of Series D
preferred stock at an exercise price of $8.36 per share. The warrant is
immediately exercisable and non forfeitable and expires three years from the
issue date. The fair value of the warrant of $1,521,000 was calculated using
the Black-Scholes valuation model with the following assumptions: risk-free
interest rate of 6.5%; expected life of 3 years; expected dividend yield of 0%;
and volatility rate of 70%. The estimated fair value was originally recorded in
equity and is being amortized as a reduction to revenue over the three year
term of the Agreements.
Acquisition
Effective May 26, 2000, the Company acquired Globalware Computing, Inc.
("Globalware"), a company which develops and sells software designed to
increase connectivity between business and personal databases using handheld
devices, in a transaction accounted for as a purchase. The purchase
consideration was approximately $17.1 million consisting of 1,933,300 shares of
preferred stock with a fair market value of $15.5 million, stock options to
acquire 180,438 shares of common stock with a value of $1.4 million, and
$200,000 of acquisition costs.
The fair values of equity securities issued by the Company in the
acquisition were determined as follows: common stock--$8.00 per share based on
a discount from recent per share prices of preferred stock sales to reflect the
superior rights of the preferred stock; and common stock options--$8.00 per
share based on a fair value computation as of the acquisition date using the
Black-Scholes valuation mode.
F-19
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on deemed fair values as follows (in thousands):
<TABLE>
<S> <C>
Net tangible assets................................................ $ 864
Intangible assets:
Purchased technology............................................. 3,100
Assembled workforce.............................................. 530
Goodwill......................................................... 12,016
-------
Total intangible assets........................................ 15,646
Purchased in-process research and development to be charged to
operations in the three months ended June 30, 2000................ 600
-------
Total purchase consideration................................... $17,110
=======
</TABLE>
Goodwill arising from the acquisition will be amortized on a straight-line
basis over three years. Identified intangible assets will be amortized over
their estimated useful lives over three years.
Purchased in-process research and development consists of a single project
to develop connectivity software that enables end users to conduct wireless and
modem synchronization from Palm devices to the Globalware server. This tool has
been added to the Company's suite of products. The Company's management is
primarily responsible for estimating the fair value of the purchased in-process
research and development. The Company estimated the revenues, costs and
resulting net cash flows from the project, and discounted the net cash flows
back to their net present value. These estimates were based on several
assumptions, including those summarized below. The resultant value was then
adjusted to reflect only the value creation effort of Globalware prior to the
acquisition and further reduction by the estimated value of core technology,
which was included in capitalized purchased technology.
Revenues and operating profit attributable to the in-process research and
development were estimated over a three-year projection period. The resulting
projected net cash flows were discounted to their present value using a
discount rate of 23%, which was calculated based on the weighted-average cost
of capital, adjusted for the technology risk associated with the purchased in-
process research and development. The technology risk was considered to be
significant due to the rapid pace of technological change in the software
industry.
The following unaudited pro forma adjusted summary represents the
consolidated results of operations for the year ended December 31, 1999 and
three months ended March 31, 2000 as if the acquisition of Globalware had
occurred at the beginning of the pro forma periods presented and is not
intended to be indicative of future results (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
Three Months
Year ended ended
December 31, March 31,
1999 2000
------------ ------------
<S> <C> <C>
Pro forma adjusted net revenue...................... 4,324 2,377
Pro forma adjusted net loss......................... (14,152) (8,318)
Pro forma adjusted net loss per share--basic and
diluted............................................ $ (2.24) $ (1.09)
</TABLE>
The pro forma results of operations include historical operations of the
Company and Globalware adjusted to reflect certain pro forma adjustments,
including amortization of goodwill and other intangible assets arising
F-20
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
from the acquisition and do not include the charge for purchased in-process
research and development of $600,000 since it is a nonrecurring charge. These
results do not purport to be indicative of what would have occurred had the
acquisition been made as of those dates or the results of operations which may
occur in future periods.
Proposed Public Offering of Common Stock
In May 2000, the Board of Directors authorized the Company to proceed with
an initial public offering of its common stock. If the offering is consummated
as presently anticipated, all of the outstanding preferred stock will
automatically convert to common stock. The unaudited pro forma stockholders'
equity at March 31, 2000 gives effect to the conversion of all outstanding
shares of convertible preferred stock at that date into 14,761,577 shares of
common stock upon the completion of the offering. In addition, the Board of
Directors authorized an increase in the number of authorized shares of common
stock to 150,000,000 and a decrease in the number of authorized shares of
undesignated preferred stock to 10,000,000 shares, to be effective at the
closing of the offering.
1997 Stock Option Plan
In January 2000, the Board of Directors approved an additional 1,800,000
shares to be issued under the 1997 Stock Option Plan.
2000 Stock Incentive Plan
In May 2000, the Company's Board of Directors adopted, subject to
stockholder approval, the 2000 Stock Incentive Plan. There are 1,500,000 shares
of common stock authorized for issuance under the plan and any shares reserved
but not granted under the 1997 Stock Option Plan or returned to the Plan upon
termination of options will also be available for issuance.
2000 Employee Stock Purchase Plan
In May 2000, the Company's Board of Directors adopted, subject to
stockholder approval, the 2000 Employee Stock Purchase Plan. The Company has
initially reserved a total of 350,000 shares of common stock for issuance under
the plan. Beginning with the date of the Company's initial public offering of
its common stock, eligible employees may purchase common stock at 85% of the
lesser of the fair market value of the Company's common stock on the first day
of the applicable six-month offering period or fair market value of the
Company's common stock at the date of purchase.
F-21
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Globalware Computing, Inc.
We have audited the accompanying balance sheets of Globalware Computing,
Inc. as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Globalware Computing, Inc.
at December 31, 1998 and 1999, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
Chicago, Illinois
May 19, 2000
F-22
<PAGE>
GLOBALWARE COMPUTING, INC.
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
-------------- March 31,
1998 1999 2000
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 121 $ 442 $ 758
Short-term investments........................... 4 -- --
Accounts receivable, less allowance for doubtful
accounts of $31,000 in 1998 and $61,000 in 1999,
and 2000........................................ 52 101 212
------ ------ ------
Total current assets........................... 177 543 970
Property And Equipment, net........................ 39 65 66
Deposits........................................... -- 1 8
------ ------ ------
Total assets....................................... $ 216 $ 609 $1,044
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities......... $ 95 $ 34 $ 18
Due to related party............................. -- 140 162
------ ------ ------
Total current liabilities...................... 95 174 180
Stockholders' Equity:
Common stock, no par value:
Authorized shares--10,000; issued and
outstanding shares--1,000 at December 31, 1998
and 1999, and March 31, 2000.................... 6 395 395
Deferred stock compensation...................... -- (368) (356)
Retained earnings................................ 130 408 825
Accumulated other comprehensive income (loss).... (15) -- --
------ ------ ------
Total stockholders' equity......................... 121 435 864
------ ------ ------
Total liabilities and stockholders' equity......... $ 216 $ 609 $1,044
====== ====== ======
</TABLE>
See accompanying notes.
