<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 2000.
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ADEXA, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 33-0616222
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
5933 W. CENTURY BLVD., 12TH FLOOR
LOS ANGELES, CA. 90045
(310) 338-8444
(Address, Including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
DR. K. CYRUS HADAVI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ADEXA, INC.
5933 W. CENTURY BLVD., 12TH FLOOR
LOS ANGELES, CA. 90045
(310) 338-8444
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID T. YOUNG, ESQ. GARY L. SELLERS, ESQ.
WILLIAM E. GROWNEY, JR., ESQ. SIMPSON THACHER & BARTLETT
DAMON D. JORDAN, ESQ. 425 LEXINGTON AVENUE
DAVID W. WIENER, ESQ. NEW YORK, NEW YORK 10017
GUNDERSON DETTMER STOUGH (212) 455-2000
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
155 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
(650) 321-2400
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common stock, no par value.................................. $75,000,000 $19,800
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
------------------------------
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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED , 2000
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.
<PAGE>
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by Adexa, Inc. All of the
shares of common stock are being sold by Adexa, Inc. The estimated initial
public offering price will be between $ and $ per share.
--------------
Prior to this offering, there has been no public market for our common
stock. We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol ADXA.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Adexa, before expenses.......................... $ $
</TABLE>
Adexa has granted the underwriters an option for a period of 30 days to
purchase up to additional shares of common stock.
--------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Joint Book-Running Managers
CHASE H&Q MERRILL LYNCH & CO.
DAIN RAUSCHER WESSELS
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Special Note Regarding Forward-Looking Statements........... 17
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 36
Management.................................................. 52
Related Party Transactions.................................. 61
Principal Stockholders...................................... 63
Description of Capital Stock................................ 65
Shares Eligible for Future Sale............................. 68
Underwriting................................................ 70
Legal Matters............................................... 72
Experts..................................................... 72
Additional Information...................................... 73
Index to Financial Statements............................... F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS, BEFORE MAKING
AN INVESTMENT DECISION.
ADEXA, INC.
We develop and market software products that enable collaborative commerce,
or c-Commerce. Our iCollaboration suite provides visibility into multi-tiered
supply chains and is designed to intelligently synchronize and optimize complex
and interdependent supply chain activities. Our software enables companies to
address the increasing volume, complexity and speed of business interactions
within and across the extended supply chain and automates selected inter- and
intra-company business processes based on user-defined rules. Our software
allows electronic exchanges to provide value-added services to their
participants, including collaborative demand planning, multi-tiered supply chain
planning and available-to-promise capabilities. Fundamentally, our software
enables enterprises and exchange participants to make faster, more informed
decisions about supply chain interactions, resulting in enhanced supply chain
efficiency, greater customer responsiveness and improved strategic planning and
flexibility.
Many companies are embracing c-Commerce as a means of synchronizing and
streamlining their supply chain activities. c-Commerce is an Internet-based
approach to sourcing, making and delivering goods that involves intelligent
planning, real-time synchronization and dynamic collaboration among members of
an extended supply chain. c-Commerce represents a distinct departure from
e-Commerce, which is merely transactional in nature, and empowers enterprises
and electronic exchanges to respond more quickly and effectively to customer
demands and changing variables within the supply chain. For example, c-Commerce
allows business partners to collaboratively synchronize how and when materials
are purchased and delivered across a multi-tiered supply chain.
We believe our software's powerful functionality, flexibility and open
architecture differentiate it from other approaches to c-Commerce. Specifically,
our next-generation software:
- scales with growing numbers of supply chain members, increasing
transaction volumes and expanding product complexity;
- can be easily configured to support company-specific supply chain
strategies and quickly extended to meet a business's evolving needs;
- synchronizes and integrates supply chain activities at different levels
within and outside the enterprise;
- utilizes sophisticated constraint-based optimization algorithms to rapidly
solve the complex and dynamically changing supply chain problems of
enterprises and exchanges;
- easily integrates with an organization's existing technologies and those
of its supply chain members, resulting in reduced implementation time and
expense; and
- addresses the supply chain-specific issues of a broad range of industries.
Our objective is to become the leading global provider of comprehensive
c-Commerce solutions. To achieve this objective, we intend to continue focusing
on markets where we have referenceable customers and industry knowledge and to
penetrate additional vertical markets that are characterized by complex supply
chains. We plan to continue to target electronic exchanges both as potential
customers and as application service providers, or ASPs, that can offer their
customers our products on a hosted basis. We also seek to capitalize on the
network effect created when non-customer participants in the supply chains of
our customers are exposed to, and benefit from, our software. We intend to
pursue a global, multi-
3
<PAGE>
channel distribution strategy by expanding our direct sales force and leveraging
our relationships with complementary technology providers, resellers and systems
integrators. Finally, we plan to continue to develop our technology in order to
extend the features and functionality of our product offerings.
We target Global 2000 companies and electronic exchanges in large vertical
markets, such as the aerospace and defense, automotive, electronics,
semiconductors and textiles and apparel industries. As of August 24, 2000, we
had more than 50 customers in 11 countries. Our top ten customers based on end-
user license contract revenues are: Advanced Micro Devices, Inc.; Conexant
Systems, Inc.; Digeno, a unit of RR Donnelley & Sons Co.; Framatome Connectors
International; Fujitsu Quantum Device Limited; Matsushita Electronics
Corporation; Milliken and Company; Philips Semiconductors B.V.; Sanyo
Electronics Co. Ltd.; and Sumitomo Metal Industries, Ltd., Sitix Division.
We maintain a Web site at www.adexa.com. Information contained on our Web
site does not constitute part of this prospectus. Our principal offices are
located at 5933 W. Century Blvd., 12th Floor, Los Angeles, California 90045, and
our telephone number is (310) 338-8444.
ADEXA, ICOLLABORATION AND OUR LOGO ARE OUR TRADEMARKS. TRADE NAMES, SERVICE
MARKS OR TRADEMARKS OF OTHER COMPANIES APPEARING IN THIS PROSPECTUS ARE THE
PROPERTY OF THEIR RESPECTIVE HOLDERS.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Adexa................ shares
Common stock to be outstanding after the shares
offering...................................
Working capital and general corporate
Use of proceeds.............................. purposes.
Proposed Nasdaq National Market symbol....... ADXA
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of June 30, 2000, and on a pro
forma basis based upon the issuance of 1,574,801 shares of Series C redeemable
convertible preferred stock on August 24, 2000 and the conversion of all series
of preferred stock into shares of common stock, and excludes:
- 4,987,393 shares of common stock issuable upon exercise of stock options
outstanding as of June 30, 2000 at a weighed average exercise price of
$1.69 per share;
- 94,750 shares of common stock issuable upon exercise of stock options
issued after June 30, 2000 at a weighted average exercise price of $7.00
per share;
- 417,689 shares of common stock reserved for future issuance under our 1998
Stock Plan as of June 30, 2000;
- 650,000 additional shares of common stock reserved for future issuance
under our 1998 Stock Plan subsequent to June 30, 2000;
- 2,000,000 shares of common stock reserved for future issuance under our
2000 Stock Incentive Plan;
- 750,000 shares of common stock reserved for future issuance under our 2000
Employee Stock Purchase Plan; and
- an outstanding warrant to purchase 228,012 shares of Series A convertible
preferred stock.
------------------------
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
- our reincorporation in the state of Delaware prior to the effectiveness of
this offering;
- conversion of all outstanding shares of preferred stock, including the
1,574,801 shares of Series C redeemable convertible preferred stock issued
on August 24, 2000, into shares of common stock upon the closing of this
offering;
- no exercise of the underwriters' over-allotment option; and
- a stock split of for effective as of , 2000.
5
<PAGE>
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data for our company. You
should read this information together with the financial statements and the
notes to those statements appearing elsewhere in this prospectus and the
information under "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues
License revenues...................... -- $ 175 $ 3,735 $ 4,841 $16,093 $ 5,578 $13,336
Service revenues...................... $ 823 1,618 2,035 2,251 5,175 2,489 5,958
Maintenance revenues.................. -- 54 416 1,020 2,393 793 2,415
------ ------ ------- ------- ------- ------- -------
Total revenues................ 823 1,847 6,186 8,112 23,661 8,860 21,709
Gross Profit............................ 423 1,391 4,299 2,869 17,616 6,134 14,758
Operating Income (Loss)................. 136 139 (1,093) (9,198) (2,751) (1,757) (2,032)
Net Income (Loss)....................... $ 139 $ 152 $ (847) $(9,434) $(5,185) $(2,750) $(3,077)
====== ====== ======= ======= ======= ======= =======
Basic and Diluted Net Income
(Loss) per Share...................... $ 0.01 $ 0.02 $ (0.08) $ (0.94) $ (0.51) $ (0.27) $ (0.29)
====== ====== ======= ======= ======= ======= =======
Weighted Average Shares of Common
Stock................................. 9,700 9,925 10,000 10,000 10,099 10,027 10,622
====== ====== ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------------------------
PRO PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 3,604 $23,604 $
Working capital........................................ (5,248) 14,750
Total assets........................................... 16,060 36,060
Deferred revenues...................................... 7,882 7,882
Capital Lease Obligations.............................. 177 177
Total stockholders' equity (deficit)................... (2,911) 17,088
</TABLE>
------------------------
(1) On a pro forma basis based upon the issuance of 1,574,801 shares of
Series C redeemable convertible preferred stock on August 24, 2000, the
deemed payment of a dividend representing the value of the beneficial
conversion feature of the Series C redeemable convertible preferred stock,
and the conversion of all series of preferred stock into shares of common
stock.
(2) As adjusted to reflect the issuance of shares of common stock under
this offering.
6
<PAGE>
RISK FACTORS
THIS OFFERING AND AN INVESTMENT IN OUR COMMON STOCK INVOLVE A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION IN THIS PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK. OUR
BUSINESS AND RESULTS OF OPERATIONS COULD BE SERIOUSLY HARMED BY ANY OF THE
FOLLOWING RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY
OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND
FUTURE PROSPECTS.
We first licensed versions of our current product components in early 1997.
Since then, our suite of products has continued to evolve. In the third quarter
of 1999, we reconfigured our products to form our iCollaboration suite and
repositioned our company to increase our focus on c-Commerce applications.
Accordingly, we are subject to the risks inherent to the establishment of a new
business enterprise. Our prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by early-stage companies in new
and rapidly evolving markets. To address these risks, we must, among other
things, respond to competitive developments, continue to upgrade our products,
continue to manage our growth effectively and continue to attract, retain and
motivate qualified personnel. If we do not successfully address these risks and
challenges, our business and operating results could be harmed.
WE HAVE A HISTORY OF LOSSES AND WE MAY NOT BE PROFITABLE IN THE FUTURE.
We have experienced net losses in each period since 1997. We incurred net
losses of $9.4 million for the fiscal year ended December 31, 1998,
$5.2 million for the fiscal year ended December 31, 1999 and $3.1 million for
the six months ended June 30, 2000. As of June 30, 2000, we had an accumulated
deficit of $18.3 million. We expect to significantly increase our sales and
marketing, professional services, research and development, maintenance and
support services and general and administrative expenses and consequently our
losses are expected to increase in the future. We will need to generate
significant increases in our revenues to achieve and maintain profitability and
we may not be profitable in the future. If our revenues fail to grow or grow
more slowly than we anticipate or our operating expenses exceed our projections,
our losses could significantly increase.
WE MAY NOT ACHIEVE ANTICIPATED REVENUES IF OUR SOFTWARE PRODUCTS FAIL TO ACHIEVE
MARKET ACCEPTANCE.
We believe that revenues from software licenses, together with revenues from
related services and maintenance, will account for substantially all of our
revenues for the foreseeable future. As a result, if our products do not achieve
widespread market acceptance, we may not achieve anticipated revenues. In
addition, if our competitors release new products that are superior to ours,
demand for our products could decline and our business could be harmed.
OUR FINANCIAL RESULTS MAY VARY SIGNIFICANTLY FROM QUARTER TO QUARTER AND WE MAY
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS.
Our operating results have varied significantly from quarter to quarter in
the past and will continue to vary in the future due to a variety of factors,
many of which are outside of our control. Factors that could affect our
quarterly operating results include:
- market acceptance of our products;
- size and timing of customer orders and contracts;
- budgetary constraints of our customers;
7
<PAGE>
- entry of new competitors into our market, or the announcement of new
products or product enhancements by competitors;
- our ability to successfully expand our sales and marketing, professional
services, maintenance and support and research and development
organizations;
- unexpected delays in developing and marketing new and enhanced products;
- time, cost and resource utilization associated with product
implementation;
- variability in the mix of our license, service and maintenance revenues;
- variability in the mix of professional services that we perform and those
performed by third parties;
- variability in the mix of domestic and international revenues;
- foreign currency exchange rate fluctuations;
- our ability to establish and maintain relationships with key partners and
systems integrators; and
- potential costs associated with any acquisitions.
A significant portion of our expenses is fixed in the short term and cannot
be quickly reduced to respond to decreases in revenues. Therefore, if our
revenues are below our expectations, our operating results and net income are
likely to be adversely affected. In addition, we may reduce our prices or
accelerate our investment in research and development efforts in response to
competitive pressures or to pursue new market opportunities. Our revenues may
not grow at historical rates in future periods, or they may not grow at all.
Accordingly, we may not achieve positive operating margins in future quarters.
We experience seasonal fluctuations in our operating results. Historically,
our operating results have tended to be stronger in the fourth quarter of the
year and weaker in the first quarter of the year. In future periods, we expect
that seasonal trends could cause first quarter operating results to remain
consistent with, or decrease from, the level achieved in the preceding quarter.
If our operating results fall below the expectations of public market analysts
and investors, the price of our common stock could decline.
COMPETITION COULD CAUSE US TO REDUCE PRICES AND RESULT IN REDUCED GROSS MARGINS
OR LOSS OF MARKET SHARE.
The market for our products is highly competitive. Our competitors offer a
variety of solutions directed at the enterprise level as well as at various
segments of the supply chain. We currently face two primary sources of
competition:
- in-house development efforts by potential customers or partners; and
- enterprise application vendors such as i2 Technologies, Inc., J.D. Edwards
& Co., Manugistics Group, Inc., Oracle Corporation, and SAP Corporation.
In addition, we face potential competition from e-Business and electronic
exchange infrastructure providers such as Ariba and Commerce One, as they seek
to extend their product offerings.
Historically, a number of enterprise resource planning vendors have jointly
marketed our products as a complement to their own. However, as we increase our
market share and expand our product offerings, and as enterprise resource
planning vendors expand their own product offerings, we believe our
relationships with these vendors will become more competitive. We believe that
other enterprise resource planning vendors are focusing significant resources on
increasing the functionality of their own planning and scheduling modules.
8
<PAGE>
Relative to us, many of our competitors have:
- longer operating histories;
- significantly greater financial, technical, marketing and other resources;
- greater name recognition;
- a broader range of products to offer; and
- a larger installed base of customers.
In addition, we expect to experience increasing price competition as we
compete for market share. We may not be able to compete successfully with our
existing or new competitors. If we experience increased competition, our
business, operating results and financial condition could be harmed.
IF WE FAIL TO INTRODUCE NEW VERSIONS AND RELEASES OF OUR PRODUCTS IN A TIMELY
MANNER, WE MAY LOSE CUSTOMERS AND OUR REVENUES MAY DECLINE.
Much of our future success depends upon our ability to introduce new
versions and releases of our products. We may fail to introduce or deliver these
new versions and releases on a timely basis, if at all. In addition, we may fail
to achieve timely market acceptance of these enhancements. If we fail to
introduce new versions and releases of our products in a timely manner, our
business, results of operations and financial condition could be harmed.
WE DEPEND ON SIGNIFICANT INDIVIDUAL CONTRACTS AND LOSS OR DELAY OF ANY
PARTICULAR CONTRACT COULD HARM OUR BUSINESS.
We derive a significant portion of our revenues in each quarter from a small
number of relatively large contracts. Our largest customer, measured by the
reseller in the case of indirect sales and by the end user in the case of direct
sales, accounted for 28% of total revenues for 1997, 30% of total revenues for
1998, 13% of total revenues for 1999 and 21% of total revenues for the six
months ended June 30, 2000. Concentrations of customer revenue have been and are
likely to continue to be significantly higher for individual quarters than for
six month and annual periods. If in any future period we fail to close one or
more substantial license, service or maintenance sales that have been targeted
to close in that period, our operating results for that period could be
materially affected. Moreover, due to customer purchasing patterns, we typically
realize a significant portion of our software license revenues in the last few
weeks of a quarter. As a result, if we incur any delays in customer orders, we
may experience significant reductions in our revenues and results of operations.
WE RELY ON AND NEED TO DEVELOP AND ENHANCE RELATIONSHIPS WITH THIRD PARTIES AND
OUR INABILITY TO DEVELOP THESE RELATIONSHIPS COULD HARM OUR BUSINESS.
Companies increasingly rely on consulting and systems integration firms and
third-party software and hardware vendors in selecting and implementing software
like ours. Accordingly, we expect to rely in part on such third parties for
sales and lead generation and for implementation services. In addition, we will
rely on partners to penetrate additional vertical markets. We have formal and
informal arrangements with a number of third-party software and hardware vendors
and consulting and systems integration firms to enhance our marketing, sales,
support, service and product development efforts as well as software
implementation services. Many of these firms have similar, and often more
established, relationships with our competitors. Even when we establish such a
relationship with a consulting or systems integration firm, the success of the
relationship will depend on a variety of factors, some of which will not be
within our control. Moreover, there can be no assurance that these firms, many
of which have significantly greater financial and marketing resources than we
do, will not develop or market software products that compete with our products
in the future or will not otherwise discontinue their relationships with us. If
we fail to
9
<PAGE>
maintain these existing relationships or to establish new relationships in the
future, our business, results of operations and financial condition could be
harmed.