F-23
<PAGE>
GLOBALWARE COMPUTING, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
--------------------- -------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees........................... $ 185 $ 647 $1,435 $ 261 $ 716
Services............................... 165 -- -- -- --
------ ------ ------ ------ ------
Total revenues....................... 350 647 1,435 261 716
Operating expenses:
Product development.................... 56 265 393 59 66
Sales and marketing.................... 11 166 453 77 127
General and administrative............. 49 167 316 50 77
Amortization of deferred stock
compenstion........................... 21 -- 12
------ ------ ------ ------ ------
Total operating expenses............. 116 598 1,183 186 282
------ ------ ------ ------ ------
Income from operations................... 234 49 252 75 434
Interest income (expense), net........... -- 5 15 2 7
Gain (loss) on sale of investments....... -- (11) 11 -- (24)
------ ------ ------ ------ ------
Net income............................... $ 234 $ 43 $ 278 $ 77 $ 417
====== ====== ====== ====== ======
Net income per share:
Basic earnings per share............... $ 234 $ 43 $ 278 $ 77 $ 417
====== ====== ====== ====== ======
Diluted earnings per share............. $ 234 $ 43 $ 265 $ 77 $ 391
====== ====== ====== ====== ======
Shares used in calculation of net income
per share:
Basic.................................. 1,000 1,000 1,000 1,000 1,000
====== ====== ====== ====== ======
Diluted................................ 1,000 1,000 1,048 1,033 1,067
====== ====== ====== ====== ======
</TABLE>
See accompanying notes.
F-24
<PAGE>
GLOBALWARE COMPUTING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Accumulated
Common Stock Deferred Other
------------- Stock Retained Comprehensive
Shares Amount Compensation Earnings Income (Loss) Total
------ ------ ------------ -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 1,000 $ 1 $ -- $ 39 $ (17) $ 23
Net income............ -- -- -- 234 -- 234
Subchapter S
Distributions........ -- -- -- (101) -- (101)
Unrealized loss on
available for sale
securities........... -- -- -- -- (7) (7)
----- ----- ----- ----- ----- -----
Balance at December 31,
1997................... 1,000 1 -- 172 (24) 149
Net income............ -- -- -- 43 -- 43
Subchapter S
distributions........ -- -- -- (85) -- (85)
Options issued to
nonemployees for
services............. -- 5 -- -- -- 5
Unrealized loss on
available for sale
securities net of
reclassification
adjustment for loss
included in net
income............... -- -- -- -- 9 9
----- ----- ----- ----- ----- -----
Balance at December 31,
1998................... 1,000 6 -- 130 (15) 121
Net income............ -- -- -- 278 -- 278
Deferred stock
compensation......... 389 (389)
Amortization of
deferred stock
compensation......... -- -- 21 -- -- 21
Reclassification
adjustment for loss
included in net
income............... -- -- -- -- 15 15
----- ----- ----- ----- ----- -----
Balance at December 31,
1999................... 1,000 (395) (368) 408 -- 435
Net income
(unaudited).......... -- -- -- 417 -- 417
Amortization of
deferred stock
compensation
(unaudited).......... -- -- 12 -- -- 12
----- ----- ----- ----- ----- -----
Balance at March 31,
2000 (unaudited)....... 1,000 $ 395 $(356) $ 825 $ -- $ 864
===== ===== ===== ===== ===== =====
</TABLE>
See accompanying notes.
F-25
<PAGE>
GLOBALWARE COMPUTING, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31 March 31,
-------------------------- -------------
1997 1998 1999 1999 2000
-------- ------- ------- ----- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income......................... $ 234 $ 43 $ 278 $ 77 $ 417
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation..................... 6 11 16 3 5
Provision for doubtful accounts.. 10 21 30 -- --
Options issued for services...... -- 5 -- -- --
Stock compensation expense....... -- -- 21 -- 12
Loss (gain) on sale of
investments..................... -- 11 (11) -- 24
Changes in operating assets and
liabilities:
Accounts receivable............ (33) (50) (79) (3) (111)
Prepaid expenses and other
current assets................ (7) -- -- -- --
Deposits....................... -- -- (1) -- --
Accounts payable and accrued
liabilities................... 55 30 (61) 34 (16)
Due to related party........... -- -- 140 -- 22
-------- ------- ------- ----- ------
Net cash provided by
operating activities........ 272 71 333 111 346
Investing Activities:
Purchases of property and
equipment......................... (18) (23) (42) (11) (6)
Purchases of short-term
investments....................... -- -- (10) -- (24)
Proceeds from redemption of short-
term investments.................. -- -- 40 -- --
-------- ------- ------- ----- ------
Net cash used in investing
activities.................. (18) (23) (12) (11) (30)
Financing Activities:
Distribution to stockholder........ (101) (85) -- -- --
-------- ------- ------- ----- ------
Net cash used in financing
activities.................. (101) (85) -- -- --
-------- ------- ------- ----- ------
Net change in cash and cash
equivalents........................ 153 (37) 321 100 316
Cash and cash equivalents at
beginning of period................ 5 158 121 121 442
-------- ------- ------- ----- ------
Cash and cash equivalents at end of
period............................. $ 158 $ 121 $442 $ 221 $ 758
======== ======= ======= ===== ======
</TABLE>
See accompanying notes.
F-26
<PAGE>
GLOBALWARE COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Globalware Computing, Inc. (the "Company") was incorporated in Illinois on
August 2, 1994 and develops software and provides consulting services that
extend business applications to handheld devices. The Company's products enable
professionals to create and manage real-time personal and corporate information
by use of the rapidly growing mobile enterprise market.
The Company began as a consulting company and in 1997 added software license
sales to its operations. Most of the revenue from 1998 to date has come from
license sales and upgrades.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Interim Financial Information
The interim financial information as of March 31, 2000 and for the three
months ended March 31, 1999 and 2000 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of its financial position at that date and
its results of operations and cash flows for those periods. Operating results
for the three months ended March 31, 2000 are not necessarily indicative of
results that may be expected for any future periods.
Cash and Cash Equivalents
The Company's cash and cash equivalents consist of money market accounts.
The Company considers all highly liquid investments with an original maturity
from date of purchase of three months or less to be cash and cash equivalents.
Investments
All of the investments held by the Company at December 31, 1998 and 1999,
are classified as available-for-sale. Under Statement No. 115, available-for-
sale securities are carried at fair value, with the unrealized gains and losses
reported as a separate component of stockholders' equity. Realized gains and
losses and declines in value judged to be other-than-temporary on available-
for-sale securities are included in interest income. The cost of securities
sold is based on the specific identification method. Interest and dividends are
included in interest income.
Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization
and depreciation. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets, generally three to five
years.
F-27
<PAGE>
GLOBALWARE COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
Software Development Costs
Development costs incurred in the research and development of new software
products are expensed as incurred until technological feasibility in the form
of a working model has been established. To date, the Company's software
development projects have been completed concurrent with the establishment of
technological feasibility, and, accordingly, all software development costs
have been charged to product development expense in the accompanying statements
of operations.
Concentrations of Credit Risk and Credit Evaluations
The Company is subject to concentrations of credit risk from its holdings of
cash and cash equivalents, which are held with two domestic financial
institutions. Also, the Company sells its products in the United States and
foreign markets on a credit basis. The Company performs ongoing credit
evaluations, does not require collateral and maintains reserves for potential
credit losses on customer accounts when deemed necessary.
Revenue Recognition
The Company generates revenue through the sale of software licenses and
professional services. The Company's license revenues are generated from
licensing the Company's products directly to end-users and through re-sellers.
The Company recognizes revenue from software licenses, net of credit card fees,
when the passcode is electronically mailed to the customer, which is when the
customer has full access to the license, the fees are fixed or determinable,
collectibility is probable and vendor-specific objective evidence exists to
allocate the total fee to elements of the arrangement.
Revenues from professional services, which are pursuant to time and material
contracts, are recognized as services are performed. Revenues exclude
reimbursable expenses chargeable to the client.
Stock-Based Compensation
The Company accounts for employee stock option grants using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25 and
has adopted the disclosure-only alternative of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123").
Advertising Expense
The cost of advertising is expensed as incurred. Advertising costs, which
are included in sales and marketing expense, were approximately $20,000 and
$52,000 for the years ended December 31, 1998 and 1999, respectively. No
advertising costs were incurred in 1997.
Income Taxes
The stockholders of the Company have elected, under Subchapter S of the
Internal Revenue Code, to include the Company's income or loss in their federal
and state income tax returns. Accordingly, the Company is generally not subject
to federal or state income taxes.
F-28
<PAGE>
GLOBALWARE COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
Recent Accounting Pronouncement
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative and Hedging Activities" ("SFAS 133") was issued.
SFAS 133 is required to be adopted in years beginning after June 15, 2000. SFAS
133 establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Company will adopt SFAS 133 in its year ending December
31, 2001 and does not expect such adoption to have a material impact on the
Company's results of operations, financial position or cash flows.
2. INVESTMENTS
The Company had no available-for-sale securities outstanding at December 31,
1999. At December 31, 1998 the Company had available for sale securities,
consisting of common stock, with a cost basis of $19,000 and gross unrealized
losses of $15,000. The estimated fair value of these securities at December 31,
1998 was $4,000.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ ------
<S> <C> <C>
Equipment.................................................. $ 65 $ 98
Furniture and fixtures..................................... 1 10
------ ------
66 108
Less accumulated depreciation............................ (27) (43)
------ ------
$ 39 $ 65
====== ======
</TABLE>
4. DUE TO RELATED PARTY
The Company entered into an agreement with a consultant during 1998 to
provide research and development services related to a new product. The
agreement also provides for the payment of royalties to the consultant based on
sales of the new product. The Company was obligated to pay the employee
$138,000 and $2,000 for research and development and royalties, respectively,
at December 31, 1999. The consultant was hired as an employee of the Company
during 1999. Costs associated with the research and development services were
expensed as incurred.
F-29
<PAGE>
GLOBALWARE COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except share and per share data).
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Numerator
Net income........................................... $ 234 $ 43 $ 278
====== ====== ======
Denominator
Denominator for basic earning per share--
weighted-average shares............................. 1,000 1,000 1,000
------ ------ ------
Effect of dilutive securities:
Employee stock options.............................. -- -- 48
------ ------ ------
Denominator for diluted earnings per share--
Adjusted weighted-average shares.................... 1,000 1,000 1,048
====== ====== ======
Basic earnings per common share...................... $ 234 $ 43 $ 278
====== ====== ======
Diluted earnings per common share.................... $ 234 $ 43 $ 265
====== ====== ======
</TABLE>
6. STOCKHOLDERS' EQUITY
Stock Option Plan
The Company's 1998 stock option plan (the Plan) provides for the issuance of
incentive stock options and nonqualified stock options for up to 100 shares of
common stock to eligible employees and officers of the Company. The options can
be granted for periods of up to ten years and generally vest ratably over a
four-year period.
Had stock options been accounted for under the fair value method recommended
by SFAS 123, the Company's net income on a pro forma basis would be as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net income, as reported.................................... $234 $43 $278
Net income, pro forma...................................... 234 43 261
Pro forma diluted earnings per share....................... $234 $43 $249
</TABLE>
The fair value of stock options used to compute pro forma net income is the
estimated present value at the grant date using the minimum value option-
pricing model with the following assumptions: dividend yield of 0%; risk-free
interest rates of 5.00% for 1999 and 4.65% for 1998 and a weighted-average
expected option life of four years.
F-30
<PAGE>
GLOBALWARE COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
Information related to the Plan is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number Exercise
of Shares Price
--------- ---------
<S> <C> <C>
Granted............................................ 10 $ 250
---
Outstanding at December 31, 1998..................... 10 250
Granted............................................ 36 1,000
---
Outstanding at December 31, 1999..................... 46 $ 837
===
Exercisable at December 31, 1999..................... 9 $ 630
===
Available for grant at December 31, 1999............. 16
===
</TABLE>
The weighted average fair value of options granted during 1999 was $6,000.
At December 31, 1999, the options outstanding have a weighted average remaining
contractual life of 9.23 years. There was no activity under this plan from
January 1, 2000 through March 31, 2000.
The Company issued 24 options to purchase common stock to non- employees
during 1998 for consulting services. The options vest over two years and have
an exercise price of $250. The services provided in exchange for the options
were performed as of the date of grant. The fair value of the options, as
calculated using the Black-Scholes method, was estimated at $5,000 at the date
of the grant. During 1998, the Company recorded $5,000 of compensation expense
for options issued for services.
In applying the Black-Scholes method, the Company has used an expected
dividend yield of zero, a risk-free interest rate of 4.65%, a volatility factor
of 135% and a fair value of the underlying common shares of $250. The expected
life equaled the term of the options.
7. LEASE COMMITMENTS
The Company leases its facilities under a noncancelable operating lease
through September 2000. The lease requires the Company to pay operating costs,
including property taxes, normal maintenance and insurance. The Company is
obligated to pay $12,000 during the year ending December 31, 2000.
Rent expense under operating lease arrangements was $0, $7,000 and $15,000
for the years ended December 31, 1997, 1998 and 1999, respectively.
8. SUBSEQUENT EVENTS (UNAUDITED)
On May 26, 2000, the Company signed a definitive agreement to be acquired by
AvantGo, Inc. in exchange for 1,933,300 shares of Series E preferred stock of
the acquiring company. The financial statements do not include any adjustments
to the recorded amounts of assets and liabilities which may result from this
transaction.