We embed and integrate third-party software into our software solutions and
we may continue this practice in the future. Third-party software licenses may
not continue to be available to us on commercially reasonable terms, if at all.
The loss of, or inability to maintain or obtain, any of these software licenses
could delay or reduce our product shipments until equivalent software can be
identified, licensed and integrated. Any delay or reduction in product shipments
could harm our business, operating results and financial condition.
IF OUR EFFORTS TO EXPAND SALES OF OUR PRODUCTS TO OTHER INDUSTRIES DO NOT
SUCCEED, OUR BUSINESS WOULD BE HARMED.
We have historically sold our products primarily to companies in the
electronics, semiconductors and textile and apparel industries. We intend to
market our products to customers in additional industries. Although we have
targeted enterprises in other markets as potential customers, these potential
customers may not be as willing to purchase products like ours and the time
required to gain an understanding of additional industries may slow our
penetration into these industries.
OUR LENGTHY AND VARIABLE SALES CYCLE MAKES IT DIFFICULT FOR US TO PREDICT WHEN
OR IF SALES WILL OCCUR AND THEREFORE WE MAY EXPERIENCE AN UNPLANNED SHORTFALL IN
REVENUES.
Our products typically have lengthy and unpredictable sales cycles,
contributing to the uncertainty of our operating results. Customers view the
purchase of our iCollaboration suite of software products as a significant and
strategic decision. As a result, customers generally evaluate our software
products and determine their impact on existing infrastructure over a long
period of time. Our sales cycle has historically ranged from approximately one
to twelve months, but has extended in certain cases to over one year depending
upon the customer's need to rapidly implement a solution and whether the
customer is new or is extending an existing implementation. The licensing of our
software products may be subject to delays if the customer has lengthy internal
budgeting, approval and evaluation processes. We may incur significant selling
and marketing expenses during a customer's evaluation period, including the
costs of developing a full proposal and completing a rapid proof of concept or
custom demonstration, before the customer places an order with us. Customers may
also initially purchase a limited number of component, server and user licenses
before expanding their implementations. Larger customers may purchase our
software products as part of multiple simultaneous purchasing decisions, which
may result in additional unplanned administrative processing and other delays in
our recognition of license revenues. If revenues forecasted from a specific
customer for a particular quarter are not realized or are delayed to another
quarter, we may experience an unplanned shortfall in revenues, which could harm
our operating results.
OUR FAILURE TO RETAIN AND ATTRACT KEY PERSONNEL COULD HARM OUR BUSINESS.
We rely upon the continued service of a relatively small number of key
technical and senior management personnel. In addition, we do not maintain key
person insurance. If we lose any of our key technical or senior management
personnel, our business, operating results and financial condition could be
harmed.
Our future success also depends on our ability to attract, train and retain
other highly qualified personnel. There is substantial competition for
experienced personnel in our industry. We may not be able to attract, assimilate
or retain other highly qualified personnel in the future. As a result, our
growth could be limited due to our lack of capacity to develop and market our
products to our customers, or we could experience deterioration in service
levels or decreased customer satisfaction.
After this offering, our ability to attract and retain qualified personnel
may be even more difficult because potential employees may perceive the value of
our future stock option grants offered to them to
10
<PAGE>
be less valuable than stock option grants offered by other companies that are
not yet public. Our inability to attract, train or retain the number of highly
qualified technical, sales, marketing, professional services and customer
support personnel that our business needs may seriously harm our business and
results of operations.
IF WE ARE NOT ABLE TO MANAGE OUR GROWTH, OUR BUSINESS AND FINANCIAL CONDITION
COULD BE HARMED.
Our business has grown rapidly in recent years. Our employee count has
increased from 196 at December 31, 1999 to 261 at June 30, 2000. We have also
increased the scope of our operating and financial systems and the international
and geographic distribution of our operations and customers. Our management and
operations have been strained by this growth and will continue to be strained
should rapid growth continue. Our officers and other key employees must continue
to implement and improve our operational, customer support and financial control
systems and effectively expand, train and manage our employee base. If we are
unable to manage future expansion successfully, our business, operating results
and financial condition could be harmed.
IF OUR CUSTOMERS ARE NOT SATISFIED WITH OUR PRODUCTS, WE MAY NOT ACHIEVE GROWTH
IN OUR REVENUES.
Some of our customers initially license a limited number of our software
components. Customers may subsequently add additional components as they expand
the implementations of our products to different levels of their enterprises. It
is therefore important that our customers be satisfied with our initial products
that they use and their related implementations. If implementations take longer
than expected or are not successful, customers will not be satisfied with our
products. Such dissatisfaction may decrease their willingness to license
additional components or discourage other potential customers from licensing our
products.
OUR SOFTWARE MAY BE INCOMPATIBLE WITH NEW PLATFORMS, WHICH COULD HINDER MARKET
ACCEPTANCE OF OUR PRODUCTS.
Our software supports operating system platforms from Compaq Computer,
previously Digital Equipment, Hewlett-Packard, IBM, Microsoft and Sun
Microsystems. If additional software platforms gain significant market
acceptance, we may be required to make our software compatible with those
platforms in order to remain competitive. These platforms may not be
architecturally compatible with our software product design, and we may not be
able to make our software compatible with those additional platforms on a timely
basis, or at all. Any failure to maintain compatibility with existing platforms
or to achieve compatibility with new platforms that achieve significant market
acceptance could harm our business, operating results and financial condition.
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS COULD
REDUCE OUR REVENUES OR CAUSE US TO INCUR COSTLY LITIGATION.
We rely primarily on a combination of copyright, trademark and trade secret
laws, confidentiality procedures and contractual provisions to protect our
proprietary rights. We also seek to avoid disclosure of our intellectual
property by requiring employees and consultants with access to our proprietary
information to execute confidentiality agreements. However, these legal
protections afford only limited protection for our technology. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or to obtain and use information that we regard as
proprietary. Although we believe software piracy may be a significant problem,
we are unable to determine the extent to which piracy of our software products
exists. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets and to determine the validity and scope of
the proprietary rights of others. Our failure to adequately protect our
intellectual property could harm our business and operating results.
11
<PAGE>
IF WE ARE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, WE MAY INCUR
SUBSTANTIAL COSTS, WHICH COULD HARM OUR OPERATING RESULTS.
The software industry is characterized by frequent infringement claims
regarding copyright, patent and other property rights. Our success and ability
to compete are dependent upon our ability to operate without infringing upon the
property rights of others. We may be subject to future litigation based on
claims that our products infringe the intellectual property rights of others or
that our own intellectual property rights are invalid. Any intellectual property
infringement claims or litigation could result in substantial costs and
diversion of resources and could harm our business and operating results.
IF WE BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS, THEY MAY BECOME COSTLY AND
TIME-CONSUMING TO DEFEND.
Our license agreements with customers typically contain provisions designed
to limit our exposure to product liability claims. However, these contract
provisions may not preclude all potential claims. Product liability claims could
require us to spend significant time and money in litigation or to pay
significant damages. As a result, any claim, whether or not successful, could
harm our reputation, business, operating results and financial condition.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO RISKS.
Non-U.S. based customers, based upon the location of the reseller in the
case of indirect sales and the location of the end user in the case of direct
sales, accounted for approximately 52% of our total revenues in 1997, 36% of our
total revenues in 1998, 57% of our total revenues in 1999 and 41% of our total
revenues in the six months ended June 30, 2000. To continue our growth and
profitability, we will need to expand our sales in international markets.
Further penetration of international markets will require us to expand our
existing foreign operations, to establish additional foreign operations and to
translate our software and manuals into additional foreign languages. Expansion
may be costly and time-consuming and may not generate returns for a significant
period of time, if at all. If we are unable to expand our international
operations or localize our software in a timely manner, our business, results of
operations and financial condition could be harmed.
Our international operations are subject to risks inherent in international
business activities, including:
- difficulty in staffing and managing geographically dispersed operations;
- longer sales cycles and collection of accounts receivables in some
countries;
- compliance with a variety of foreign laws and regulations;
- unexpected changes in regulatory requirements, taxes, trade laws and
tariffs;
- overlap of different tax structures;
- greater difficulty in safeguarding intellectual property;
- increased financial accounting and reporting burdens and complexities;
- trade restrictions; and
- general economic conditions in international markets.
In particular, countries in the Asia-Pacific regions have recently
experienced weaknesses in their currencies, banking and equity markets. These
weaknesses could adversely affect the demand for our products.
WE FACE FINANCIAL RISK ASSOCIATED WITH CURRENCY FLUCTUATIONS.
To date, our international operations revenues have primarily been
denominated in U.S. dollars. The majority of our international operations
expenses and some licenses have been denominated in currencies
12
<PAGE>
other than the U.S. dollar. Therefore, our operating results may be adversely
affected by changes in the value of the U.S. dollar. As our international
operations expand, our exposure to exchange rate fluctuations will increase as
we generate revenues and incur expenses in an increasing number of foreign
currencies. This exposure could harm our business, results of operations or
financial condition in future periods.
WE MAY EXPERIENCE DIFFICULTIES INTEGRATING POTENTIAL FUTURE ACQUISITIONS, WHICH
COULD DISRUPT OUR BUSINESS, BE DILUTIVE TO STOCKHOLDERS AND ADVERSELY AFFECT OUR
OPERATING RESULTS.
We may expand our operations or market presence by acquiring or investing in
businesses, products or technologies that complement our business, increase our
market coverage, enhance our technical capabilities or otherwise offer
opportunities for growth. These transactions create risks such as:
- difficulty assimilating the operations, technology, products and personnel
we acquire;
- disruption of our ongoing business;
- diversion of management's attention from other business concerns;
- one-time charges and expenses associated with amortization of goodwill and
other purchased intangible assets; and
- potential dilution to our stockholders.
Our inability to address these risks could negatively impact our operating
results. Moreover, any future acquisitions, even if successfully completed, may
not generate any additional revenues or provide any benefit to our business.
OUR SOFTWARE IS COMPLEX AND MAY CONTAIN UNDETECTED ERRORS, WHICH COULD CAUSE US
TO LOSE CUSTOMERS.
Our software is complex and may contain undetected errors or "bugs." Despite
our testing, bugs may be discovered only after our product has been installed
and used by customers. We have on occasion experienced delays in the
introduction of new and enhanced products because of bugs. Undetected errors
could result in adverse publicity, loss of revenues or claims against us by
customers, any of which could harm our business, operating results and financial
condition.
RISKS RELATED TO OUR INDUSTRY
IF WE FAIL TO ADAPT TO THE RAPID TECHNOLOGICAL CHANGE THAT CHARACTERIZES OUR
MARKET WE COULD LOSE MARKET SHARE OR OUR PRODUCTS COULD BECOME OBSOLETE.
The market for c-Commerce software is characterized by rapid technological
advances, changing customer needs and evolving industry standards. Enterprises
are increasing their focus on enabling supply chain collaboration and therefore
are requiring their application software vendors to provide greater levels of
functionality and broader product offerings. Moreover, competitors in our market
continue to make rapid technological advances in computer hardware and software
technology and frequently introduce new products and enhancements. We must
continue to enhance our current product line and develop and introduce new
products that keep pace with the technological developments of our competitors.
We must also satisfy increasingly sophisticated customer requirements. In
addition, we must anticipate and adapt to new industry standards so that our
software products do not become obsolete. If we cannot successfully respond to
the technological advances of others or if our new products or product
enhancements do not achieve market acceptance, our business, operating results
and financial condition could be harmed.
THE MARKET FOR C-COMMERCE SOFTWARE PRODUCTS IS NEWLY EMERGING AND DEMAND FOR
THESE PRODUCTS MAY NOT INCREASE AND COULD DECLINE.
The market for c-Commerce software is newly emerging. We cannot be certain
that this market will continue to develop and grow or that companies will choose
to use our iCollaboration products rather than attempting to develop alternative
platforms and applications internally or through other sources.
13
<PAGE>
Companies that have already invested substantial resources in other methods of
sharing information during the design, manufacturing and supply process may be
reluctant to adopt new technology or infrastructures that may replace, limit or
compete with their existing systems or methods. We expect that we will continue
to need to pursue intensive marketing and selling efforts to educate prospective
customers about the uses and benefits of our iCollaboration product suite. Due
to these factors, demand for and market acceptance of our software products is
subject to a high level of uncertainty.
WE FACE RISKS IF USE OF THE INTERNET DOES NOT CONTINUE TO GROW AND RELIABLY
SUPPORT THE DEMANDS PLACED ON IT BY E-COMMERCE.
Growth in the sales of our products and services depends upon the continued
and increased use of the Internet as a medium for commerce and communication.
Growth in the use of the Internet is a recent phenomenon and may not continue.
In addition, the Internet infrastructure may not be able to support the demands
placed on it by increased usage and bandwidth requirements. There have also been
recent well-publicized security breaches involving "denial of service" attacks
on major Web sites. Concerns over these and other security breaches may slow the
adoption of electronic commerce by businesses.
In addition, the recent growth in the use of the Internet has caused
frequent periods of poor or slow performance, requiring components of the
Internet infrastructure to be upgraded. Delays in the development or adoption of
new equipment and standards or protocols required to handle increased levels of
Internet activity could cause the Internet to lose its viability as a commercial
medium. If the Internet infrastructure does not develop sufficiently to address
these concerns, it may not develop as a commercial marketplace, and our sales
would be harmed.
THE GOVERNMENT MAY INCREASE ITS REGULATION OF THE INTERNET, WHICH COULD REDUCE
MARKET ACCEPTANCE OF OUR PRODUCTS.
As electronic commerce and the Internet continue to evolve, federal, state
and foreign governments may adopt laws and regulations covering issues such as
user privacy, taxation of goods and services provided over the Internet,
pricing, content and quality of products and services. If enacted, these laws
and regulations could limit the market for electronic commerce, and therefore
the market for our products and services. Although many of these regulations may
not apply directly to our business, we expect that laws regulating the
solicitation, collection or processing of personal or consumer information could
indirectly affect our business.
Laws or regulations concerning telecommunications might also negatively
impact us. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on these companies. If enacted, these laws, rules or
regulations could limit the market for our products and our business could be
harmed.
OUR SUCCESS DEPENDS ON THE WILLINGNESS OF BUYERS AND SELLERS TO CARRY OUT
TRANSACTIONS OVER THE INTERNET INSTEAD OF USING MORE TRADITIONAL METHODS AND
THEIR FAILURE TO DO SO COULD SIGNIFICANTLY HARM OUR BUSINESS.
Our future success depends in part on the growth of our customers'
electronic exchanges as a preferred alternative to the traditional methods of
transacting business for purchasers and sellers. Online trading is new and not
proven. We cannot be certain that our customers' electronic exchanges will be
successful or that they will achieve or sustain revenue growth or generate any
profits. In order to succeed, our customers' clients must utilize our customers'
online marketplaces with greater frequency and consistency. We cannot be certain
that enterprises will accept the Internet as a viable alternative to the
traditional methods of transacting business. Participants may be unwilling to
adopt an electronic exchange due to their comfort with traditional purchasing
and selling habits and established relationships, the costs required to change
trading methods, their demand for products and services not offered in our
14
<PAGE>
marketplace, security and privacy concerns or a general reluctance to use or
unfamiliarity with the Internet. If electronic exchanges do not develop as a
preferred alternative for purchasers and sellers, many of our customers and
potential customers may not license or continue to license our products.
RISKS RELATED TO THIS OFFERING
OUR DIRECTORS AND EXECUTIVE OFFICERS WILL RETAIN SIGNIFICANT CONTROL OVER US
AFTER THIS OFFERING, WHICH WILL ALLOW THEM TO DECIDE THE OUTCOME OF MATTERS
SUBMITTED TO STOCKHOLDERS FOR APPROVAL.
Upon completion of this offering, our directors and executive officers will
beneficially own approximately % of our outstanding common stock assuming no
exercise of the underwriters' over-allotment option. As a result, these
stockholders, acting in concert, could control all matters submitted to our
stockholders for a vote, including the election of directors and the approval of
mergers and other significant corporate transactions, which could have the
effect of delaying or preventing a change in control of our company that
stockholders may consider desirable. The interests of these persons may conflict
with your interests as stockholders, and the actions they take or approve may be
contrary to those desired by other stockholders.
OUR CHARTER AND BYLAWS HAVE ANTI-TAKEOVER PROVISIONS WHICH COULD DISCOURAGE OR
PREVENT A TAKEOVER OF US EVEN IF IT WERE FAVORED BY OUR STOCKHOLDERS.
Provisions of our certificate of incorporation and bylaws as well as the
Delaware General Corporation Law could make it more difficult for a third party
to acquire us, even if doing so would be beneficial to our stockholders. These
provisions may also prevent changes in our management. The provisions include,
without limitation:
- authorizing the issuance of undesignated preferred stock;
- staggering the elections of the board of directors over three years;
- requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
- limiting the persons who may call special meetings of stockholders;
- prohibiting stockholder action by written consent; and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on at
stockholder meetings.
We also will be subject to the provisions of Section 203 of the Delaware
General Corporation Law, which restricts some business combinations with
interested stockholders. The combination of these provisions may have the effect
of inhibiting a nonnegotiated merger or other business combination involving us,
even if it were favored by our stockholders.
OUR STOCK PRICE MAY BE VOLATILE, AND THIS VOLATILITY COULD RESULT IN SUBSTANTIAL
LOSSES FOR INVESTORS PURCHASING SHARES IN THIS OFFERING.