F-31
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The selected unaudited pro forma condensed combined financial information
for the Company set forth below gives effect to the acquisition of Globalware
Computing, Inc. ("Globalware"). The historical financial information set forth
below has been derived from, and is qualified by reference to, the consolidated
financial information of the Company and Globalware and should be read in
conjunction with those financial statements and the notes thereto included
elsewhere herein. The selected unaudited pro forma condensed combined balance
sheet as of March 31, 2000 set forth below gives effect to the acquisition of
Globalware as if it occurred on that date. The selected unaudited pro forma
condensed combined statements of operations data for the year ended December
31, 1999 and the three months ended March 31, 2000 set forth below give effect
to the acquisition as if it occurred on the first day of each of those periods
under the purchase method of accounting. The selected unaudited pro forma
condensed combined financial information reflects certain adjustments,
including adjustments to reflect the amortization of goodwill and other
intangible assets resulting from the acquisition. The information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Financial Statements--
the Company and Globalware." The selected unaudited pro forma condensed
combined financial information does not purport to represent what the
consolidated results of operations or financial condition of the Company would
actually have been if the Globalware acquisition had in fact occurred on such
dates or the future consolidated results of operations or financial condition
of the Company.
F-32
<PAGE>
AVANTGO, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 2000
(In thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- --------------------
Business
Globalware Combination
AvantGo Computing Combined Adjustments Combined
------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $30,424 $ 758 $31,182 $ -- $31,182
Short-term
investments.......... 2,807 -- 2,807 -- 2,807
Accounts receivable,
net.................. 7,235 212 7,447 -- 7,447
Prepaid expenses and
other current
assets............... 249 -- 249 -- 249
------- ------ ------- ------- -------
Total current
assets............. 40,715 970 41,685 -- 41,685
Property and equipment,
net.................... 1,554 66 1,620 -- 1,620
Intangibles and other
assets................. 89 8 97 (1)(3) 15,646 15,743
------- ------ ------- ------- -------
Total assets........ $42,358 $1,044 $43,402 $15,646 $59,048
======= ====== ======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities.. $ 1,219 $ 18 $ 1,237 (3) 200 1,437
Accrued compensation
and related
benefits............. 685 -- 685 -- 685
Due to related party.. -- 162 162 -- 162
Current portion of
capital lease
obligations.......... 3 -- 3 -- 3
Current portion of
borrowings under bank
line of credit
agreement............ 71 -- 71 -- 71
Deferred revenue...... 5,408 -- 5,408 -- 5,408
------- ------ ------- ------- -------
Total current
liabilities........ 7,386 180 7,566 200 7,766
Capital lease
obligations, less
current portion........ -- -- -- -- --
Borrowings under bank
line of credit
agreement, less current
portion................ 23 -- 23 -- 23
Stockholders' equity:
Convertible preferred
stock................ 48,618 -- 48,618 (1)(5) 15,466 64,084
Common stock.......... 23,291 395 23,686 (1)(3)(5) 1,049 24,735
Notes receivable from
stockholders......... (798) -- (798) -- (798)
Deferred stock
compensation......... (15,164) (356) (15,520) 356 (15,164)
Revenue offset
relating to
warrants............. (1,479) -- (1,479) -- (1,479)
Accumulated earnings
(deficit)............ (19,540) 825 (18,715) (1)(5) (1,425) (20,140)
Accumulated other
comprehensive income
(loss)............... 21 -- 21 -- 21
------- ------ ------- ------- -------
Total stockholders'
equity............. 34,949 864 35,813 15,446 51,259
------- ------ ------- ------- -------
Total liabilities
and stockholders'
equity............. $42,358 $1,044 $43,402 $15,646 $59,048
======= ====== ======= ======= =======
</TABLE>
See accompanying notes to selected unaudited pro forma condensed combined
financial information.
F-33
<PAGE>
AVANTGO, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1999
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- --------------------
Business
Globalware Combination
AvantGo Computing Combined Adjustments Combined
------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.......... $ 1,443 $1,435 $ 2,878 $ -- $ 2,878
Services.............. 1,446 -- 1,446 -- 1,446
------- ------ ------- ------- --------
Total revenues...... 2,889 1,435 4,324 4,324
Costs and expenses:
Cost of license fees.. 60 -- 60 -- 60
Costs of services..... 1,312 -- 1,312 -- 1,312
Product development... 2,745 393 3,138 -- 3,138
Sales and marketing... 4,291 453 4,744 -- 4,744
General and
administrative....... 1,404 316 1,720 -- 1,720
Amortization of
deferred stock
compensation......... 2,605 21 2,626 2,626
Amortization of
goodwill and other
intangible assets.... -- -- -- (2) 5,215 5,215
------- ------ ------- ------- --------
Total costs and
expenses........... 12,417 1,183 13,600 5,215 18,815
------- ------ ------- ------- --------
Income (loss) from
operations............. (9,528) 252 (9,276) (5,215) (14,491)
Interest income
(expense), net......... 313 26 339 339
------- ------ ------- ------- --------
Net income (loss)....... $(9,215) $ 278 $(8,937) $(5,215) $(14,152)
======= ====== ======= ======= ========
Basic and diluted net
loss per share (4)..... $ (2.11) $ (2.24)
======= ========
Number of shares used in
calculation of net loss
per share (4).......... 4,377 6,310
======= ========
</TABLE>
See accompanying notes to selected unaudited pro forma condensed combined
financial information.
F-34
<PAGE>
AVANTGO, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Three months ended March 31, 2000
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- --------------------
Business
Globalware Combination
AvantGo Computing Combined Adjustments Combined
------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.......... $ 753 $716 $ 1,469 $ -- $ 1,469
Services.............. 908 -- 908 -- 908
------- ---- ------- ------- -------
Total revenues...... 1,661 716 2,377 2,377
Costs and expenses:
Cost of license fees.. 27 -- 27 -- 27
Costs of services..... 547 -- 547 -- 547
Product development... 1,145 66 1,211 -- 1,211
Sales and marketing... 3,246 127 3,373 -- 3,373
General and
administrative....... 1,120 77 1,197 -- 1,197
Amortization of
deferred stock
compensation......... 3,224 12 3,236 -- 3,236
Amortization of
goodwill and other
intangible assets.... -- -- -- (2) 1,304 1,304
------- ---- ------- ------- -------
Total costs and
expenses........... 9,309 282 9,591 1,304 10,895
------- ---- ------- ------- -------
Income (loss) from
operations............. (7,648) 434 (7,214) (1,304) (8,518)
Interest income
(expense), net......... 217 (17) 200 200
------- ---- ------- ------- -------
Net income (loss)....... $(7,431) $417 $(7,014) $(1,304) $(8,318)
======= ==== ======= ======= =======
Basic and diluted net
loss per share(4)...... $ (1.30) $ (1.09)
======= =======
Number of shares used in
calculation of net loss
per share(4)........... 5,704 7,637
======= =======
</TABLE>
See accompanying notes to selected unaudited pro forma condensed combined
financial information.
F-35
<PAGE>
NOTES TO SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
AvantGo acquired Globalware Computing Systems, Inc. on May 26, 2000 in a
transaction accounted for as a purchase. The total purchase cost was
approximately $17.1 million consisting of 1,933,300 shares of AvantGo Series E
preferred stock, (with a fair value of approximately $15.5 million,) the
assumption of outstanding stock options with a fair value of approximately $1.4
million, and transaction costs of approximately $200,000.
Pro forma adjustments for the unaudited pro forma condensed combined balance
sheet as of March 31, 2000 and statements of operations for the year ended
December 31, 1999 and the three months ended March 31, 2000 are as follows:
1. To reflect the preliminary allocation of the purchase cost.
The total estimated purchase price for the acquisition has been allocated
on a preliminary basis to assets and liabilities based on management's
best estimates of their fair value with the excess costs over the net
assets acquired allocated to goodwill. The preliminary allocation has
resulted in a charge for purchased in-process research and development
estimated to be $600,000 and estimated goodwill and identified intangible
assets of $15.6 million which are being amortized over three years. This
allocation is subject to change pending a final analysis of the value of
the assets acquired and liabilities assumed.
2. To reflect amortization of goodwill and other intangible assets resulting
from the acquisition.
The pro forma condensed combined statements of operations for the year
ended December 31, 1999 and the three months ended March 31, 2000 does not
include the purchased research and development related charge of
approximately $600,000 since it is considered a non-recurring charge.
3. To reflect the acquisition of all of the outstanding stock of Globalware.
4. Basic and diluted net loss per share has been adjusted to reflect the
issuance of 1,933,300 shares of AvantGo Series E preferred stock, as if
these shares had been outstanding for the entire period. Dilutive options
and warrants are excluded from the computation as their effect is
antidilutive.
5. To reflect the elimination of the historical stockholder's equity accounts
of Globalware.
F-36
<PAGE>
[AVANTGO]
LOGO
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Registrant in connection with this offering
are as follows. All amounts are estimates other than the SEC registration fee
and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................... $26,400
NASD filing fee........................................................ 10,500
Nasdaq National Market listing fee..................................... *
Printing fees.......................................................... *
Legal fees and expenses................................................ *
Accounting fees and expenses........................................... *
Blue sky fees and expenses............................................. *
Transfer agent and registrar fees...................................... *
Miscellaneous fees..................................................... *
-------
Total................................................................ $ *
=======
</TABLE>
---------------------
* To be included in an amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. Article IX of our seventh
amended and restated certificate of incorporation (Exhibit 3.2 hereto), which
will be effective upon the closing of this offering, and Article XI of our
current bylaws (Exhibit 3.4 hereto) provide for indemnification of our
directors, officers, employees and other agents to the maximum extent permitted
by Delaware law. In addition, we have entered into Indemnification Agreements
(Exhibit 10.1 hereto) with our officers and directors. The Underwriting
Agreement (Exhibit 1.1) also provides for cross-indemnification among AvantGo
and the Underwriters with respect to certain matters, including matters arising
under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this registration statement, we
have sold and issued the following securities:
1. On August 11, 1997, we issued 1,920,000 shares of common stock to
Felix Lin for an aggregate purchase price of $9,600.00.
2. On August 11, 1997, we issued 1,920,000 shares of common stock to
Linus Upson for an aggregate purchase price of $9,600.00.
3. On August 11, 1997, we issued 1,760,000 shares of common stock to
Rafael Weinstein for an aggregate purchase price of $8,800.00.
4. On August 11, 1997, we issued 64,000 shares of common stock to VLG
Investments 1997 for an aggregate purchase price of $320.00. Following the
termination of our engagement of Venture Law Group as counsel, effective
November 8, 1998, we assigned our right of repurchase to b/z partners, LLC
which exercised the repurchase right for 42,666 shares on January 7, 1999.
b/z partners, LLC subsequently changed its name to Amicus Investments, LLC.
II-1
<PAGE>
5. On August 11, 1997, we issued 8,000 shares of common stock to Robert
v. W. Zipp for an aggregate purchase price of $40.00, which shares
subsequently were transferred to Amicus Investments, LLC.
6. On August 11, 1997, we issued 8,000 shares of common stock to Patrick
Barry for an aggregate purchase price of $40.00.
7. On August 11, 1997, we issued 560,000 shares of common stock to David
Moore for an aggregate purchase price of $2,800.00.
8. On August 11, 1997, we issued 280,000 shares of common stock to David
Kloba for an aggregate purchase price of $1,400.00.
9. On August 11, 1997, we issued 32,000 shares of common stock to Martin
Kacin for an aggregate purchase price of $160.00.
10. On August 11, 1997, we issued 10,000 shares of common stock to
Gannon Hall for an aggregate purchase price of $50.00.
11. On August 11, 1997, we issued 16,000 shares of common stock to Eric
Bouck for an aggregate purchase price of $80.00. We exercised our right of
repurchase with respect to all of these shares on January 12, 1998.
12. On October 14, 1997, we issued 4,434,156 shares of series A
preferred stock for an aggregate of $1,350,200.51 to 21st Century Internet
Fund, L.P.; Felix Lin; Linus Upson; and David Moore.
13. On May 26, 1998, we issued 3,301,886 shares of series B preferred
stock for an aggregate of $3,499,999.16 to 21st Century Internet Fund,
L.P., Adobe Ventures II, L.P. and H&Q AvantGo Investors, L.P.
14. On June 4, 1999, we issued 3,736,040 shares of series C preferred
stock for an aggregate of $14,719,997.60 to Sleepy Hollow Investment
Partnership, L.P.; Microsoft Corporation; 3Com Ventures, Inc.; 21st Century
Internet Fund, L.P.; Adobe Ventures II, L.P.; Hambrecht & Quist Employee
Venture Fund, L.P. II; H&Q AvantGo Investors, L.P.; The Tacit Fund, L.P.;
The Stealth Fund, L.P.; The Entrepreneurs' Fund, L.P.; RBW Investments LLC;
Cornerstone Properties LLP; Angel Investors, L.P.; TWB Investment
Partnership; Evans Partners LLC and two accredited investors.
15. On February 1, 2000, we issued to Yahoo!, Inc. a warrant to purchase
117,558 shares of series D preferred stock at an exercise price of $8.36
per share.
16. On February 1, 2000, we issued to Yahoo!, Inc. a warrant to purchase
117,558 shares of common stock (or preferred stock if we have not
consummated an initial public offering by February 1, 2001). The warrant is
not exercisable if either Yahoo! or we terminate our relationship or we
agree to purchase a certain amount of advertising from Yahoo! over a one
year period beginning no later than February 1, 2001.