Prior to this offering, there was no public market for our stock. An active
public market for our common stock may not develop or be sustained after the
offering. We negotiated and determined the initial public offering price with
the representatives of the underwriters based on several factors. This price may
vary from the market price of common stock after the offering. You may be unable
to sell your shares of common stock at or above the offering price. The market
price of the common stock may fluctuate significantly in response to the
following factors, some of which are beyond our control:
- variations in our quarterly operating results;
- changes in securities analysts' estimates of our financial performance;
15
<PAGE>
- changes in market valuations of similar companies;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of a major customer or failure to complete significant license
transactions;
- a failed implementation of our software; and
- additions or departures of key personnel.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK
PRICE VOLATILITY WHICH COULD INCREASE OUR EXPENSES AND DAMAGE OUR REPUTATION.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could harm our business and operating results.
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS OUR STOCK PRICE,
RESULTING IN THE LOSS OF ALL OR PART OF YOUR INVESTMENT IN OUR COMMON STOCK.
If our current stockholders sell substantial amounts of our common stock in
the public market following this offering, the market price of our common stock
could fall. Upon completion of this offering, we will have outstanding
shares of common stock. All or substantially all of our stockholders will
be subject to agreements with the underwriters or us that restrict their ability
to transfer their stock for 180 days from the date of this prospectus. After
these agreements expire, 18,912,431 shares will be eligible for sale in the
public market subject in some cases to the restrictions of Rule 144.
AS A NEW INVESTOR, YOU WILL INCUR SUBSTANTIAL DILUTION AS A RESULT OF THIS
OFFERING AND FUTURE EQUITY ISSUANCES.
The initial public offering price will be substantially higher than the net
tangible book value per share of our outstanding common stock. As a result,
investors purchasing common stock in this offering will incur immediate dilution
of $ per share, assuming an initial public offering price of $ per
share. Investors will incur additional dilution upon the exercise of outstanding
stock options and warrants.
WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING, AND WE MAY NOT
BE SUCCESSFUL IN INVESTING THESE PROCEEDS IN WAYS THAT WILL ENHANCE OUR MARKET
VALUE.
We plan to use the proceeds from this offering for general corporate
purposes. Therefore, we will have broad discretion as to how we will spend the
proceeds, and our stockholders may not agree with the ways in which we use the
proceeds. We may not be successful in investing the proceeds from this offering
in our operations or external investments and our investments may not yield a
favorable return.
16
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements we make in this prospectus are forward-looking
statements. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology including "may," "will," "could," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or the negative of these terms or other comparable terminology. These statements
involve known and unknown risks and uncertainties that could cause our results
to differ materially from forward-looking statements. 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 statement. We are under no duty to
update any of the forward-looking statements after the date of this prospectus
to conform these statements to actual results.
USE OF PROCEEDS
We estimate that the net proceeds of this offering will be approximately
$ million, or $ million if the underwriters' over-allotment option is
exercised in full, assuming an initial public offering price of $ , and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by us.
We expect to use the net proceeds of this offering for general corporate
purposes, including working capital and capital expenditures. While the exact
use of the proceeds has not been specifically determined, we currently intend to
expand our sales and marketing organizations, grow our professional services,
training and customer support functions, increase our research and development
activities and increase our spending to support general administrative
operations. We also anticipate making various capital expenditures over the next
12 months. We intend, if the opportunity arises, to use an unspecified portion
of the net proceeds from this offering to acquire or invest in complementary
businesses, products and technologies. Currently, however, we do not have any
understandings, commitments or agreements with respect to any acquisitions.
Pending our use of the proceeds, we will most likely invest the net proceeds in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We do not expect to declare or pay cash dividends on our common stock in the
foreseeable future. We anticipate that all future earnings, if any, generated
from operations will be retained to develop and expand our business. Any future
determination with respect to the payment of dividends will be at the discretion
of the board of directors and will depend upon, among other things, our
operating results, financial condition and capital requirements, the terms of
then-existing indebtedness, general business conditions and other factors as the
board of directors deems relevant. In addition, the terms of our line of credit
prohibit the payment of cash dividends without the lender's consent.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000
(i) on an actual basis, (ii) on a pro forma basis to reflect the issuance of
1,574,801 shares of Series C redeemable convertible preferred stock on
August 24, 2000, the deemed payment of a dividend representing the value of the
beneficial conversion feature of the Series C redeemable convertible preferred
stock, and the conversion of all series of preferred stock into shares of common
stock and (iii) on a pro forma as adjusted basis to reflect our receipt of the
estimated net proceeds from the sale of the shares of common stock
offered by us at an assumed initial public offering price of $ per share,
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us, and the authorization of
10,000,000 shares of undesignated preferred stock.
This table should be read with our consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 2000
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital Lease Obligations................................... $ 177 $ 177 $
======== ======== ========
Stockholders' equity:
Series A convertible preferred stock, no par value;
4,358,186 shares authorized, 4,130,170 shares issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted........ 4,284 -- --
Series B convertible preferred stock, no par value;
2,900,000 shares authorized, 2,492,424 shares issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted........ 8,126 -- --
Series C redeemable convertible preferred stock, no par
value; no shares authorized, issued or outstanding,
actual, pro forma and pro forma as adjusted............. -- -- --
Undesignated preferred stock, no par value; no shares
authorized, issued or outstanding, actual and pro forma;
10,000,000 shares authorized, no shares issued or
outstanding, pro forma as adjusted...................... -- -- --
Common stock, no par value; 23,000,000 shares authorized
and 10,715,036 shares issued and outstanding, actual;
30,000,000 shares authorized and 18,912,431 shares
issued and outstanding, pro forma; 125,000,000 shares
authorized and shares issued and outstanding, pro
forma as adjusted....................................... 308 32,718
Additional paid-in capital.................................. 8,114 16,460
Unearned stock-based compensation........................... (5,407) (5,407)
Accumulated deficit......................................... (18,336) (26,683)
-------- -------- --------
Total stockholders' equity (deficit).................... (2,911) 17,088
-------- -------- --------
Total capitalization.................................. $ (2,734) $ 17,265 $
======== ======== ========
</TABLE>
18
<PAGE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of June 30, 2000, and on a pro
forma basis based on the issuance of 1,574,801 shares of Series C convertible
redeemable preferred stock on August 24, 2000 and conversion of all series of
preferred stock into shares of common stock, and excludes:
- 4,987,393 shares of common stock issuable upon exercise of stock options
outstanding as of June 30, 2000 at a weighted average exercise price of
$1.69 per share;
- 94,750 shares of common stock issuable upon exercise of stock options
issued after June 30, 2000 at a weighted average exercise price of $7.00
per share;
- 417,689 shares of common stock reserved for future issuance under our 1998
Stock Plan as of June 30, 2000;
- 650,000 additional shares of common stock reserved for future issuance
under our 1998 Stock Plan subsequent to June 30, 2000;
- 2,000,000 shares of common stock reserved for future issuance under our
2000 Stock Incentive Plan;
- 750,000 shares of common stock reserved for future issuance under our 2000
Employee Stock Purchase Plan; and
- an outstanding warrant to purchase 228,012 shares of our Series A
convertible preferred stock.
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<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of the
common stock and the pro forma as adjusted net tangible book value per share of
the common stock after this offering. Pro forma net tangible book value per
share represents the amount of our total tangible assets less total liabilities,
divided by the pro forma number of shares of common stock outstanding as of
June 30, 2000. Dilution in pro forma net tangible book value per share
represents the difference between the amount per share paid by purchasers of
common stock in this offering and the pro forma as adjusted net tangible book
value per share of common stock immediately after the completion of this
offering.
Our pro forma net tangible book value as of June 30, 2000 was $17.1 million,
or $0.90 per share of common stock. Pro forma net tangible book value per share
represents the amount of our pro forma tangible stockholders' equity divided by
18,912,431 shares of our common stock on a pro forma basis to reflect the
issuance of 1,574,801 shares of Series C redeemable convertible preferred stock
on August 24, 2000 and the conversion of all series of preferred stock into
shares of common stock. After giving effect to the sale of the shares
of common stock offered hereby at an assumed initial public offering price of
$ per share (less underwriting discounts and commissions and estimated
offering expenses), our pro forma as adjusted net tangible book value as of
June 30, 2000 would have been $ million, or $ per share. This represents an
immediate increase in pro forma net tangible book value of $ per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $ per share to new investors of common stock in this offering, as
illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of June 30,
2000.................................................... $ 0.90
Increase per share attributable to new investors..........
------
Pro forma as adjusted net tangible book value per share
after the offering........................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table sets forth on a pro forma as adjusted basis, after
giving effect to the conversion of all outstanding shares of preferred stock
into common stock upon completion of this offering, the difference between the
number of shares of common stock purchased from Adexa, the total consideration
paid and the average price per share paid by the existing stockholders and by
the new investors purchasing shares of common stock in this offering, as of
June 30, 2000.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 18,912,431 % $33,407,053 % $1.77
New investors....................... $
---------- ------ ----------- ------
Totals............................ 100.0% $ 100.0%
========== ====== =========== ======
</TABLE>
As of June 30, 2000, there were options outstanding to purchase a total of
4,987,393 shares of common stock at a weighted average exercise price of $1.69
per share under our 1998 Stock Plan and a warrant outstanding to purchase
228,012 shares of Series A convertible preferred stock. To the extent
outstanding options or the warrant are exercised, there will be further dilution
to new investors. See "Management--Employee Stock Plans" and Notes 9 and 12 of
Notes to Financial Statements.
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
consolidated financial statements and related notes, "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for each of the years in the three-year period ended December 31, 1999 and
the six months ended June 30, 2000, and the balance sheet data at December 31,
1998 and 1999 and June 30, 2000, are derived from our financial statements,
which have been audited by Deloitte & Touche LLP, independent auditors, and are
included elsewhere in this prospectus. The balance sheet data at December 31,
1996 and 1997 and the statement of operations data for the year ended
December 31, 1996 are derived from our audited financial statements which are
not included in this prospectus. The statement of operations data for the year
ended December 31, 1995 and the balance sheet data at December 31, 1995 are
derived from unaudited financial statements. The consolidated statement of
operations data for the six months ended June 30, 1999 are derived from
unaudited financial statements included elsewhere in this prospectus and, in the
opinion of our management, include all adjustments that are necessary for a fair
presentation of the results of operations for these periods. The historical
results are not necessarily indicative of the operating results to be expected
in the future.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License revenues........................ -- $ 175 $ 3,735 $ 4,841 $16,093 $ 5,578 $13,336
Service revenues........................ $ 823 1,618 2,035 2,251 5,175 2,489 5,958
Maintenance revenues.................... -- 54 416 1,020 2,393 793 2,415
------ ------- ------- ------- ------- ------- -------
Total revenues.................... 823 1,847 6,186 8,112 23,661 8,860 21,709
------ ------- ------- ------- ------- ------- -------
Cost of Revenues:
Cost of revenues (excluding stock-based
compensation)......................... 400 456 1,887 4,982 6,006 2,707 6,808
Stock-based compensation--Cost of
Revenues.............................. -- -- -- 261 39 19 143
------ ------- ------- ------- ------- ------- -------
Total cost of revenues............ 400 456 1,887 5,243 6,045 2,726 6,951
------ ------- ------- ------- ------- ------- -------
Gross Profit.............................. 423 1,391 4,299 2,869 17,616 6,134 14,758
------ ------- ------- ------- ------- ------- -------
Operating Expenses:
Sales and marketing (excluding
stock-based compensation)............. 71 616 3,664 7,860 12,929 4,922 10,030
Research and development (excluding
stock-based compensation)............. -- 413 980 1,707 4,534 1,815 3,315
General and administrative (excluding
stock-based compensation)............. 216 223 748 1,437 2,689 1,047 2,729
------ ------- ------- ------- ------- ------- -------
Total operating expenses
(excluding stock-based
compensation)................... 287 1,252 5,392 11,004 20,152 7,784 16,074
------ ------- ------- ------- ------- ------- -------
Stock-based compensation--Operating
Expenses:
Sales and marketing................... -- -- -- 191 61 30 500
Research and development.............. -- -- -- 834 127 64 143
General and administrative............ -- -- -- 38 27 13 73
------ ------- ------- ------- ------- ------- -------
Total stock-based compensation--
Operating Expenses.............. -- -- -- 1,063 215 107 716
------ ------- ------- ------- ------- ------- -------
Total operating expenses.......... 287 1,252 5,392 12,067 20,367 7,891 16,790
------ ------- ------- ------- ------- ------- -------
Operating Income (Loss)................... 136 139 (1,093) (9,198) (2,751) (1,757) (2,032)
Interest and Other Income (Expense),
Net..................................... 3 17 58 9 (320) (136) (118)
------ ------- ------- ------- ------- ------- -------
Income (Loss) before Income Taxes......... 139 156 (1,035) (9,189) (3,071) (1,893) (2,150)
Provision (Benefit) for Income Taxes...... -- 4 (188) 245 2,114 857 927
------ ------- ------- ------- ------- ------- -------
Net Income (Loss)......................... $ 139 $ 152 $ (847) $(9,434) $(5,185) $(2,750) $(3,077)
====== ======= ======= ======= ======= ======= =======
Basic and Diluted Net Income (Loss)
per Share............................... $ 0.01 $ 0.02 $ (0.08) $ (0.94) $ (0.51) $ (0.27) $ (0.29)
====== ======= ======= ======= ======= ======= =======
Weighted Average Shares of Common Stock... 9,700 9,925 10,000 10,000 10,099 10,027 10,622
====== ======= ======= ======= ======= ======= =======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................... $(13) $ 611 $3,209 $4,424 $ 6,232 $ 3,604
Working capital............................. 97 163 2,907 2,866 (2,172) (5,248)
Total assets................................ 275 1,615 7,602 8,182 12,347 16,060
Deferred revenues........................... -- 679 2,672 781 2,012 7,882
Capital Lease Obligations................... 0 -- 155 238 117 177
Total stockholders' equity (deficit)........ 188 370 3,930 3,891 (847) (2,930)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DESCRIPTION OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ALONG WITH INFORMATION INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS SECTION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. BECAUSE OF RISK FACTORS PRESENTED BELOW AND ELSEWHERE IN THIS
PROSPECTUS, OUR ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THOSE DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS.
OVERVIEW
We were founded in February 1994 in Texas as NP Complete. We relocated to
California in May 1994 and formed a new corporation, called Paragon Management
Systems, Inc., which acquired all of the assets of NP Complete as its successor.
We began primarily as a supply chain-consulting firm. In 1997, we licensed our
first versions of our current product components and have continued to expand
and improve our suite of products. In the third quarter of 1999, we aggregated
our product components into our iCollaboration suite, and in February 2000, we
changed our name to Adexa, Inc. We target Global 2000 companies, private
exchanges and public exchanges in large vertical markets, such as the aerospace
and defense, automotive, electronics, semiconductors and textile and apparel
industries. We currently market and license our products in North America,
Europe and Asia through our direct sales force and through systems integrators,
e-Business infrastructure providers and value-added resellers.
REVENUES
LICENSE REVENUES. Customers typically pay a one-time fee for a perpetual
license to use our software products. The amount of the fee is based on the
number of licensed sites and users and the type and number of components
licensed. We have experienced, and expect to continue to experience, significant
variations in the size of individual licensing transactions. We are currently
introducing alternative pricing models that involve licensing our software on a
subscription basis to application service providers, or ASPs, that will host our
software for their customers. To date, we have not signed any such ASP
customers.
SERVICE REVENUES. Our service revenues consist principally of revenues from
services associated with implementing our products and training our customers'
employees on the use of our products. We do not provide professional services to
all our customers, as such services may be provided by resellers or other
service providers. Service revenues may fluctuate relative to license revenues
depending upon whether implementation is performed by us or by a third party
contracted by the customer. We also subcontract third-party service providers to
perform aspects of implementations that we are contracted to perform. We expect
that service revenues as a percentage of total revenues will decline as system
integrators and other professional services organizations provide a greater
percentage of implementation services required by our customers. Our
implementation and training services generally are delivered on a
time-and-materials basis, although occasionally on a fixed-price basis.
MAINTENANCE REVENUES. We offer annual maintenance contracts to our
customers as part of a software license, a separate contract or a renewal of a
previous contract. Our maintenance and support services include product upgrades
and enhancements as well as user and technical support services. Most of our
maintenance and support contracts are invoiced annually in advance, are
renewable at the discretion of the customer and allow for future fee increases.
To date, all of our licenses to customers have included maintenance contracts,
and most of our customers have renewed such maintenance contracts.
REVENUE RECOGNITION
We recognize revenues in accordance with the American Institute of Certified
Public Accountants Statement of Position No. 97-2, "Software Revenue
Recognition," as amended by Statement of Position Nos. 98-4 and 98-9.
Accordingly, we recognize software license revenues when persuasive evidence of
an agreement exists, delivery of the product component has occurred, the fee is
fixed and determinable and
23
<PAGE>
collection is probable. If any of these criteria is not met, revenue recognition
is deferred until such time as all of these criteria are met.