17. On March 8 and April 7, 2000, we issued an aggregate of 3,726,094
shares of series D preferred stock for an aggregate consideration of
$31,150,145.84 to the Goldman Sachs Group, Inc.; Stone Street Fund 2000,
L.P.; Bridge Street Special Opportunities; Goldman Sachs Investments
Limited; Pinnacle Ventures; Imagine Health, Inc.; Ford Motor Company;
American Express Travel-Related Services Company, Inc.; Sleepy Hollow
Investment Partnership, L.P.; 21st Century Internet Fund, L.P.; Adobe
Ventures II, L.P.; Hambrecht & Quist Employee Venture Fund 2000 L.P. II;
H&Q AvantGo Investors, L.P.; The Entrepreneurs' Growth Fund, L.P.; The
Entrepreneurs' Fund, L.P.; The Entrepreneurs' Fund II, L.P.; RBW
Investments LLC; RIM USA Capital Corporation; and two accredited investors.
II-2
<PAGE>
Broadview SLP; DRW Venture Partners L.P.; Allen & Company Incorporated;
Angel (Q) Investors II, L.P.; The Leasing Group, plc; Write Image Limited;
Randy Blumenthal; Meredith Family Revocable Trust; TWB Investment
Partnership; SKGF Investments--2000--I, L.L.C.; and two accredited
investors.
18. On March 8, 2000, we issued to Imagine Health, Inc. a warrant to
purchase 358,851 shares of series D preferred stock at an exercise price of
$8.36 per share.
19. On May 26, 2000, in connection with our acquisition of Globalware
Computing, Inc., we acquired all of Globalware's outstanding stock in
exchange for (1) 1,933,300 shares of our series E preferred stock and (2)
our assumption of options that can be exercised for an aggregate of 180,438
shares of our common stock with exercise prices ranging from $0.12 to $2.33
per share.
20. Since our incorporation and through May 26, 2000, we have issued,
under our 1997 stock option plan, an aggregate of 8,999,895 options to
purchase our common stock to our employees, directors and consultants with
exercise prices ranging from $0.03 to $4.50.
<TABLE>
<CAPTION>
Year Options Range of Exercise Price
---- --------- -----------------------
<S> <C> <C>
1997....................................... 4,000 $ 0.03
1998....................................... 2,295,320 0.03-0.125
1999....................................... 3,891,000 0.125-2.25
2000....................................... 2,809,575 2.25-4.50
</TABLE>
No underwriters were involved in the foregoing sales of securities. The
issuance of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of such Securities Act as
transactions by an issuer not involving any public offering, or, in the case of
some options to purchase common stock, Rule 701 of the Securities Act. The
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates and warrants issued in such transactions. All
recipients had adequate access, through their relationships with us, to obtain
adequate information about us.
Item 16. Exhibits and Financial Statement Schedules
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
1.2 Form of Lock-Up Agreement.
2.1+ Agreement and Plan of Merger by and among AvantGo, Inc., GC Acquisition, Inc.,
Globalware Computing, Inc. and the stockholders of Globalware Computing, Inc.
dated as of May 26, 2000.
2.2+ Escrow and Indemnity Agreement by and among AvantGo, Inc., Chase Manhattan Bank
and Trust Company, N.A., as escrow agent and the stockholders of Globalware
Computing, Inc.
3.1 Sixth Amended and Restated Certificate of Incorporation.
3.2 Form of Seventh Amended and Restated Certificate of Incorporation to be filed
upon the closing of the offering made pursuant to this Registration Statement.
3.3 Bylaws of AvantGo, Inc., as amended.
3.4 Form of Amended and Restated Bylaws to become effective upon the closing of the
offering made pursuant to this Registration Statement.
4.1* Form of common stock certificate.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<S> <C>
4.2+ Fourth Amended and Restated Investors' Rights Agreement dated May 19, 2000.
4.3+ Third Amended and Restated Voting Agreement dated March 8, 2000.
4.4+ Third Amended and Restated Right of First Refusal and Co-Sale Agreement dated
March 8, 2000.
5.1* Opinion of Perkins Coie LLP regarding legality of securities being issued.
10.1 Form of Indemnification Agreement.
10.2 Form of Proprietary Information and Inventions Assignment Agreement.
10.3 1997 Stock Option Plan, as amended.
10.4 Form of Notice of Option Grant and Stock Option Agreement.
10.5 Form of 2000 Employee Stock Purchase Plan.
10.6 Form of 2000 Stock Incentive Plan.
10.7 Stock Option Grant Program for Non-employee Directors.
10.8+ 401(k) Standardized Profit Sharing Plan Adoption Agreement by and between
AvantGo, Inc. and Paychex Retirement Services, dated January 1, 1998.
10.9 Notice of Stock Option Grant to Thomas Hunter, dated September 21, 1999.
10.10+ Notice of Stock Option Grant to Richard Owen, dated January 25, 2000.
10.11 Notice of Stock Option Grant to Jeffrey Webber, dated April 16, 1999.
10.12 Notice of Stock Option Grant to Jeffrey Webber, dated October 19, 1999.
10.13 Notice of Stock Option Grant to Robert Lesko, dated July 21, 1998.
10.14+ Notice of Stock Option Grant to Gregory Waldorf, dated July 15, 1999.
10.15 Notice of Stock Option Grant to Dennis Jones, dated April 7, 2000.
10.16+ Founders Stock Purchase Agreement by and between AvantGo, Inc. and Felix Lin,
dated August 11, 1997.
10.17+ Founders Stock Purchase Agreement by and between AvantGo, Inc. and Linus Upson,
dated August 11, 1997.
10.18 Pledge Agreement between AvantGo, Inc. and Thomas Hunter, dated December 7, 1999.
10.19 Full-Recourse Promissory Note executed by Thomas Hunter in favor of AvantGo,
Inc., dated December 7, 1999.
10.20+ Pledge Agreement between AvantGo, Inc. and Thomas Hunter, dated March 27, 2000.
10.21 Promissory Note executed by Thomas Hunter in favor of AvantGo, Inc. dated March
27, 2000.
10.22 Amended and Restated Change of Control Agreement by and between AvantGo, Inc. and
Felix Lin, dated October 13, 1997.
10.23 Change of Control Agreement by and between AvantGo, Inc. and Richard Owen, dated
January 24, 2000.
10.24 Amended and Restated Change of Control Agreement by and between AvantGo, Inc. and
Linus Upson, dated October 13, 1997.
10.25+ Series A Preferred Stock Purchase Agreement by and among AvantGo, Inc. and
certain investors, dated October 14, 1997.
10.26 Series B Preferred Stock Purchase Agreement by and among AvantGo, Inc. and
certain investors, dated May 26, 1998.
10.27 Series C Preferred Stock Purchase Agreement by and among AvantGo, Inc. and
certain investors, dated June 4, 1999.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<S> <C>
10.28+ Series D Preferred Stock Purchase Agreement by and among AvantGo, Inc. and
certain investors, dated March 8, 2000.
10.29+ Addendum to Series D Preferred Stock Purchase Agreement by and among AvantGo,
Inc. and certain investors, dated April 7, 2000.
10.30+ Master Agreement by and between AvantGo, Inc. and American Express Travel-Related
Services Company, Inc., dated February 16, 2000.
10.31+ Warrant to purchase Series D preferred stock issued to Yahoo!, Inc., dated
February 1, 2000.
10.32+ Warrant to purchase AvantGo, Inc. securities issued to Yahoo!, Inc., dated
February 1, 2000.
10.33 Warrant to purchase Series D preferred stock issued to Imagine Health, Inc.,
dated March 8, 2000.
10.34 Employment Offer Letter between AvantGo, Inc. and Richard Owen, dated December 4,
1999.
10.35 Consulting Agreement between AvantGo, Inc. and R.B. Webber and Company, dated
April 16, 1998.
10.36 Consulting Agreement between AvantGo, Inc. and RB Webber, dated December 11,
1998.
10.37 QuickStart Loan and Security Agreement with Silicon Valley Bank in the amount of
$300,000, dated January 28, 1998.
10.38* Irrevocable Standby Letter of Credit No. SVB001S with Silicon Valley Bank in the
amount of $3,250,000, dated May 19, 2000.
10.39+ License Agreement by and between AvantGo, Inc. and McKesson Corporation, dated
October 1, 1998.
10.40+ Amendment to License Agreement by and between AvantGo, Inc. and McKessonHBOC,
dated August 31, 1999.
10.41+ Amendment to License Agreement by and between AvantGo, Inc. and McKessonHBOC,
dated March 7, 2000.
10.42+ Channel Management Agreement by and between AvantGo, Inc. and McKessonHBOC, dated
March 7, 2000.
10.43+ Agreement for Implementation of Licensor Software Materials by and between
AvantGo, Inc. and Palm Computing Inc., dated June 1, 1999.
10.44+ Marketing and Distribution Agreement by and between AvantGo, Inc. and Microsoft
Corporation, dated June 2, 1999.
10.45 First Amendment to Marketing and Distribution Agreement by and between AvantGo,
Inc. and Microsoft Corporation, dated January 25, 2000.
10.46+ Enterprise License Agreement by and between AvantGo, Inc. and Ford Motor Company,
dated December 9, 1999.
10.47+ Amendment to Enterprise License Agreement by and between AvantGo, Inc. and Ford
Motor Company, dated January 31, 2000.
10.48 Amended Terms to License Agreement between Ford Motor Company and AvantGo, Inc.,
dated March 7, 2000.
10.49 Bayshore Corporate Center Office Lease by and between AvantGo, Inc. and
Cornerstone Properties I, LLC, dated June 23, 1997.
10.50 #1 Amendment to Bayshore Corporate Center Office Lease by and between AvantGo,
Inc. and Cornerstone Properties I, LLC, dated January 30, 1998.
10.51* #2 Amendment to Bayshore Corporate Center Office Lease by and between AvantGo,
Inc. and Cornerstone Properties I, LLC, dated April 27, 1998.
10.52 #3 Amendment to Bayshore Corporate Center Office Lease by and between AvantGo,
Inc. and Cornerstone Properties I, LLC, dated November 16, 1998.
10.53 #4 Amendment to Bayshore Corporate Center Office Lease by and between AvantGo,
Inc. and Cornerstone Properties I, LLC, dated April 2, 1999.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<S> <C>
10.54+ Bayshore Corporate Center Office Lease by and between AvantGo, Inc. and
Cornerstone Properties I, LLC, dated August 5, 1999.
10.55 Net Lease by and between AvantGo, Inc. and The Multi-Employer Property Trust,
dated March 31, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Perkins Coie LLP (included in Exhibit 5.01).
24.1 Power of Attorney (see page II-7 of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
---------------------
* To be filed by amendment
+ Confidential treatment requested
(b) Consolidated Financial Statement Schedules
No financial statement schedules are provided, because the information
called for is not required or is shown either in the financial statements or
the notes thereto.
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 Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, 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 such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of 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 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Palo Alto, State of California, on this 8th day
of June, 2000.
AVANTGO, INC.
/s/ Richard Owen
By: _________________________________
Richard Owen
Chief Executive Officer and
Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Richard Owen and Felix Lin, and each of
them, his true and lawful attorneys-in-fact and agents with full power of
substitution, for such individual and such individual's 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 such individual might or could do in person, hereby
ratifying and confirming all that said 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>
Name Title Date
---- ----- ----
<S> <C> <C>
Principal Executive Officer:
/s/ Richard Owen Chief Executive Officer June 8, 2000
______________________________________ and Director
Richard Owen
Principal Financial and Principal
Accounting Officer:
/s/ Thomas F. Hunter Chief Financial Officer June 8, 2000
______________________________________
Thomas F. Hunter
Principal Executive Officer:
/s/ Felix Lin Chairman of the Board and June 8, 2000
______________________________________ Director
Felix Lin
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
Additional Directors:
/s/ Christopher B. Hollenbeck Director June 8, 2000
______________________________________
Christopher B. Hollenbeck
/s/ Dennis Jones Director June 8, 2000
______________________________________
Dennis Jones
/s/ Robert J. Lesko Director June 8, 2000
______________________________________
Robert J. Lesko
/s/ Linus Upson Director June 8, 2000
______________________________________
Linus Upson
/s/ Gregory L. Waldorf Director June 8, 2000
______________________________________
Gregory L. Waldorf
/s/ Jeffrey T. Webber Director June 8, 2000
______________________________________
Jeffrey T. Webber
/s/ Peter H. Ziebelman Director June 8, 2000
______________________________________
Peter H. Ziebelman
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
1.2 Form of Lock-Up Agreement.
2.1+ Agreement and Plan of Merger by and among AvantGo, Inc., GC Acquisition, Inc.,
Globalware Computing, Inc. and the stockholders of Globalware Computing, Inc.
dated as of May 26, 2000.
2.2+ Escrow and Indemnity Agreement by and among AvantGo, Inc., Chase Manhattan Bank
and Trust Company, N.A., as escrow agent and the stockholders of Globalware
Computing, Inc.
3.1 Sixth Amended and Restated Certificate of Incorporation.
3.2 Form of Seventh Amended and Restated Certificate of Incorporation to be filed
upon the closing of the offering made pursuant to this Registration Statement.
3.3 Bylaws of AvantGo, Inc., as amended.
3.4 Form of Amended and Restated Bylaws to become effective upon the closing of the
offering made pursuant to this Registration Statement.
4.1* Form of common stock certificate.
4.2+ Fourth Amended and Restated Investors' Rights Agreement dated May 19, 2000.
4.3+ Third Amended and Restated Voting Agreement dated March 8, 2000.
4.4+ Third Amended and Restated Right of First Refusal and Co-Sale Agreement dated
March 8, 2000.