We recognize revenues for some of our contracts in accordance with
Paragraphs 48 and 49 of SOP 97-2, whereby customer contracts that require
delivery of unspecified additional software products in the future are accounted
for as subscriptions. We recognize this revenue ratably over the term of the
arrangement beginning with the delivery of the first product. We anticipate that
revenues generated by licensing our software to application service providers
will be recognized using subscription accounting methods. When contracts include
multiple product components or other elements and vendor-specific objective
evidence exists for the value of all undelivered elements, we account for the
delivered elements in accordance with the "residual method" prescribed by SOP
No. 98-9. Revenues on undelivered elements are recognized once delivery is
complete. We have established vendor-specific objective evidence based on the
price established for each element when that element is sold separately, or in
the case of an element not yet sold separately, on the price established by
management. In those instances where arrangements include contractual
milestones, acceptance criteria or other contingencies, we account for the
transaction using contract accounting. For those arrangements that include
extended payment terms, we recognize revenue when these fees are due and
payable.
We record amounts billed to customers in excess of recognizable revenue as
deferred revenues on our balance sheet, as in cases involving license revenues
when subscription accounting applies, when undelivered elements exist or when
contract accounting applies, and maintenance revenues. Amounts recognized as
revenue in advance of billing are recorded as unbilled receivables and generally
involve maintenance and service revenues.
As noted above, we generally enter into separate contracts for professional
services. We recognize revenues from services delivered on a time-and-materials
basis as they are performed. Revenues from fixed-price arrangements are
recognized on a percentage-of-completion basis.
We recognize revenue from maintenance and support arrangements on a
straight-line basis over the life of the arrangement, which is typically one
year. If maintenance and support are included in a license arrangement, amounts
related to these elements are allocated based on vendor-specific objective
evidence.
COST OF REVENUES
Our cost of revenues consists of cost of license revenues, cost of service
revenues and cost of maintenance revenues. We have not separately accounted for
each of these costs. Our cost of license revenues includes royalties to third
parties for software embedded in our products, royalties due for the resale of
third-party software to our customers and the costs of documentation, delivery
and packaging. Our cost of service revenues includes salaries and other
personnel-related costs for implementation and training services, travel
expenses, bonuses, facility costs, costs of third parties contracted to provide
implementation services to customers and associated overhead expenses. Our cost
of maintenance revenues includes salaries and other personnel-related costs for
our customer support organization, travel expenses, bonuses, facility costs and
associated overhead expenses.
Our cost of service revenues can fluctuate depending upon the amount of
professional services provided by us as compared to third-party service
providers acting as subcontractors. Our overall gross profit can vary based on
the mix of license, service and maintenance revenues.
OPERATING EXPENSES
SALES AND MARKETING. Our sales and marketing expenses consist primarily of
salaries and other personnel-related costs, bonuses and commissions, facility
costs, travel, marketing collateral, advertising, public relations programs and
promotional events such as trade shows, customer user group meetings, seminars
and technical conferences.
24
<PAGE>
RESEARCH AND DEVELOPMENT. Our research and development expenses consist
primarily of salaries and other personnel-related costs, bonuses, facility
costs, and costs of third-party development services. We maintain a research and
development staff to enhance our products and to develop new products. Our
research and development operation is located in Toronto, Canada. We have
expensed all software development costs because the establishment of
technological feasibility of products and their availability for sale have
substantially coincided.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses consist
of salaries, bonuses and other personnel-related costs for our administrative,
finance and human resources employees, legal and accounting services, facility
costs, bad debt expense and other general corporate expenses.
STOCK-BASED COMPENSATION. Deferred stock-based compensation for employees
represents the difference between the exercise price of stock options granted
and the estimated fair market value of the underlying common stock on the date
of the grant. This amount is included as a component of stockholders' equity and
is being amortized by charges to operations over the vesting period of the
options, consistent with the method described in Accounting Principles Board
Opinion 25 and compliant with disclosure provisions of SFAS No. 123. We account
for stock options issued to non-employees in accordance with provisions of SFAS
No. 123.
25
<PAGE>
RESULTS FROM OPERATIONS
The following table sets forth selected statement of operations data
expressed as a percentage of our total revenues for the respective periods.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License revenues................................ 60% 60% 68% 63% 61%
Service revenues................................ 33 28 22 28 28
Maintenance revenues............................ 7 12 10 9 11
-------- -------- -------- -------- --------
Total revenues............................ 100 100 100 100 100
-------- -------- -------- -------- --------
Cost of Revenues:
Cost of revenues (excluding stock-based
compensation)................................. 31 61 25 31 31
Stock-based compensation--Cost of Revenues...... 0 3 0 0 1
-------- -------- -------- -------- --------
Total cost of revenues.................... 31 64 25 31 32
-------- -------- -------- -------- --------
Gross Profit...................................... 69 36 75 69 68
-------- -------- -------- -------- --------
Operating Expenses:
Sales and marketing (excluding stock-based
compensation)................................. 59 97 55 56 46
Research and development (excluding stock-based
compensation)................................. 16 21 19 20 15
General and administrative (excluding
stock-based compensation)..................... 12 18 11 12 13
-------- -------- -------- -------- --------
Total operating expenses (excluding
stock-based compensation)............... 87 136 85 88 74
-------- -------- -------- -------- --------
Stock-based compensation--Operating Expenses:
Sales and marketing........................... 0 2 0 0 2
Research and development...................... 0 10 1 1 1
General and administrative.................... 0 0 0 0 0
-------- -------- -------- -------- --------
Total stock-based compensation--Operating
Expenses................................ 0 12 1 1 3
-------- -------- -------- -------- --------
Total operating expenses.................. 87 148 86 89 77
-------- -------- -------- -------- --------
Operating Loss.................................... (18) (112) (11) (20) (9)
Interest and Other Income (Expense), Net.......... 1 0 (1) (2) (1)
-------- -------- -------- -------- --------
Loss before Income Taxes.......................... (17) (112) (12) (22) (10)
Provision (Benefit) for Income Taxes.............. (3) 3 9 10 4
-------- -------- -------- -------- --------
Net Loss.......................................... (14)% (115)% (21)% (32)% (14)%
======== ======== ======== ======== ========
</TABLE>
26
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
REVENUES
Total revenues were $8.9 million for the six months ended June 30, 1999 and
$21.7 million for the six months ended June 30, 2000, representing an increase
of $12.8 million, or 145%. Revenues from non-U.S. based customers as a
percentage of total revenues, based upon the location of the reseller in the
case of indirect sales and the location of the end user in the case of direct
sales, were 45% for the six months ended June 30, 1999 and 31% for the six
months ended June 30, 2000. Revenues from our largest customer as a percentage
of total revenues, measured by the revenues from the reseller in the case of
indirect sales and by the revenues from the end user in the case of direct
sales, were 28% for the six months ended June 30, 1999 and 21% for the six
months ended June 30, 2000. Two customers accounted for more than 10% of our
total revenues during the six months ended June 30, 2000.
LICENSE REVENUES. License revenues were $5.6 million for the six months
ended June 30, 1999 and $13.3 million for the six months ended June 30, 2000,
representing an increase of $7.7 million, or 139%. License revenues as a
percentage of total revenues were 63% for the six months ended June 30, 1999 and
61% for the six months ended June 30, 2000. The increase in license revenues was
due to increased market acceptance of the iCollaboration suite, expanded sales
and marketing efforts, expansion into new vertical market segments, the
introduction of new products and the upgrade of existing products.
SERVICE REVENUES. Service revenues were $2.5 million for the six months
ended June 30, 1999 and $6.0 million for the six months ended June 30, 2000,
representing an increase of $3.5 million, or 139%. Service revenues as a
percentage of total revenues were 28% for the six months ended June 30, 1999 and
28% for the six months ended June 30, 2000. The increase in service revenues was
due to increases in license revenues and associated implementations.
MAINTENANCE REVENUES. Maintenance revenues were $793,247 for the six months
ended June 30, 1999 and $2.4 million for the six months ended June 30, 2000,
representing an increase of $1.6 million, or 204%. Maintenance revenues as a
percentage of total revenues were 9% for the six months ended June 30, 1999 and
11% for the six months ended June 30, 2000. The increase in maintenance revenues
was due to increased licensing of our products and renewals of prior maintenance
contracts.
COST OF REVENUES
Cost of revenues was $2.7 million for the six months ended June 30, 1999 and
$6.8 million for the six months ended June 30, 2000, representing an increase of
$4.1 million, or 152%. Cost of revenues as a percentage of total revenues was
31% for the six months ended June 30, 1999 and 31% for the six months ended
June 30, 2000. The increase in the cost of revenues was due to increased hiring
and training of our implementation and maintenance and support professionals,
increased subcontracting of service implementations to third parties, and
royalties to third parties for software that we sold to our customers. The
increase in cost of revenues for the six months ended June 30, 2000 was also due
to $1.2 million in royalties to a third party for the resale of its software by
us. We do not expect such royalty payments to occur frequently in the future.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses were $4.9 million for the
six months ended June 30, 1999 and $10.0 million for the six months ended
June 30, 2000, representing an increase of $5.1 million, or 104%. Sales and
marketing expenses as a percentage of total revenues were 56% for the six months
ended June 30, 1999 and 46% for the six months ended June 30, 2000. The increase
in sales and marketing expenses was due to higher personnel-related expenses,
including salaries, benefits and commissions, travel expenses and related costs
of hiring sales management, sales representatives, sales support and marketing
personnel. We expect that sales and marketing expenses will increase
substantially
27
<PAGE>
in the future as we hire additional sales and marketing personnel, increase
spending on advertising and marketing programs and establish sales organizations
in additional domestic and international locations.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$1.8 million for the six months ended June 30, 1999 and $3.3 million for the six
months ended June 30, 2000, representing an increase of $1.5 million, or 83%.
Research and development expenses as a percentage of total revenues were 20% for
the six months ended June 30, 1999 and 15% for the six months ended June 30,
2000. The increase in research and development expenses was due to the hiring of
additional software developers, quality assurance personnel and outside
contractors to support our product development, and testing activities related
to the development and release of our products. We anticipate that research and
development expenses will continue to increase in absolute dollars for the
foreseeable future as we continue to invest in product development.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$1.0 million for the six months ended June 30, 1999 and $2.7 million for the six
months ended June 30, 2000, representing an increase of $1.7 million, or 161%.
General and administrative expenses as a percentage of total revenues were 12%
for the six months ended June 30, 1999 and 13% for the six months ended
June 30, 2000. The increase in general and administrative expenses was due to
the hiring of additional personnel, increased legal and accounting expenses and
increased bad debt expenses. We expect that general and administrative expenses
will increase substantially in the future as we assume the responsibilities of a
public company and as we hire additional general and administrative personnel.
STOCK-BASED COMPENSATION
Total stock-based compensation was $126,534 for the six months ended
June 30, 1999 and $858,828 for the six months ended June 30, 2000, representing
an increase of $732,294, or 579%. The increase in stock-based compensation was
due to increased hiring of personnel and granting of employee incentives.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net was ($134,974) for the six months
ended June 30, 1999 and ($118,353) for the six months ended June 30, 2000,
representing a decrease of $16,621, or 12%. Interest and other income (expense),
net consists primarily of interest expense and loss on sale of securities.
PROVISION (BENEFIT) FOR INCOME TAXES
Provision (benefit) for income taxes was $857,411 for the six months ended
June 30, 1999 and $927,227 for the six months ended June 30, 2000, representing
an increase of $69,816, or 8%. Provision (benefit) for income taxes as a
percentage of total revenues was 10% for the six months ended June 30, 1999 and
4% for the six months ended June 30, 2000. The increase in provision (benefit)
for income taxes was due to increased foreign source income for which we
incurred foreign income and withholding taxes. During the six months ended
June 30, 1999 and June 30, 2000, we reported losses for both financial reporting
and income tax purposes. As a result, we made no significant provision for U.S.
income taxes in either period. We have placed a valuation allowance against our
net deferred tax assets to reduce them to zero as a result of uncertainties
regarding the realization of the asset balance. When we have determined that it
is more likely than not that the net deferred tax assets are realizable, we will
reduce the valuation allowance.
FISCAL YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
TOTAL REVENUES
Total revenues were $6.2 million for fiscal 1997, $8.1 million for fiscal
1998 and $23.7 million for fiscal 1999, representing increases of $1.9 million,
or 31%, from fiscal 1997 to fiscal 1998 and $15.6 million, or
28
<PAGE>
192%, from fiscal 1998 to fiscal 1999. Revenues from non-U.S. based customers as
a percentage of total revenues, based on the location of the reseller in the
case of indirect sales and the location of the end user in the case of direct
sales, were 52% for fiscal 1997, 36% for fiscal 1998 and 57% for fiscal 1999.
Revenues from our largest customer as a percentage of total revenues, based on
the reseller in the case of indirect sales and the end user in the case of
direct sales, were 28% for fiscal 1997, 30% for fiscal 1998 and 13% for fiscal
1999. The number of customers accounting for more than ten percent of our total
revenues was three in fiscal 1997, two in fiscal 1998 and three in fiscal 1999.
LICENSE REVENUES. License revenues were $3.7 million for fiscal 1997,
$4.8 million for fiscal 1998 and $16.1 million for fiscal 1999, representing
increases of $1.1 million, or 30%, from fiscal 1997 to fiscal 1998 and
$11.3 million, or 232%, from fiscal 1998 to fiscal 1999. License revenues as a
percentage of total revenues were 60% for fiscal 1997, 60% for fiscal 1998 and
68% for fiscal 1999. The increase in license revenues from fiscal 1997 to fiscal
1998 and from fiscal 1998 to fiscal 1999 was due to our expanded and reorganized
sales force, increased international licensing, greater penetration into
existing markets, expansion into new vertical market segments and new and
upgraded products.
SERVICE REVENUES. Service revenues were $2.0 million for fiscal 1997,
$2.3 million for fiscal 1998 and $5.2 million for fiscal 1999, representing
increases of $216,747, or 11%, from fiscal 1997 to fiscal 1998 and
$2.9 million, or 130%, from fiscal 1998 to fiscal 1999. Service revenues as a
percentage of total revenues were 33% for fiscal 1997, 28% for fiscal 1998 and
22% for fiscal 1999. The increase from fiscal 1997 to fiscal 1998 and from
fiscal 1998 to fiscal 1999 was due to increases in license revenues.
MAINTENANCE REVENUES. Maintenance revenues were $415,961 for fiscal 1997,
$1.0 million for fiscal 1998 and $2.4 million for fiscal 1999, representing
increases of $604,262, or 145%, from fiscal 1997 to fiscal 1998 and
$1.4 million, or 135%, from fiscal 1998 to fiscal 1999. Maintenance revenues as
a percentage of total revenues were 7% for fiscal 1997, 13% for fiscal 1998 and
10% for fiscal 1999. The increase in maintenance revenues from fiscal 1997 to
fiscal 1998 and from fiscal 1998 to fiscal 1999 was due to increased licensing
of our products and renewals of prior maintenance contracts.
COST OF REVENUES
Cost of revenues was $1.9 million for fiscal 1997, $5.0 million for fiscal
1998 and $6.0 million for fiscal 1999, representing increases of $3.1 million,
or 164%, from fiscal 1997 to fiscal 1998 and $1.0 million, or 21%, from fiscal
1998 to fiscal 1999. Cost of revenues as a percentage of total revenues was 31%
for fiscal 1997, 61% for fiscal 1998 and 25% for fiscal 1999. The increase in
cost of revenues from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal
1999 was due to increased hiring and training of our implementation and
maintenance and support personnel and an increase in our use of third-party
services personnel.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses were $3.7 million for
fiscal 1997, $7.9 million for fiscal 1998 and $12.9 million for fiscal 1999,
representing increases of $4.2 million, or 115%, from fiscal 1997 to fiscal 1998
and $5.0 million, or 64%, from fiscal 1998 to fiscal 1999. Sales and marketing
expenses as a percentage of total revenues were 59% for fiscal 1997, 97% for
fiscal 1998 and 55% for fiscal 1999. The increase in sales and marketing
expenses from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999 was
due to higher personnel-related expenses, including salaries, benefits and
commissions, recruiting fees, travel expenses and related costs of hiring sales
management, sales representatives, sales support and marketing personnel.
RESEARCH AND DEVELOPMENT. Research and development expenses were $979,657
for fiscal 1997, $1.7 million for fiscal 1998 and $4.5 million for fiscal 1999,
representing increases of $727,023, or 74%, from fiscal 1997 to fiscal 1998 and
$2.8 million, or 166%, from fiscal 1998 to fiscal 1999. Research and
29
<PAGE>
development costs as a percentage of total revenues were 16% for fiscal 1997,
21% for fiscal 1998 and 19% for fiscal 1999. The increase in research and
development expenses from fiscal 1997 to fiscal 1998 and from fiscal 1998 to
fiscal 1999 was due to an increase in the number of software developers, quality
assurance personnel and outside contractors that we utilized to support our
product development and testing activities related to the development and
release of our products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$747,541 for fiscal 1997, $1.4 million for fiscal 1998 and $2.7 million for
fiscal 1999, representing increases of $689,326, or 92%, from fiscal 1997 to
fiscal 1998 and $1.3 million, or 87%, from fiscal 1998 to fiscal 1999. General
and administrative expenses as a percentage of total revenues were 12% for
fiscal 1997, 18% for fiscal 1998 and 11% for fiscal 1999. The increase in
general and administrative expenses from fiscal 1997 to fiscal 1998 and fiscal
1998 to fiscal 1999 was due to hiring additional finance, executive and
administrative personnel to support the growth of our business during those
periods.
STOCK-BASED COMPENSATION
Stock-based compensation expenses were $0 for fiscal 1997, $1.3 million for
fiscal 1998 and $253,068 for fiscal 1999, representing an increase of
$1.3 million from fiscal 1997 to fiscal 1998 and a decrease of $1.0 million, or
81%, from fiscal 1998 to fiscal 1999. The increase in stock-based compensation
from fiscal 1997 to fiscal 1998 was due to the establishment of our 1998 Stock
Plan and the granting of options promised to employees, many of which were
subject to no vesting or less than four year vesting. The decrease of
stock-based compensation from fiscal 1998 to fiscal 1999 was due to the granting
of options with strike prices closer to the fair value of the underlying stock.
INTEREST AND OTHER INCOME (EXPENSES), NET
Interest and other income (expenses) net, was $58,058 for fiscal 1997,
$8,774 for fiscal 1998 and ($319,908) for fiscal 1999, representing a decrease
in income of $49,284, or 85%, from fiscal 1997 to fiscal 1998 and an increase in
expense of $328,682 from fiscal 1998 to fiscal 1999. The decrease in income from
fiscal 1997 to fiscal 1998 was due to an increase in interest expense. The
increase of expense from fiscal 1998 to fiscal 1999 was due to an increase in
interest expense and losses on the sale of securities.
PROVISION (BENEFIT) FOR INCOME TAXES
Provision (benefit) for income taxes was ($188,458) for fiscal 1997,
$245,494 for fiscal 1998 and $2.1 million for fiscal 1999, representing
increases of $433,952 from fiscal 1997 to fiscal 1998 and $1.9 million, or 761%,
from fiscal 1998 to fiscal 1999. The increase in provision (benefit) for income
taxes from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999 was
due to increased foreign source income for which we incurred foreign income and
withholding taxes.
30
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth our unaudited consolidated statement of
operations data for each of the six quarters in the period ended June 30, 2000,
as well as that data expressed as a percentage of our total revenues for the
quarters presented. You should read this information in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this
prospectus. This data has been prepared on a basis consistent with our audited
consolidated financial statements, and, in the opinion of our management,
reflects all adjustments necessary for a fair presentation of our financial
position and operating results for the quarters presented. You should not draw
any conclusions about our future results from the operating results for any
quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1999 1999 1999 1999 2000 2000
-------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License revenues................................... $ 2,054 $ 3,523 $ 5,382 $ 5,133 $ 5,782 $ 7,554
Service revenues................................... 1,334 1,156 1,582 1,103 3,053 2,905
Maintenance revenues............................... 269 524 659 941 1,047 1,367
------- ------- ------- ------- ------- -------
Total revenues............................. 3,657 5,203 7,623 7,177 9,883 11,826
------- ------- ------- ------- ------- -------
Cost of Revenues:
Cost of revenues (excluding stock-based
compensation).................................... 1,167 1,540 1,601 1,697 2,747 4,061
Stock-based compensation--Cost of Revenues......... 10 10 10 10 47 96
------- ------- ------- ------- ------- -------
Total cost of revenues..................... 1,177 1,550 1,611 1,707 2,794 4,157
------- ------- ------- ------- ------- -------
Gross Profit......................................... 2,480 3,653 6,012 5,470 7,089 7,669
------- ------- ------- ------- ------- -------
Operating Expenses:
Sales and marketing (excluding stock-based
compensation).................................... 2,235 2,687 3,246 4,762 4,557 5,474
Research and development (excluding stock-based
compensation).................................... 752 1,063 1,176 1,543 1,570 1,746
General and administrative (excluding stock-based
compensation).................................... 564 483 795 847 1,495 1,234
------- ------- ------- ------- ------- -------
Total operating expenses (excluding
stock-based compensation)................ 3,551 4,233 5,217 7,152 7,622 8,454
------- ------- ------- ------- ------- -------
Stock-based compensation--Operating Expenses
Sales and marketing.............................. 15 15 15 15 138 362
Research and development......................... 32 32 32 32 49 94
General and administrative....................... 7 7 7 7 24 49
------- ------- ------- ------- ------- -------
Total stock-based compensation--Operating
Expenses................................. 54 54 54 54 212 505
------- ------- ------- ------- ------- -------
Total operating expenses................... 3,605 4,287 5,271 7,206 7,833 8,959
------- ------- ------- ------- ------- -------
Operating Income (Loss).............................. (1,125) (634) 741 (1,736) (744) (1,290)
Interest and Other Expense, Net...................... (35) (99) (79) (107) (79) (40)
------- ------- ------- ------- ------- -------
Income (Loss) before Income Taxes.................... (1,160) (733) 662 (1,843) (823) (1,330)
Provision for Income Taxes........................... 432 426 726 532 552 375
------- ------- ------- ------- ------- -------
Net Loss............................................. $(1,592) $(1,159) $ (64) $(2,375) $(1,375) $(1,705)
======= ======= ======= ======= ======= =======
</TABLE>
31
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1999 1999 1999 1999 2000 2000
-------- -------- --------- -------- -------- --------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License revenues................................... 56 % 68 % 71 % 72 % 58 % 64 %
Service revenues................................... 37 22 21 15 31 25
Maintenance revenues............................... 7 10 8 13 11 11
------- ------- ------- ------- ------- -------
Total revenues............................. 100 100 100 100 100 100
------- ------- ------- ------- ------- -------
Cost of Revenues:
Cost of revenues (excluding stock-based
compensation).................................... 32 30 21 24 28 34
Stock-based compensation--Cost of Revenues......... 0 0 0 0 0 1
------- ------- ------- ------- ------- -------
Total cost of revenues..................... 32 30 21 24 28 35
------- ------- ------- ------- ------- -------
Gross Profit......................................... 68 70 79 76 72 65
------- ------- ------- ------- ------- -------
Operating Expenses:
Sales and marketing (excluding stock-based
compensation).................................... 61 52 43 66 46 46
Research and development (excluding stock-based
compensation).................................... 21 20 15 21 16 15
General and administrative (excluding stock-based
compensation).................................... 15 9 10 12 15 10
------- ------- ------- ------- ------- -------
Total operating expenses (excluding of
stock-based compensation)................ 97 81 68 99 77 71
------- ------- ------- ------- ------- -------
Stock-based compensation--Operating Expenses
Sales and marketing.............................. 0 0 0 0 1 3
Research and development......................... 1 1 0 1 1 1
General and administrative....................... 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total stock-based compensation--Operating
Expenses................................. 1 1 1 1 2 4
------- ------- ------- ------- ------- -------
Total operating expenses................... 98 82 69 100 79 75
------- ------- ------- ------- ------- -------
Operating Income (Loss).............................. (30) (12) 10 (24) (7) (10)
Interest and Other Expense, Net...................... (1) (2) (1) (2) (1) (0)
------- ------- ------- ------- ------- -------
Income (Loss) before Income Taxes.................... (31) (14) 9 (26) (8) (10)
Provision for Income Taxes........................... 12 8 10 7 6 4
------- ------- ------- ------- ------- -------
Net Loss............................................. (43)% (22)% (1)% (33)% (14)% (14)%
======= ======= ======= ======= ======= =======
</TABLE>
REVENUES. Our total revenues increased for each of the six quarters in the
period ended June 30, 2000, except for the quarter ended December 31, 1999. The
increase in revenues for these periods reflects the increase in the number of
customers and implementations and increased license contract values due to
greater market acceptance of the iCollaboration suite, expanded sales and
marketing efforts, expansion into new vertical market segments, the introduction
of new products and the upgrade of products. The decrease in revenues for the
quarter ended December 31, 1999 was due to higher than anticipated revenues for
the quarter ended September 30, 1999.
COST OF REVENUES. Cost of revenues increased for each of the six quarters
in the period ended June 30, 2000. The increase in the cost of revenues was due
to a greater number of implementations and an increase in staffing required to
support such activities. The increase in the cost of revenues for the quarters
ended March 31, 2000 and June 30, 2000 was due to greater subcontracting of
implementations to
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third parties. The increase in the cost of revenues for the quarter ended
June 30, 2000 was also due to $1.2 million in royalty payments for the resale of
third-party software to our customers.
OPERATING EXPENSES. Operating expenses increased for each of the six
quarters in the period ended June 30, 2000. The increase in operating expenses
for these periods was due to increased sales and marketing, research and
development and general and administrative expenses associated with higher
numbers of personnel, related hiring expenses and the growth of our business.
The increase in sales and marketing expenses for the quarter ended December 31,
1999 was due to commissions and other year-end compensation. The increase in
research and development expenses for the quarter ended December 31, 1999 was
due to the payment of special bonuses. The increase in general and
administrative expenses for the quarter ended March 31, 2000 was due to higher
accounting and legal expenses.
Our quarterly operating results have varied widely in the past, and we
expect that they will continue to fluctuate in the future as a result of a
number of factors, many of which are outside our control. We believe that our
period-to-period operating results are not necessarily meaningful, and you
should not rely on them as indicative of our future performance. You should also
evaluate our prospects in light of the risks and uncertainties encountered by
early-stage companies in new and rapidly emerging markets. We may not be able to
successfully address the risks and challenges that face us. In addition,
although we have experienced significant revenue growth recently, our revenue
may not continue to grow and we may not become or remain profitable in the
future. Our expansion will also place significant demands on our management and
operational resources. To manage this rapid growth and increased demands, we
must improve existing and implement new operational and financial systems,
procedures and controls. We must also hire, train, manage, retain and motivate
qualified personnel. We expect future expansion to continue to challenge our
ability to hire, train, manage, retain and motivate our employees.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through the private
sale of equity securities with aggregate proceeds of approximately
$32.7 million and, to a lesser extent, through bank lines of credit. On
August 24, 2000, we closed a private sale of Series C redeemable convertible
preferred stock raising aggregate proceeds of approximately $20 million. The
investors that participated in the Series C financing, ordered by size of
investment, include J. & W. Seligman & Co., Amerindo Investment Advisors, Vitria
Technology, Inc., Sutter Hill Ventures, L.P. and affiliates, DRW Venture
Partners L.P., an affiliate of Dain Rauscher Incorporated, one of the
underwriters of this offering, and Information Technology Ventures II, L.P. and
affiliates.
At June 30, 2000, we had cash and cash equivalents of $3.6 million and a
secured bank credit line of $5.0 million, of which $1.1 million had been drawn
upon. On August 22, 2000, we entered into a new $5.0 million bank line of credit
that replaces the prior bank credit line, bears interest at prime plus one and
one half percent and expires on August 22, 2001. This line of credit is secured
by our accounts receivable and substantially all our other assets. We anticipate
using available cash to provide working capital to fund our operations, to
purchase capital equipment and to make leasehold and other facility
improvements.
Net cash used in operating activities was $810,321 for fiscal 1997,
$8.6 million for fiscal 1998, and $441,016 for fiscal 1999, and net cash
provided by operating activities was $2.5 million for the six months ended
June 30, 2000. Net cash used in operating activities for fiscal 1997 and for
fiscal 1998 related primarily to funding our operating losses. Net cash used in
operating activities in fiscal 1999 related primarily to an operating loss of
$5.2 million and increased accounts receivables of $3.0 million partially offset
by $1.2 million in deferred revenue and a $4.9 million increase in accounts
payable and accrued expenses and taxes. Net cash provided by operating
activities for the six months ended June 30, 2000, related primarily to an
increase of $5.9 million in deferred revenue and a $3.8 million increase in
accounts
33
<PAGE>
payable and accrued expenses and taxes, partially offset by an operating loss of
$3.1 million and increased accounts receivables of $5.5 million.
Net cash provided by (used in) investing activities was ($3.3) million for
fiscal 1997, ($1.2) million for fiscal 1998 and $2.5 million for fiscal 1999,
and primarily related to capital equipment expenditures and net short-term
investments. Net cash used in investing activities of $1.3 million for the six
months ended June 30, 2000 was used primarily to acquire capital equipment.
Capital equipment expenditures primarily consist of the purchase of computer
hardware and software, office furniture and equipment and leasehold
improvements. We expect capital expenditures and lease commitments to increase
in the future as our business expands.
Net cash provided by (used in) financing activities was $4.4 million for
fiscal 1997, $10.2 million for fiscal 1998, $2.9 million for fiscal 1999 and
($3.9) million for the six months ended June 30, 2000. Net cash was provided
primarily by sales of capital stock and, to a lesser extent, borrowings and the
exercise of warrants and stock options. Net cash used in financing activities
for the six months ended June 30, 2000 was used primarily to repay borrowings
under the line of credit.
We expect to experience significant growth in our operating expenses,
particularly sales and marketing and research and development expenses, and in
capital expenditures as we execute our business strategy. We anticipate that
these operating expenses and planned capital expenditures will constitute a
material use of our cash resources. We may utilize cash resources to fund
acquisitions of, or investments in, complementary businesses, technologies or
product lines. We believe that the net proceeds from the sale of the common
stock in this offering, current cash balances and borrowings available under our
credit facility will be sufficient to meet our working capital needs for at
least the next 12 months. After that, we may require additional funds. We may
not be able to obtain adequate or favorable financing in the future. Any
additional financing may dilute your ownership interest in Adexa, and new debt
or equity securities, if issued, could have rights senior to those of our common
stockholders.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants
issued SOP No. 98-9, "Modification of SOP 97-2, Software Revenue Recognition,
with Respect to Certain Transactions," which amends SOP No. 97-2, and was
effective for transactions that we entered into beginning January 1, 2000.
Adoption of SOP No. 98-9 did not have a material impact on our consolidated
financial position or results of operation.
In June 1998, June 1999 and June 2000, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133"
and SFAS No. 138, "Accounting for Derivative Instruments and Hedging
Activities--An Amendment of SFAS No. 133." SFAS No. 133, as amended, requires
the recognition of all derivatives as either assets or liabilities in the
balance sheet and the measurement of those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the planned
use of the derivative and the resulting designation. We are required to
implement SFAS No. 133, as amended, in the first quarter of 2001. We have not
determined the effects, if any, adoption of SFAS No. 133, as amended, will have
on the its consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation--an interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of APB Opinion No. 25 and, among other issues clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of the previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but
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<PAGE>
certain conclusions in FIN 44 cover specific events that occurred after either
December 15, 1998 or January 12, 2000. We do not expect the application of FIN
44 to have a material impact on our consolidated financial position or results
of operations.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements" which summarizes the views of the
staff of the SEC in applying generally accepted accounting principles to revenue
recognition in financial statements. In March 2000 and June 2000 the SEC issued
SAB No. 101A and SAB No. 101B, which delayed the implementation dates of
SAB No. 101. We will be required to adopt the accounting provisions of
SAB No. 101, as amended, no later than the fourth quarter of 2000. We do not
believe that the implementation of SAB No. 101 will have a material impact on
our consolidated financial position or results of operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We are headquartered in the United States and market our products in North
America, Asia and Europe. As a result, our financial results could be affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. Because the majority of our revenues are
currently denominated in U.S. dollars, a strengthening of the dollar could make
our products less competitive in foreign markets. Our interest income is
sensitive to changes in the general level of U.S. interest rates, particularly
since the majority of our investments are in short-term instruments. Due to the
short-term nature of our investments, we believe that there is not a material
risk exposure.
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<PAGE>
BUSINESS
OVERVIEW
We provide software products that enable c-Commerce. Our iCollaboration
suite is designed to automate and optimize interactions among trading partners
at multiple tiers of the supply chain. Our software allows companies and
participants in electronic exchanges to collaborate in real-time with members of
their extended supply chains and provides visibility into critical business
variables, such as changes in customer demand and material and component
availability. This visibility enables companies to intelligently synchronize
business processes across the extended supply chain. Users of our products can
predict future material needs based on collaborative demand forecasts, can
provide their customers with accurate delivery dates and can optimize a broad
range of supply chain activities, from coordinating shop floor production
processes to managing resource allocation across a multi-site enterprise. Our
intelligent collaboration capabilities allow private and public exchanges to
provide value-added services to their customers, such as collaborative demand
planning, multi-tiered supply chain planning and available-to-promise
capabilities. In addition, our software allows companies and exchanges to
address the increasing volume, complexity and speed of business interactions
within and across the extended supply chain and automates selected inter- and
intra-company business processes based on user-defined rules. Overall, our
iCollaboration suite allows companies to make better, faster decisions about
their supply chain interactions, resulting in enhanced customer responsiveness
and increased planning efficiency. Our products are tailored for the Internet
using an open, standards-based architecture and can be easily configured for the
individual business conditions and industry requirements of each customer,
allowing us to rapidly deliver a company-specific solution.
We sell our products to companies and electronic exchanges through a direct
sales force and indirect channels. We target Global 2000 companies in large
vertical markets that are characterized by complex supply chains, including the
aerospace and defense, automotive, electronics, semiconductors and textiles and
apparel industries. We also use our relationships with e-Business infrastructure
providers, such as Agile Software Corporation, BroadVision, Inc., Selectica,
Inc., and Vitria Technology, Inc., and value-added resellers, such as Compaq
Professional Services, HP Professional Services, QAD, Inc. and Western Data
Systems, to support our sales efforts and deepen our market penetration. Our top
ten customers based on end-user license contract revenues are: Advanced Micro
Devices Inc.; Conexant Systems, Inc.; Digeno, Inc.; Framatome Technologies,
Inc.; Fujitsu Quantum Devices, Ltd.; Matsushita Electric Industrial Co., Ltd.;
Milliken & Co.; Philips Semiconductors; Sanyo Electric Co. Ltd.; and Sumitomo
Metal Industries, Ltd.
INDUSTRY BACKGROUND
EMERGENCE OF THE INTERNET FOR BUSINESS
The Internet has emerged as a critical communications and commerce platform
for business, providing a medium through which companies can interact in
real-time with their trading partners and customers. While first generation
business-to-business solutions are focused on generating cost-savings through
activities such as procurement of indirect goods, companies are now beginning to
use the Internet to increase market share and revenues. These businesses are
increasingly using the Internet to collaborate with suppliers, distributors and
customers to make faster, better informed business decisions.