5.1* Opinion of Perkins Coie LLP regarding legality of securities being issued.
10.1 Form of Indemnification Agreement.
10.2 Form of Proprietary Information and Inventions Assignment Agreement.
10.3 1997 Stock Option Plan, as amended.
10.4 Form of Notice of Option Grant and Stock Option Agreement.
10.5 Form of 2000 Employee Stock Purchase Plan.
10.6 Form of 2000 Stock Incentive Plan.
10.7 Stock Option Grant Program for Non-employee Directors.
10.8+ 401(k) Standardized Profit Sharing Plan Adoption Agreement by and between
AvantGo, Inc. and Paychex Retirement Services, dated January 1, 1998.
10.9 Notice of Stock Option Grant to Thomas Hunter, dated September 21, 1999.
10.10+ Notice of Stock Option Grant to Richard Owen, dated January 25, 2000.
10.11 Notice of Stock Option Grant to Jeffrey Webber, dated April 16, 1999.
10.12 Notice of Stock Option Grant to Jeffrey Webber, dated October 19, 1999.
10.13 Notice of Stock Option Grant to Robert Lesko, dated July 21, 1998.
10.14+ Notice of Stock Option Grant to Gregory Waldorf, dated July 15, 1999.
10.15 Notice of Stock Option Grant to Dennis Jones, dated April 7, 2000.
10.16+ Founders Stock Purchase Agreement by and between AvantGo, Inc. and Felix Lin,
dated August 11, 1997.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<S> <C>
10.17+ Founders Stock Purchase Agreement by and between AvantGo, Inc. and Linus Upson,
dated August 11, 1997.
10.18 Pledge Agreement between AvantGo, Inc. and Thomas Hunter, dated December 7, 1999.
10.19 Full-Recourse Promissory Note executed by Thomas Hunter in favor of AvantGo,
Inc., dated December 7, 1999.
10.20+ Pledge Agreement between AvantGo, Inc. and Thomas Hunter, dated March 27, 2000.
10.21 Promissory Note executed by Thomas Hunter in favor of AvantGo, Inc. dated March
27, 2000.
10.22 Amended and Restated Change of Control Agreement by and between AvantGo, Inc. and
Felix Lin, dated October 13, 1997.
10.23 Change of Control Agreement by and between AvantGo, Inc. and Richard Owen, dated
January 24, 2000.
10.24 Amended and Restated Change of Control Agreement by and between AvantGo, Inc. and
Linus Upson, dated October 13, 1997.
10.25+ Series A Preferred Stock Purchase Agreement by and among AvantGo, Inc. and
certain investors, dated October 14, 1997.
10.26 Series B Preferred Stock Purchase Agreement by and among AvantGo, Inc. and
certain investors, dated May 26, 1998.
10.27 Series C Preferred Stock Purchase Agreement by and among AvantGo, Inc. and
certain investors, dated June 4, 1999.
10.28+ Series D Preferred Stock Purchase Agreement by and among AvantGo, Inc. and
certain investors, dated March 8, 2000.
10.29+ Addendum to Series D Preferred Stock Purchase Agreement by and among AvantGo,
Inc. and certain investors, dated April 7, 2000.
10.30+ Master Agreement by and between AvantGo, Inc. and American Express Travel-Related
Services Company, Inc., dated February 16, 2000.
10.31+ Warrant to purchase Series D preferred stock issued to Yahoo!, Inc., dated
February 1, 2000.
10.32+ Warrant to purchase AvantGo, Inc. securities issued to Yahoo!, Inc., dated
February 1, 2000.
10.33 Warrant to purchase Series D preferred stock issued to Imagine Health, Inc.,
dated March 8, 2000.
10.34 Employment Offer Letter between AvantGo, Inc. and Richard Owen, dated December 4,
1999.
10.35 Consulting Agreement between AvantGo, Inc. and R.B. Webber and Company, dated
April 16, 1998.
10.36 Consulting Agreement between AvantGo, Inc. and RB Webber, dated December 11,
1998.
10.37 QuickStart Loan and Security Agreement with Silicon Valley Bank in the amount of
$300,000, dated January 28, 1998.
10.38* Irrevocable Standby Letter of Credit No. SVB001S with Silicon Valley Bank in the
amount of $3,250,000, dated May 19, 2000.
10.39+ License Agreement by and between AvantGo, Inc. and McKesson Corporation, dated
October 1, 1998.
10.40+ Amendment to License Agreement by and between AvantGo, Inc. and McKessonHBOC,
dated August 31, 1999.
10.41+ Amendment to License Agreement by and between AvantGo, Inc. and McKessonHBOC,
dated March 7, 2000.
10.42+ Channel Management Agreement by and between AvantGo, Inc. and McKessonHBOC, dated
March 7, 2000.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<S> <C>
10.43+ Agreement for Implementation of Licensor Software Materials by and between
AvantGo, Inc. and Palm Computing Inc., dated June 1, 1999.
10.44+ Marketing and Distribution Agreement by and between AvantGo, Inc. and Microsoft
Corporation, dated June 2, 1999.
10.45 First Amendment to Marketing and Distribution Agreement by and between AvantGo,
Inc. and Microsoft Corporation, dated January 25, 2000.
10.46+ Enterprise License Agreement by and between AvantGo, Inc. and Ford Motor Company,
dated December 9, 1999.
10.47+ Amendment to Enterprise License Agreement by and between AvantGo, Inc. and Ford
Motor Company, dated January 31, 2000.
10.48 Amended Terms to License Agreement between Ford Motor Company and AvantGo, Inc.,
dated March 7, 2000.
10.49 Bayshore Corporate Center Office Lease by and between AvantGo, Inc. and
Cornerstone Properties I, LLC, dated June 23, 1997.
10.50 #1 Amendment to Bayshore Corporate Center Office Lease by and between AvantGo,
Inc. and Cornerstone Properties I, LLC, dated January 30, 1998.
10.51* #2 Amendment to Bayshore Corporate Center Office Lease by and between AvantGo,
Inc. and Cornerstone Properties I, LLC, dated April 27, 1998.
10.52 #3 Amendment to Bayshore Corporate Center Office Lease by and between AvantGo,
Inc. and Cornerstone Properties I, LLC, dated November 16, 1998.
10.53 #4 Amendment to Bayshore Corporate Center Office Lease by and between AvantGo,
Inc. and Cornerstone Properties I, LLC, dated April 2, 1999.
10.54+ Bayshore Corporate Center Office Lease by and between AvantGo, Inc. and
Cornerstone Properties I, LLC, dated August 5, 1999.
10.55 Net Lease by and between AvantGo, Inc. and The Multi-Employer Property Trust,
dated March 31, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Perkins Coie LLP (included in Exhibit 5.01).
24.1 Power of Attorney (see page II-7 of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
---------------------
* To be filed by amendment
+ Confidential treatment requested
3