The Internet has also given rise to electronic exchanges where companies can
transact business with multiple buyers and sellers. These electronic exchanges
may be private exchanges, which are operated by a single business for the
purpose of trading with multiple partners, or may be public exchanges, which are
operated by third parties and facilitate commerce among multiple buyers and
multiple sellers. Businesses are attempting to use these electronic exchanges to
remove market inefficiencies and share information broadly among market
constituencies. These efforts, along with the widespread use of the Internet,
have increased the volume and speed of business interactions. This has placed
greater demand on enterprises to
36
<PAGE>
become more efficient, make decisions faster, bring products to market more
quickly and provide a higher level of service to customers and partners.
INCREASING SUPPLY CHAIN COMPLEXITY
Supply chains are communities of trading partners that source, make and
deliver both finished products for resale and the materials and components used
to produce them. Factors driving increased supply chain complexity include
greater demand for complex build-to-order products, increased outsourcing of
manufacturing processes and continuing globalization. To meet growing demand for
highly configured and sophisticated products, businesses are adding new
suppliers and increasing the number of components that they purchase through
their extended supply chains. Businesses are also continuing to outsource more
of their manufacturing and distribution processes in an attempt to focus on core
competencies and increase efficiency. As companies expand globally, supply
chains can span multiple continents, tying together suppliers, plants and
customers in geographically dispersed locations. These factors are adding
significant complexity to the supply chain by increasing the number of supply
chain activities that must be synchronized.
Effective synchronization of the extended supply chain is highly
challenging, in part because many supply chain processes are interdependent and
determined by both prior and future events. Coordination of the supply chain
typically involves frequent interaction among multiple parties, each of which
must also simultaneously react to market forces originating outside the supply
chain. Ineffective supply chain coordination can negatively affect revenues,
costs and customer satisfaction, particularly if a company is unable to
effectively manage material and capacity constraints. For example, late
components from a supplier could result in poor customer service or higher
production costs. Similarly, unexpected changes in customer demand can result in
a lost sale or excess inventory if a company's supply chain is inflexible.
Ultimately, if its supply chain cannot react quickly and in a coordinated
fashion to a broad range of market forces, a company may risk losing ground to
more responsive competitors.
THE EMERGENCE OF c-COMMERCE
Companies are embracing the Internet and its inherent speed and flexibility
to synchronize their supply chain activities and to conduct c-Commerce.
c-Commerce is an Internet-based approach to sourcing, making and delivering
goods that involves intelligent planning, real-time synchronization and dynamic
collaboration among members of an extended supply chain. c-Commerce reduces
inefficiencies in the supply chain and empowers enterprises and electronic
exchanges to respond more quickly and effectively to customer demands and
changing variables within the supply chain. c-Commerce represents a distinct
departure from e-Commerce, which is merely transactional in nature. While
c-Commerce does involve Internet-based transactions between manufacturers and
suppliers for the real-time procurement of direct materials--the basis for many
electronic exchanges--it also involves using the Internet to collaboratively
synchronize how and when these materials are purchased and delivered across a
multi-tiered supply chain. Moreover, c-Commerce can involve providing real-time
product availability information to customers based on the collective
capabilities of a business's supply chain or creating production forecasts based
on real-time inputs from multiple supply chain participants.
In April 2000, AMR Research predicted that Internet-based
business-to-business commerce will grow from $215 billion in 1999 to
$5.7 trillion by 2004. AMR also estimated that the cost of goods, for public
U.S. companies across all industries, represents 63% of revenue, while sales,
general and administrative costs are 18% of revenue. Consequently we believe
that there will be an increasing need for business-to-business commerce
applications that support the sourcing, making and delivering of direct goods
using the Internet.
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<PAGE>
INADEQUACIES OF CURRENT SOLUTIONS
Many companies have implemented various enterprise applications, such as
those for procurement, enterprise resource planning and manufacturing
automation, which help streamline a variety of business processes. Generally,
these applications focus on tasks such as transaction execution or data
collection and address only limited aspects of the supply chain within the
enterprise. These same companies are now attempting to extend the functionality
of these applications to conduct c-Commerce. c-Commerce, however, requires
applications that account for the interdependence of all supply chain functions
to synchronize multiple activities across the extended supply chain efficiently
and intelligently.
While there are other software products in the market that attempt to
address c-Commerce, we believe that they fall short in one or more of the
following ways:
- they do not scale easily with growing numbers of supply chain members,
increasing transaction volumes and expanding product complexity, and their
functionality cannot be easily extended to meet a business's evolving
needs, due in large part to their client-server architecture;
- they cannot be configured to support company-specific supply chain
strategies;
- they do not closely synchronize and integrate supply chain activities at
different levels of the enterprise;
- they do not solve the complex and dynamically changing supply chain
problems of enterprises and electronic exchanges on a rapid basis;
- they do not integrate easily with an organization's existing technologies
or those of its supply chain members, resulting in significant
implementation time and expense; and
- they do not address supply chain-specific issues across a broad range of
industries.
Many enterprises and electronic exchanges believe that the ability to
conduct intelligent c-Commerce is critical to retaining both customers and key
supply chain partners, and that an effective c-Commerce strategy demands a
comprehensive approach to the supply chain. As a result, we believe there is a
significant opportunity for a software platform that accounts for the
interdependence of supply chain functions, is tailored for the Internet,
supports real-time interaction and is adaptable to any business environment.
THE ADEXA SOLUTION
ATTRIBUTES
We provide software products that enable c-Commerce. Our iCollaboration
suite is designed to automate and optimize supply chain interactions among
trading partners. Our software enables intelligent planning, real-time
synchronization and dynamic collaboration among members of an extended, multi-
tiered supply chain. Our software addresses the increasing volume, complexity
and speed of business interactions within and across the extended supply chain.
Our next-generation architecture is designed for the open and scalable
requirements of c-Commerce and offers rapid deployment and integration. We
license our products to enterprises and public and private electronic exchanges
worldwide. The key attributes of our solution include:
SUPPLY CHAIN VISIBILITY AND SYNCHRONIZATION. Our software facilitates
c-Commerce by allowing enterprises to gain visibility into supply and demand
information across the supply chain, enabling them to synchronize multiple
interactions at different tiers of the supply chain. As a result, enterprises
can provide customers with accurate delivery dates and build-to-order
commitments and make rapid decisions about choosing alternative suppliers or
allocating limited resources, based on up-to-the-minute information.
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<PAGE>
SUPPLY CHAIN OPTIMIZATION. Our software employs sophisticated
constraint-based optimization algorithms and heuristics designed to reach
optimal planning solutions on a rapid basis. We believe, based on comparison
testing conducted by our customers, that our iCollaboration suite provides
faster planning solutions relative to competing software products.
BUSINESS DECISION AUTOMATION. Our software uses agent-based technology and
user-defined rules to intelligently automate selected inter- and intra-company
business decisions. By automating activities, such as determining order promise
dates or material requirements, our software enables enterprises to expedite and
improve their decision-making processes. This enhances their ability to rapidly
respond to changes in supplier commitments, customer requirements and market
conditions.
VALUE-ADDED EXCHANGE SERVICES. Our iCollaboration suite allows private and
public exchanges to provide value-added services to their customers such as
collaborative demand planning, multi-tiered supply chain planning, capacity
brokering, rules-based auctioning and order promising and inventory management.
Our software also enables electronic exchanges to provide real-time
available-to-promise information and give electronic exchange participants
visibility into material or capacity shortages. Additionally, our software
provides suppliers with advance notification of demand for their products so
that they can effectively adjust production to meet buyer needs and improve
customer service.
NEXT-GENERATION ARCHITECTURE. Our iCollaboration suite is based on open
systems and industry standards for rapidly deployable and scalable Internet
applications. In particular, our software:
- uses a distributed architecture that allows it to process high volumes of
complex data in real-time and support large numbers of concurrent users
across multiple remote locations;
- uses a single data model that accelerates software performance and enables
application and feature extensibility;
- features a component-based design that provides improved scalability,
reliability and availability relative to traditional applications; and
- overlays existing software applications, extending their functionality
rather than replacing it.
ADAPTABILITY AND FLEXIBILITY. Our products use a library of user-definable
business rules and industry-specific templates, allowing our customers to easily
and accurately model their specific supply-chain related business processes. Our
software can be easily configured for the individual business conditions and
industry requirements of each customer, allowing us to rapidly deliver a
tailored solution.
BENEFITS
Our solutions are designed to help enterprises and electronic exchanges
improve profitability and increase revenue by providing the following key
benefits:
ENHANCED SUPPLY CHAIN EFFICIENCY. Our software is designed to optimize
supply chain efficiency by allowing enterprises and electronic exchanges to
synchronize material, product and data flows among multiple locations and
third-party suppliers. As a result, our products can help enterprises reduce
inventory, enhance financial results, increase resource utilization and improve
on-time delivery performance.
GREATER EXCHANGE PREPAREDNESS. By streamlining and automating selected
business processes, our software enables companies to prepare for the increased
velocity of electronic exchange-based business activity by improving decision
response times, shrinking information lead times and reducing planning cycles.
For example, our software can rapidly determine a supplier's ability to fulfill
an order and the price at which it can do so and remain profitable, allowing the
supplier to be highly competitive when responding to a real-time auction bid or
request-for-quote.
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<PAGE>
INCREASED RESPONSIVENESS TO CUSTOMERS. Our iCollaboration suite provides
real-time and accurate available-to-promise information to buyers of both
standard and configured products. In addition, enterprises and electronic
exchange participants can rapidly respond to changes in demand by collaborating
in real-time with supply chain members to improve on-time delivery of the
specified quantity and types of products. This allows companies and electronic
exchanges to differentiate their levels of customer service.
CLOSER COORDINATION WITH SUPPLIERS. Our software enables enterprises and
electronic exchanges to provide suppliers with accurate, up-to-the-minute
projections of short- and long-term demand. This visibility gives suppliers the
flexibility to plan production and predict material needs, enabling them to use
their resources more efficiently, increase inventory turnover and respond to
last-minute demand changes.
IMPROVED STRATEGIC PLANNING AND FLEXIBILITY. Our collaborative planning
solutions enable enterprises and electronic exchange participants to make
strategic and tactical decisions across functional areas throughout the supply
chain. Our software helps companies improve profitability by enabling them to
plan the quantities of products they produce, the components they use to produce
them and the distribution resources they utilize to support these activities.
Our software provides enterprises with visibility into changes in future supply
and demand that enable them to plan more effectively for the long term and to
manage constraints in their development, procurement, production and delivery
processes.
STRATEGY
Our objective is to become the leading global provider of comprehensive
c-Commerce solutions. Key elements of our strategy are to:
FOCUS ON LARGE VERTICAL MARKETS. To date, we have focused our sales and
marketing efforts primarily on Global 2000 companies in large vertical markets
that are characterized by complex supply chains, including the aerospace and
defense, automotive, electronics, semiconductors and textiles and apparel
industries. We intend to leverage our current customer base and industry
knowledge to further penetrate our existing vertical markets. In addition, we
intend to enter new, high-growth vertical markets both by winning high-profile
reference accounts within those markets and by leveraging our software's
inherent flexibility and our strategic relationships to create new
industry-specific solutions.
TARGET ELECTRONIC EXCHANGES. We are a neutral provider of software to
electronic exchanges, which allows us to license our products to multiple
electronic exchanges within the same industry. We will continue to license our
products to electronic exchanges because we believe that our c-Commerce software
allows them to offer their participants expanded, value-added services. When
deployed within an exchange, our software products provide exchange participants
with the ability to effectively conduct c-Commerce. For example, our software
allows buyers to receive available-to-promise information and sellers to gain
visibility into future demand. As an alternative, our software can also be
hosted by an exchange, allowing exchange participants to subscribe to components
of the iCollaboration suite for the specific functionality that they need.
EXTEND OUR PRODUCT OFFERINGS AND TECHNOLOGY LEADERSHIP. We will continue to
develop our software products using a component-based, distributed, multi-user
and multi-threaded architecture that leverages leading edge technology,
including Java and Extensible Mark-up Language, or XML. Building on an open and
scalable architecture, we have established simple interfaces between our
iCollaboration suite and various transaction and execution systems and we intend
to expand these interfaces to support other existing and emerging technologies.
We intend to leverage our industry experience, in conjunction with our knowledge
of advanced software technology, to continue to improve the functionality of our
software. We also plan to continue to expand our offerings by enabling
applications service providers, or ASPs, to host our iCollaboration suite. We
believe that this ASP offering is another distribution channel that will allow
us to target small and medium sized enterprises and provide us with recurring
revenue streams.
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LEVERAGE NETWORK EFFECT TO EXPAND CUSTOMER BASE. As users of the
iCollaboration suite deploy our software across their supply chains, their
business partners and customers are exposed to our products. We believe that
this exposure, which allows non-customer participants in the supply chain to
benefit from our software, will create a network effect that will accelerate
industry recognition and adoption of our iCollaboration suite. Accordingly, we
intend to leverage this network effect to expand our customer base.
BUILD RELATIONSHIPS WITH IMPLEMENTATION PARTNERS. We intend to continue to
pursue additional relationships with systems integrators and other
implementation partners that can provide consulting and implementation services,
enabling us to focus on building a high-margin, software-driven business. These
relationships with systems integrators are also designed to enable us to extend
the reach of our sales and marketing efforts.
CONTINUE TO EXPAND SALES AND MARKETING EFFORTS. We intend to pursue a
global, multi-channel distribution strategy by expanding our direct sales force
and leveraging indirect sales channels with complementary technology providers,
resellers and systems integrators to increase widespread adoption of our
products. To accomplish this objective, we plan to increase the size of our
sales force in order to target a broader base of potential customers. In
addition, we will expand our reseller relationships with independent software
vendors that have traditionally sold their products in the vertical markets that
we intend to penetrate. We also plan to promote our brand awareness through
aggressive sales and marketing campaigns, including joint marketing efforts with
our current customers and partners.
PRODUCTS
Our iCollaboration suite consists of multiple components designed to provide
enterprises and electronic exchanges with comprehensive c-Commerce
functionality, including collaborative planning, supply chain synchronization
and optimization and business decision automation. The iCollaboration suite is a
component-based, extensible solution that uses a common, unified architecture.
Our software's design and our library of user-defined business rules and
industry-specific templates allow rapid configuration and deployment of a
c-Commerce solution tailored to customers' specific needs.
iCOLLABORATION SUITE FOR ENTERPRISES
Our iCollaboration suite for enterprises can be deployed at multiple levels
within an enterprise depending on its specific business needs. At the corporate
level, our products are designed to enable an enterprise with multiple internal
and external production and distribution facilities to synchronize and optimize
activities across its global supply chain for both short- and long-term planning
horizons. At the individual site or plant level, our products facilitate
distributed and decentralized constraint-based planning that improves
operational efficiency and sequences work orders in a way that is consistent
with corporate planning objectives. And at the shop floor level, our software
provides planning, scheduling and monitoring for individual production lines and
machines. In addition, our software can synchronize supply chain activities
across these different levels of the enterprise. For example, changing supply
chain conditions at the production line and shop floor levels can be assessed at
the plant and corporate planning levels so that activities can be resynchronized
accordingly.
Our iCollaboration suite also allows an enterprise to dynamically
collaborate with suppliers and customers to improve visibility into current and
future material and component requirements, to develop comprehensive demand
forecasts, to better manage inventory and to coordinate supply chain activities
in real-time. As interaction among trading partners and the need for quicker
response times increase, our software's business agents can automate and
streamline business processes within the enterprise and across the extended
supply chain.
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iCOLLABORATION SUITE FOR ELECTRONIC EXCHANGES
Our iCollaboration suite can be deployed to address the specific supply
chain-related needs of electronic exchanges. There are two general types of
electronic exchanges--private exchanges and public exchanges. Our iCollaboration
suite enables organizations with private exchanges to collaborate and share
supply chain information with their customers and suppliers in a secure
environment. Our iCollaboration suite provides public exchanges with value-added
services to attract and retain both buyers and sellers.
Electronic exchanges can choose among a variety of functionalities depending
on their specific requirements. For example, in a private exchange an enterprise
may want to share critical supply chain information such as work-in-progress,
finished and component goods inventory levels and production capacity. Certain
functionalities such as collaborative demand or supply planning and real-time
order promising may be desirable in both private and public exchanges. A public
exchange may offer capacity brokering whereby the excess production capacity of
the exchange participants is aggregated and auctioned to large potential buyers.
The component-based architecture of our iCollaboration suite allows us to
configure our services to meet the varied needs of electronic exchanges, as well
as adapt to their evolving business models and structures.
iCOLLABORATION COMPONENTS
Our iCollaboration suite consists of the following components, which may be
deployed and configured in various ways:
<TABLE>
<S> <C>
iCOLLABORATION COMPONENTS DESCRIPTION
Supply Chain Planner iCollaboration's Supply Chain Planner is a
constraint-based planning application that
coordinates and synchronizes global, multi-tiered
supply chain activities, including procurement,
production and distribution. Supply Chain Planner
uses a detailed supply chain model that accounts for
multiple production and distribution sites,
transportation networks, suppliers and customers in
order to help enterprises and exchange participants
optimize inventory, material and capacity and improve
financial performance.
Available-to-Promise iCollaboration's Available-to-Promise, or ATP,
provides real-time available-to-promise and
capable-to-promise information. ATP simultaneously
considers a variety of constraints provided by Supply
Chain Planner, including current and projected
inventory positions, production and distribution
capacity, appropriate substitution and configuration
alternatives and the priorities of competing
commitments.
Plant Planner iCollaboration's Plant Planner is a constraint-based
planning application designed to optimize plant-level
operations without violating strategic business
constraints, such as customer priority. Plant Planner
uses configurable business rules to model complex
production processes and advanced planning algorithms
to quickly process and route large numbers of jobs.
Plant Planner improves the profitability, reliability
and feasibility of production plans by balancing
material and capacity constraints with supplier
constraints and customer preferences as they change.
</TABLE>
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<TABLE>
<S> <C>
Strategic Planner iCollaboration's Strategic Planner is a
scenario-based, long-horizon planning and
optimization application that enables companies to
design their supply chain and business processes to
achieve strategic business objectives, improve
customer service levels and more accurately predict
the impact of supply chain decisions on short- and
long-term financial performance.
Collaborative Demand Planner iCollaboration's Collaborative Demand Planner enables
multiple geographically dispersed users within and
outside an enterprise or exchange to collaboratively
plan for future demand. Collaborative Demand Planner
enables users to aggregate, securely view, analyze
and publish changes to forecasted demand.
Collaborative Demand Planner quickly creates a
consensus forecast based on a broad array of data
inputs from a wide range of users.
Collaborative Supply Planner iCollaboration's Collaborative Supply Planner will
complement Collaborative Demand Planner by providing
suppliers with visibility into forecasted demand over
the Internet. Collaborative Supply Planner will
enable multiple levels of suppliers to collaborate on
component-level demand from Supply Chain Planner.
COLLABORATIVE SUPPLY PLANNER IS CURRENTLY UNDER
DEVELOPMENT.
Product Development Planner iCollaboration's Product Development Planner is
designed to optimize product development processes by
intelligently allocating design resources,
synchronizing multiple development projects and
scheduling sequence-dependent activities. Product
Development Planner uses a constraint-based planning
engine to generate product development plans that are
based on user-defined constraints.
Shop Floor Sequencer iCollaboration's Shop Floor Sequencer translates work
orders into detailed execution instructions for shop
floor systems and sequences jobs across multiple
plant resources to efficiently meet production
requirements. Shop Floor Sequencer functions as an
intelligent buffer between the production plan and
shop floor systems and can reduce the impact of
unexpected events--such as machine outages or
inventory shortfalls--by automatically re-sequencing
production events.
</TABLE>
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<TABLE>
<S> <C>
Business Agents - iCOLLABORATION'S ATP AGENT is embedded in external
applications, such as an order entry system, and
works with our Available-to-Promise application to
provide customers with real-time order promising
information.
- iCOLLABORATION'S BUSINESS ALERT AGENT is an
exception-based messaging system that monitors supply
chain activities and sends alerts when user-defined
thresholds are exceeded.
- iCOLLABORATION'S CUSTOMER AGENT monitors order
status and notifies customers when user-defined
thresholds are exceeded.
- iCOLLABORATION'S SUPPLIER AGENT monitors the status
of ordered components and provides users with
immediate access to material requirement
information when new production plans are created.
Unified Data Server iCollaboration's Unified Data Server provides
persistent data storage for all iCollaboration
components via a relational database. Unified Data
Server manages the data required for distributed
supply chain planning by enabling data communication
between multiple Unified Data Server components and
supporting multiple supply chain models.
Supply Chain Controller iCollaboration's Supply Chain Controller is the
connectivity, workflow and integration component for
the iCollaboration suite. Supply Chain Controller
consists of a graphical workflow modeling tool,
application programming interfaces and certified
connectors to external data sources and applications.
</TABLE>
FUTURE RELEASES
We are currently developing a major release of our iCollaboration suite,
version 5.0. This version of our software will feature extended collaborative
commerce functionality and enhanced technology based on our existing single data
model and Internet framework. The iCollaboration suite will be further enhanced
to provide a unified environment for collaborative commerce ranging from
planning to execution. Also, our agent technology is being further developed to
provide personalized user- and business rule-defined alerts and work flow
structure. Finally, this new version is being developed to operate with
different levels of detail based on the availability of data and business
objectives.
iCOLLABORATION ARCHITECTURE AND TECHNOLOGY
We believe that we are a technology leader in providing c-Commerce solutions
and that iCollaboration's next-generation architecture and underlying technology
provide significantly greater flexibility and adaptability, scalability and
openness than competitive product offerings. We believe our product offerings
have the following technological advantages:
FLEXIBILITY AND ADAPTABILITY. All iCollaboration suite components share a
common architecture that provides the flexibility and adaptability to address a
customer's particular business environment, processes and requirements. Our
software's functionality is flexible, rather than rigidly designed to address
only a specific industry. Its components can be readily configured to address
specific customer needs through a library of user-definable business rules,
industry-specific templates, attribute logic and alternative decision logic. A
customer can further extend the applicability of iCollaboration software by
fine-tuning the
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pre-existing library of business rules and attributes or by introducing more
detailed and sophisticated business rules and attribute logic to fit the
specific business environment. The iCollaboration suite molds to the needs of
the customer, rather than requiring the customer to change its technology
infrastructure to accommodate the software.
SCALABILITY. Our single data model and component-based architecture enable
customers to easily add functionality and accommodate additional users and
increased transaction volumes. iCollaboration's architecture provides for
scalability through the following:
- EXTENSIBILITY. Our component-based architecture allows additional
capabilities and features to be seamlessly added. In addition, once an
iCollaboration component is integrated with other applications, the single
data model enables more components to be added with minimal integration
effort.
- SPEED. iCollaboration suite uses powerful, constraint-based optimization
algorithms and heuristics to rapidly reach optimal planning solutions.
iCollaboration's algorithms and heuristics intelligently prune the search
space based on user-defined parameters to eliminate unnecessary searches
and allow for rapid solve times. Speed is further enhanced though the use
of a cached object model with optimized cross-references. As a result, our
iCollaboration product can scale to handle large supply chain models.
- SUPPORT OF DISTRIBUTED COMMUNITIES. Components of the iCollaboration suite
can be distributed across an enterprise, run from an enterprise server,
hosted by application service providers or offered as services in both
public and private exchanges. This allows our software to scale with a
business as it expands geographically and changes the way it uses its
technology infrastructure.
OPENNESS. Our software's open architecture is designed to operate on a
variety of technology platforms. iCollaboration currently supports five
hardware/operating system combinations. Our database technology is also platform
independent, supporting two dozen combinations of platform and Relational
Database Management System, or RDBMS, types. The integration components of our
products provide rich connectivity by supporting multiple technologies, vendors
and standards at the relational, object and document levels. These include XML
over http, open database connectivity, structured query language, Java
serialization and tool command language. Application connectors are available
for enterprise resource planning, manufacturing execution systems, enterprise
application integration and RDBMS tools.
INTERNET ARCHITECTURE. Our products' Internet architecture offers
personalized, browser-based views, XML communication and secure access for
planning and collaboration to multiple users across multiple enterprises.
Additionally, our products can deliver planning and collaboration functionality
in a hosted environment through an application service provider. It also
provides for load balancing to enable organizations to scale to accommodate
large numbers of users and transactions via the Internet.
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CUSTOMERS
As of August 24, 2000, we had licensed components of our iCollaboration
suite to more than 50 customers in North America, Europe and Asia. Our customers
include:
ELECTRONIC EXCHANGES
Com2B*
Digeno, a unit of RR Donnelley & Sons
Company
RetailMetro*
ELECTRONICS
AT&T Wireless
Dlink Corporation
Harmonic, Inc.
KYE Systems Corp.
MiTAC International Corp.
Philips Components B.V.
Quarta Display Inc.
Ricoh Company, Ltd.
Sharp Corporation, LCD
Synnex Information Technologies, Inc.
TECO Electric & Machinery Company, Ltd.
Viasystems Technologies Corporation
Xerox Corporation
SEMICONDUCTORS
Advanced Micro Devices, Inc.
Centillium Communications, Inc.
Chartered Semiconductor Manufacturing, Ltd.
Conexant Systems, Inc.
ESM Limited
Fujitsu AMD Semiconductor Ltd.
Fujitsu Quantum Device Ltd.
Hitachi Semiconductor (America) Inc.
Integrated Silicon Solution, Inc.
Lucent Microelectronics
Matsushita Electronics Corporation
Philips Semiconductors B.V.
S3 Incorporated
Sanyo Electric Co. Ltd.
Sharp Microelectronics Corporation
Silicon Manufacturing Partners PTE, Ltd.
Sumitomo Metal Industries, Ltd. Sitix Division
Toshiba Corporation Semiconductor Company
United Microelectronics Corporation
Winbond Electronics Corporation
ZiLOG, Inc.
TEXTILES AND APPAREL
Gulistan Carpets, Inc.
Malden Mills Industries, Inc.
Milliken and Company
Quaker Fabric Corporation of Fall River
Teijin Limited
Tropical Sportswear International Corporation
INDUSTRIAL/CONSUMER PACKAGED GOODS
Cheil Textile (Chemical) Co., Ltd.
(subsidiary of Samsung)
Firmenich S.A.
Framatome Connectors International
Hunter Douglas Europe B.V.
Rich Products Corporation
The Rowe Companies
AEROSPACE AND DEFENSE
Aerospace Industrial Development Corporation
Naval Air Systems Command (NAVAIR)
Template Software, Inc.
AUTOMOTIVE
General Motors Corporation
* These companies have signed a letter of intent to license our products.
SAMPLE CUSTOMER CASE STUDIES
DIGENO
Digeno is an electronic exchange for sheet-fed printers and print buyers
established and funded by RR Donnelley & Sons, a leading printing,
communications services and logistics organization.
THE CHALLENGE. As an emerging electronic exchange for printing services,
Digeno will target commercial printers and large corporate print buyers. To
serve this diverse group of exchange participants and scale its business
rapidly, Digeno required a flexible and adaptable collaborative planning
solution.
THE SOLUTION. Digeno selected our iCollaboration Supply Chain Planner and
Available-to-Promise components based on their flexibility, scalability and ease
of integration with technologies from
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BroadVision, Digeno's other key technology provider. Overall, our software will
enable Digeno's buyers and sellers to collaborate on the procurement, planning
and management of printing projects. Digeno, which is planning to launch in
September 2000, has licensed iCollaboration components to offer its buyers and
sellers value-added services such as available-to-promise information on
printing jobs. Digeno will also offer our software to commercial printers on a
hosted basis, with Digeno acting as an application service provider. This will
allow commercial printers participating in Digeno as sellers to forecast
upcoming projects and efficiently plan their resource utilization accordingly.
PHILIPS SEMICONDUCTORS B.V.
Philips Semiconductors, a division of Royal Philips Electronics, is one of
the world's largest semiconductor suppliers.
THE CHALLENGE. The semiconductor industry is characterized by huge volumes
of operations, long lead times, complex inter-plant dependencies and a high
level of breakdowns, scrap, and rework. Philips wanted to improve its level of
delivery performance and reduce the long cycle times that led to high levels of
work-in-progress inventory at its Albuquerque, New Mexico facility. Philips
needed a state-of-the-art planning solution that could model the complexities of
the semiconductor environment, streamline manufacturing, optimize product mixes,
provide reliable commitments to its customers and relieve bottlenecks in
production.
THE SOLUTION. Our Plant Planner was deployed at the Philips Albuquerque
fabrication facility to help streamline plant-level operations. One year after
implementation of our Plant Planner, Philips reported doubling on-time delivery
performance. Delivery performance increased from roughly 50 percent to over
97 percent. Philips also reported more than 25 percent reduction in cycle times,
as well as a 10 percent reduction in works in progress. Based on the success of
the implementation at its Albuquerque site, Philips announced in November 1999
that it had chosen us to plan, synchronize and optimize additional worldwide
manufacturing operations, including one site in North America and four sites in
Europe.
MITAC INTERNATIONAL CORP.
MiTAC International Corp., headquartered in Taiwan with support sites in the
U.S. and the U.K., designs, builds and markets a diverse range of products such
as high-performance workstations, servers, motherboards, notebook computers and
LCD monitors.
THE CHALLENGE. MiTAC needed a central planning and supply chain system that
would unite management systems across its three facilities in Taiwan, the U.S.
and the U.K. MiTAC's challenges included a lack of visibility into inventories
at all facilities, inadequate inventory controls and access, a lack of supply
chain integration across the three separate sites and a need for faster
materials requirements planning, or MRP, reports.
THE SOLUTION. MiTAC implemented Supply Chain Planner at its home office in
Taiwan and installed Plant Planner in its support facilities in the U.S. and the
U.K. Our software provides MiTAC with real-time reports that register multi-site
consolidated inventory information for all raw and finished materials,
consumption of inventory and in-transit inventory. In addition, Supply Chain
Planner extracts vital information from each site's enterprise resource planning
system and generates customized reports for specific audiences, including
MiTAC's materials planners and key customers. Supply Chain Planner also
facilitates up-to-the-minute MRP reports that can be published over the Internet
for customers to view, providing them with improved visibility into MiTAC's
production processes. Whereas the previous MRP reports took hours to generate
and were only run weekly, our software can run MRP reports across all three
sites in only 15 minutes, allowing reports to be computed daily. Supply Chain
Planner has also enabled synchronization of MiTAC's top 20 most critical
production factors. Since implementing our software, MiTAC has experienced the
following tangible benefits: better on-time delivery performance,
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decreases in excess or obsolete inventories, improved response time to customer
orders, and better communication among remote sites.
FIRMENICH S.A.
Firmenich S.A. is one of the world's leading manufacturers and distributors
of perfumes, aromatic compounds and flavors for the cosmetics and food
industries, with 24 plants and facilities worldwide.
THE CHALLENGE. Firmenich has over 6,000 clients worldwide, generating more
than 1,000 new sales orders a day. Firmenich manufactures products based on
approximately 50,000 different formulas, adding roughly 100 new formulas each
day, and has over 75,000 components in its supply chain and bills-of-materials
containing more than 3 million items. Firmenich sought a comprehensive solution
to optimize its complex supply chain and gain visibility into global operations.
THE SOLUTION. Firmenich licensed our software through QAD, one of our
resellers, in conjunction with purchasing QAD's own enterprise resource planning
software. Firmenich currently uses our software to provide up-to-the-minute
visibility and monitoring via the Internet for inventory levels and work-in-
progress at each of its facilities worldwide. Our joint Adexa-QAD solution was
initially deployed across Firmenich's operations in Geneva, Switzerland and was
later extended to Latin America. Additional implementations are currently being
rolled out. Firmenich plans to leverage our financial optimization capabilities
with a view toward maximizing profits and minimizing overhead costs for
different product groups and sourcing scenarios. Firmenich also plans to use our
software to synchronize its supply chain planning and manufacturing planning
across its plants and facilities worldwide.
STRATEGIC RELATIONSHIPS
We plan to continue to enhance and expand our strategic relationships with
leading consulting and systems integration firms, e-Business infrastructure
providers and value-added resellers. These relationships help us promote the
widespread adoption of our products in different vertical markets through joint
marketing and reseller arrangements.
SYSTEMS INTEGRATORS AND IMPLEMENTATION RELATIONSHIPS
Our consulting and systems integration relationships accelerate
implementation and provide value-added services, including business process
redesign, training and vertical market expertise. We work closely with
third-party consulting and system integration professionals to educate them on
our iCollaboration suite. Our customers use these certified consultants to
implement our software and to offer other value-added services. We currently
have relationships with Andersen Consulting, Arthur Andersen, Compaq
Professional Services, EDS, HP Professional Services, Origin, Spectrum Group and
TRW.
e-BUSINESS INFRASTRUCTURE PROVIDERS
Our relationships with leading providers of e-Business-enabling
infrastructure technologies allow us to take advantage of the rapid growth in
business-to-business e-Commerce and the emergence of new e-Business
opportunities such as public and private exchanges. We leverage the
infrastructure technologies of our e-Business infrastructure partners to deliver
more robust solutions to our customers. We currently have strategic
relationships with Agile, Broadvision, Selectica and Vitria.
VALUE-ADDED RESELLERS
We have value-added reseller agreements for software products with Compaq
Professional Services, Essentus, HP Professional Services, QAD and Western Data
Systems.
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PROFESSIONAL SERVICES
Our portfolio of professional services includes implementation, education
and customer support. As of June 30, 2000, we employed 87 persons in our
professional services operations.
IMPLEMENTATION SERVICES. Our consultants have significant domain expertise,
enabling them to conduct in-depth value assessments and develop business
solution designs prior to live deployment. The consulting team develops a
business model of each customer's supply chain environment and incorporates
customer-specific rules within our software to automate supply chain planning,
optimization and execution. This solution design process also includes
formulating supply chain performance improvement metrics, which can then be
tracked and audited. We have adopted a comprehensive supply chain assessment
program to enable companies to rapidly develop a supply chain performance
scorecard, identify baseline performance, assess business process drivers of
performance and establish attainable target performance based on our business
solution.
EDUCATION SERVICES. We offer comprehensive education and training programs
as well as customized courses designed to address the specific needs of our
clients and partners. To deliver this knowledge efficiently, we offer modular,
content-focused courses based on an instructor-led training methodology that
effectively combines lectures with hands-on exercises. Our education program is
designed for both implementation specialists and end users seeking to become
more familiar with our applications.
CUSTOMER SUPPORT SERVICES. Our Global Support Center in Toronto, Canada has
product and technology experts that help to quickly resolve product issues and
minimize disruptions to our customers' business activities. Annual maintenance
agreements entitle our customers to receive software upgrades and regularly
scheduled maintenance releases. We also provide comprehensive user and reference
manuals, answers to frequently asked questions, conversion roadmap guides and
detailed release notes. Customers may download all of this information and
receive product support from our central Web server. We also offer product
support through a telephone hotline and through on-site support services.
RESEARCH AND DEVELOPMENT
As of June 30, 2000, we employed 60 people in research and development and
technical support. Our primary research and development facility is located in
Toronto, Canada. Our research and development staff is responsible for enhancing
our existing products and services and expanding our product line and services
offered. Our current product development activities focus on new products,
product enhancements and the integration of external services and partner
technology.
We have made substantial investments in research and development. Our
research and development expenses totaled approximately $980,000 for fiscal
1997, $1.7 million for fiscal 1998, $4.5 million for fiscal 1999 and
$3.3 million for the six months ended June 30, 2000, excluding amortization of
stock-based compensation. We intend to continue to make substantial investments
in research and development.
SALES AND MARKETING
As of June 30, 2000, we employed 91 persons in our sales and marketing
department, of which 57 were employed in North America, 20 in Asia and 14 in
Europe. Our direct sales offices are located in the U.S., Germany, Japan,
Singapore, South Korea, Taiwan and the U.K. We focus our sales efforts on Global
2000 companies and electronic exchanges. We sell our products and services
through our direct sales organization, value-added resellers and other strategic
relationships. We target large vertical markets, including the aerospace and
defense, automotive, electronics, semiconductors and textiles and apparel
industries. We are continuing to significantly expand our sales and marketing
organization and to establish additional sales offices.
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During our sales process, we typically target members of senior executive
management, including the chief executive officer, chief financial officer,
chief operating officer, chief information officer and vice presidents of supply
chain management, manufacturing and operations. We utilize local sales teams
consisting of both sales and technical professionals who work with our strategic
partners to create proposals, presentations and demonstrations that address the
specific needs of each potential customer.
We focus our marketing efforts on educating our target vertical markets and
strategic partners, supporting our sales teams and generating new sales
opportunities, and creating awareness of our brand and c-Commerce solution. We
engage in marketing activities such as business seminars, trade shows, public
relations, Web broadcasts and industry analyst programs.
COMPETITION
The c-Commerce solutions market is relatively new, fast growing, competitive
and rapidly changing. We expect competition to persist and intensify in the
future. Competitors vary in size and in the scope and breadth of the products
and services they offer. We believe that our ability to compete depends on many
factors, including:
- functionality and performance;
- scalability;
- flexibility;
- ease and speed of implementation;
- integration with other systems;
- product support services; and
- price.
Although we believe that we currently compete favorably with respect to each
of these factors, our market is relatively new and our c-Commerce software is a
new category of product. In particular, we believe our application suite
provides superior functionality and a faster time-to-benefit in comparison to
competing products. We also believe that our next-generation architecture and
our ability to enable electronic exchanges to offer value added services to
their participants provide us with advantages over our competitors. We currently
face two primary sources of competition:
- in-house development efforts by potential customers or partners; and
- enterprise application vendors including i2 Technologies, J.D. Edwards,
Manugistics, Oracle and SAP.
In addition, we face potential competition from e-Business and electronic
exchange infrastructure providers such as Ariba and Commerce One, as they seek
to extend their product offerings.
Historically, a number of enterprise resource planning vendors have jointly
marketed our products as a complement to their own. However, as we increase our
market share and expand our product offerings, and as enterprise resource
planning vendors expand their own product offerings, we believe our
relationships with these vendors will become more competitive. We believe that
other enterprise resource planning vendors are focusing significant resources on
increasing the functionality of their own planning and scheduling modules.
We may be unable to maintain our competitive position against current and
potential competition, particularly competitors that have longer operating
histories and significantly greater financial, technical, sales and marketing,
and other resources than we do. Also, many current and potential competitors
have greater name recognition, a broader range of products to offer and more
extensive customer bases that
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could be leveraged to gain market share to our detriment. These competitors may
be able to undertake more extensive promotional activities, adopt more
aggressive pricing policies and offer more attractive terms to purchasers than
we can. In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
enhance their products. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share, which could hurt our business. We also expect that competition may
increase as a result of industry consolidation.
LEGAL PROCEEDINGS
We have been, are and may in the future become involved in litigation
relating to claims arising from our ordinary course of business. We believe that
there are no claims or actions pending or threatened against us, the ultimate
disposition of which would have a material adverse effect on us.
INTELLECTUAL PROPERTY
We rely primarily on a combination of copyright, trademark and trade secret
laws, confidentiality procedures and contractual provisions to protect our
proprietary rights. We also seek to avoid disclosure of our intellectual
property by requiring employees and consultants with access to our proprietary
information to execute confidentiality agreements. However, these legal
protections afford only limited protection for our technology. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or to obtain and use information that we regard as
proprietary. Although we believe software piracy may be a problem, we are unable
to determine the extent to which piracy of our software products exists. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as the laws of the United States. Litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets and to determine the validity and scope of the proprietary
rights of others. Our failure to adequately protect our intellectual property
could significantly harm our business and operating results.
We embed third-party software in our products and may continue this
practice. Third-party software licenses may not continue to be available to us
on commercially reasonable terms, if at all. The loss of, or inability to
maintain or obtain, any of these software licenses could delay, reduce or
prevent our product shipments. Any delay or reduction in product shipments could
damage our business, operating results and financial condition.
EMPLOYEES
As of June 30, 2000, we had 261 full-time employees, including 60 primarily
engaged in research and development activities, 91 engaged in sales and
marketing activities, 87 engaged in professional services and 23 in general
administration. Of these employees, 189 were located in the North America, 24 in
Europe and 48 in Asia. None of our employees is represented by collective
bargaining units and we have never experienced a work stoppage. We believe that
our employee relations are good.
FACILITIES
Our primary office is located in approximately 18,400 square feet of space
in Los Angeles, California under a lease expiring in June 2005. We also lease
space for our other offices in the United States, Canada, Germany, Japan,
Singapore, South Korea and Taiwan.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors and key employees of Adexa, and their
ages and positions as of August 24, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- -------- -----------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
K. Cyrus Hadavi, Ph.D..................... 47 President, Chief Executive Officer and Director
Hoon Chung................................ 42 Chief Operating Officer
Udo Dengler............................... 44 Chief Technology Officer
J. Timothy Romer.......................... 39 Chief Financial Officer
David R. Golob(1)......................... 32 Director
William W. Lattin, Ph.D.(2)............... 59 Director
Sam H. Lee(1)(2).......................... 39 Director
William H. Younger, Jr.(1)(2)............. 50 Director
KEY EMPLOYEES
Chris Givens.............................. 37 Vice President of Product Management
Chris Smith............................... 49 Vice President of Development
Shuji Sueshige............................ 50 Country and Sales Manager of Japan
Richard Wolinski.......................... 44 Senior Vice President of North American Sales
</TABLE>
------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
K. CYRUS HADAVI, PH.D., has served as President and Chief Executive Officer
of Adexa since its inception. Prior to founding Adexa, Dr. Hadavi served as
Director of Implementations at i2 Technologies, Inc., a supply chain management
software company, from 1992 to 1994. Dr. Hadavi holds a B.S. in electrical
engineering and a M.S. in industrial management from the University of
Birmingham, UK, a M.S. in computer engineering from the University of
Southampton, UK, and a Ph.D. in computer science from the University of
Michigan.
HOON CHUNG has served as Chief Operating Officer of Adexa since
December 1999. Mr. Chung served as President of Asia Pacific and Executive Vice
President of Professional Services of Adexa from 1997 to 1999. Prior to joining
Adexa, Mr. Chung served as Senior Vice President, Supply Chain Management
Consulting Services, North America at Numetrix Inc., a supply chain management
software company, from 1994 to 1997. Prior to his tenure at Numetrix, Mr. Chung
held senior management positions at Haagen-Dazs Company, Inc., from 1991 to 1994
and the Level Brothers Company, from 1989 to 1991. Mr. Chung holds a B.S. in
civil engineering and operations research from Princeton University and a M.B.A.
in management policy, marketing and operations management from Northwestern
University.
UDO DENGLER has served as Chief Technology Officer of Adexa since
January 1995. Prior to joining Adexa, Mr. Dengler was employed by
Numetrix, Inc., a supply chain management software company, where he was Manager
of Research and Development from 1991 to 1994. Mr. Dengler holds a M.S. in
computer science from the University of Stuttgart, Germany.
J. TIMOTHY ROMER has served as Chief Financial Officer of Adexa since
February 2000. From 1989 to 2000, Mr. Romer was an investment banker with
Merrill Lynch & Co., most recently as a Group Manager and Managing Director.
Mr. Romer holds a B.S. in industrial engineering from Stanford University and a
M.B.A. in entrepreneurial management and finance from the Wharton School of the
University of Pennsylvania.
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<PAGE>
DAVID R. GOLOB has served as a Director of Adexa since July 1997. Since
March 2000, Mr. Golob has been a co-founder and Managing Director of Octane
Capital Management, an investment management firm. From 1997 to February 2000,
Mr. Golob worked for Tiger Management, LLC, an investment management company.
From 1996 to 1997, Mr. Golob worked at Sutter Hill Ventures, a venture capital
firm, and from 1991 to 1996, Mr. Golob worked at General Atlantic Partners, a
private equity investment firm. Mr. Golob holds an A.B., summa cum laude, in
chemistry from Harvard College and an M.B.A from Stanford University.
WILLIAM W. LATTIN, PH.D. has served as a Director of Adexa since
August 2000. Dr. Lattin retired as Executive Vice President of Synopsys, an
electronic design automation software company, in October 1999. Dr. Lattin
served as President and Chief Executive Officer of Logic Modeling from 1992
until its acquisition by Synopsys in 1994. Prior to that, Dr. Lattin served as
the CEO of Logic Automation from 1986 to 1992. Prior to Logic Automation, he was
with Intel from 1975 to 1986. Dr. Lattin left Intel as VP and General Manager of
Intel's System Group. He also serves on the Board of Directors of Synopsys, the
Oregon Graduate Institute, FEI, EasyStreet Online Services, Inc. and is an
active consultant with Vitesse Semiconductor. Dr. Lattin holds a B.S.E.E. and an
M.S.E.E. from the University of California at Berkeley and a Ph.D. in Electrical
Engineering from Arizona State University.
SAM H. LEE has served as a Director of Adexa since June 1998. Since
July 1999, Mr. Lee has been a co-founder and Managing Director of Infinity
Capital, a venture capital firm. Since 1995, Mr. Lee has been a co-founder and
General Partner of Information Technology Ventures, a venture capital firm.
Prior to founding Information Technology Ventures, from 1990 to 1994 he served
as Vice President of Philadelphia Ventures, a venture capital firm. Mr. Lee
serves on the board of directors of E.piphany, a software solutions company, and
several privately held companies. Mr. Lee holds a B.S. in electrical engineering
from Mississippi State University, an M.E. in electrical engineering from Texas
A&M University and an M.B.A. from the Wharton School of the University of
Pennsylvania.
WILLIAM H. YOUNGER, JR. has served as a Director of Adexa since
January 1998. Mr. Younger is a Managing Director of the general partner of
Sutter Hill Ventures, a venture capital management firm, which he joined in
1981. Mr. Younger also sits on the board of directors of Vitria, an e-Business
platform provider company, Virage, Inc., a software company, and several
privately held companies. Mr. Younger holds a B.S., summa cum laude, in
electrical engineering from the University of Michigan and an M.B.A. from
Stanford University.
CHRIS GIVENS has served as Vice President of Product Management of Adexa
since October 1997. Prior to joining Adexa, Mr. Givens served as Manager,
Logistics Strategy Practice at Andersen Consulting from 1992 to 1997. Prior to
his tenure at Andersen Consulting, Mr. Givens was a Consultant for the
Transportation and Operations Department at SRI International, formerly Stanford
Research Institute, a research company, from 1990 to 1992. Mr. Givens holds a
B.S. in mechanical engineering from California State University, Sacramento and
an M.S. in industrial engineering from Stanford University.
CHRIS SMITH has served as Vice President of Development of Adexa since
October 1999. Prior to joining Adexa, Mr. Smith was with Marcam
Solutions, Inc., an asset management and ERP solution provider company, as Vice
President and General Manager from 1998 to 1999, and as Vice President and
Director of Development from 1996 to 1998, and he held several management and
technical positions at IBM Canada Software Development Laboratory in Toronto, a
software company, from 1981 to 1996. Mr. Smith holds an M.S. in astrophysics
from the University of Toronto, Canada.
SHUJI SUESHIGE has served as Country and Sales Manager of Japan of Adexa
since February 1998. Prior to joining Adexa, Mr. Sueshige was Senior Manager for
Global Partners Sales with Informix K.K., a software company, from 1995 until
1998; was a Sales Manager at Tandem Corporation, a computer company, from 1992
to 1995; and was a Sales Manager at Sun Microsystems K.K., a computer company,
from 1988 to 1992. Mr. Sueshige holds a B.E. in mechanical engineering from
Akashi College of Technology, Japan.
53
<PAGE>
RICHARD WOLINSKI has served as Senior Vice President of North American Sales
of Adexa since January 1999. Mr. Wolinski served as Regional Vice President of
Adexa from April 1998 to January 1999. Prior to joining Adexa, Mr. Wolinski
served as Sales Executive of IMI North America, a software company, from 1995 to
1998 and as Divisional Vice President, Client Server Products at Computer
Associates, a software company, from 1992 to 1995.
BOARD OF DIRECTORS
We currently have six authorized director positions and there is currently
one vacancy on the board. Upon the completion of the offering, the terms of the
office of the board of directors will be divided into three classes: Class I,
whose term will expire at the annual meeting of the stockholders to be held in
2001; Class II, whose term will expire at the annual meeting of stockholders to
be held in 2002; and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2003. The Class I director will be K. Cyrus Hadavi;
the Class II directors will be David R. Golob and William W. Lattin; and the
Class III directors will be Sam H. Lee and William H. Younger, Jr. This
classification of the board of directors may have the effect of delaying or
preventing changes in control or management of Adexa. All of our officers serve
at the discretion of the board of directors. There are no family relationships
among our directors and officers.
BOARD COMMITTEES
The board of directors has a Compensation Committee and an Audit Committee.
COMPENSATION COMMITTEE. The Compensation Committee of the board of
directors reviews and makes recommendations to the board of directors regarding
all forms of compensation provided to the executive officers and directors of
Adexa and our subsidiaries, including stock compensation and loans. In addition,
the Compensation Committee reviews and makes recommendations on bonus and stock
compensation arrangements for all of our employees. Following this offering, the
Compensation Committee will administer our 2000 Stock Incentive Plan. The
current members of the Compensation Committee are William W. Lattin, Sam H. Lee
and William H. Younger, Jr.
AUDIT COMMITTEE. The Audit Committee of the board of directors reviews and
monitors the corporate financial reporting and the internal and external audits
of our company, including, among other things, our internal audit and control
functions, the results and scope of the annual audit and other services provided
by our independent auditors and our compliance with legal matters that have a
significant impact on our financial reports. The Audit Committee also consults
with our management and our independent auditors prior to the presentation of
financial statements to stockholders and, as appropriate, initiates inquiries
into aspects of our financial affairs. In addition, the Audit Committee has the
responsibility to consider and recommend the appointment of, and to review fee
arrangements with, our independent auditors. The current members of the Audit
Committee are David R. Golob, Sam H. Lee and William H. Younger, Jr.
DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS
Our directors who are not employees receive no cash payments beyond
reimbursement for expenses. Upon and following this offering, directors will be
eligible for automatic option grants under our 2000 Stock Incentive Plan. In
February 1998, we granted Mr. Golob, one of our directors, an option to purchase
25,000 shares of our common stock at an exercise price of $.15 per share,
subject to our repurchase right. In August 2000, when we appointed Mr. Lattin to
our board of directors, we granted him an option to purchase 25,000 shares of
our common stock at an exercise price of $7.00 per share, subject to our
repurchase right. Mr. Golob's options are immediately exercisable, with
twenty-five percent vesting after each year of service, provided that as of
January 1, 2001 vesting will begin on a monthly basis over the remainder of his
four year vesting schedule. Mr. Lattin's options are immediately exercisable,
with
54
<PAGE>
twenty-five percent vesting after one year and the balance vesting ratably on a
monthly basis for thirty-six months thereafter. See "--Employee Stock
Plans--2000 Stock Incentive Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee is currently or has been,
at any time since our formation, an officer or employee of our company. None of
our executive officers has served as a member of the board of directors or
compensation committee of any entity that has had one or more executive officers
serving as a member of our board of directors or Compensation Committee.
INDEMNIFICATION
In , the board of directors authorized our company to enter into
indemnification agreements with each of our directors. The form of indemnity
agreement provides that we will indemnify against any and all expenses of the
director who incurred these expenses because of his or her status as a director,
to the fullest extent permitted by Delaware law, our certificate of
incorporation and our bylaws.
Our certificate of incorporation and bylaws contain provisions relating to
the limitation of liability and indemnification of directors and officers. The
certificate of incorporation provides that our directors shall not be personally
liable to us or our stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability
- for any breach of the director's duty of loyalty to Adexa or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- in respect of unlawful payments of dividends or unlawful stock repurchases
or redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
- for any transaction from which the director derives any improper personal
benefit.
The certificate of incorporation also provides that if the Delaware General
Corporation Law is amended after the approval by our stockholders of the
certificate of incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of our
directors shall be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law. The foregoing provisions of the certificate of
incorporation are not intended to limit the liability of directors or officers
for any violation of applicable federal securities laws. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, our bylaws
provide that
- we are required to indemnify our directors and executive officers to the
fullest extent permitted by the Delaware General Corporation Law;
- we may, in our discretion, indemnify other officers, employees and agents
as provided by the Delaware General Corporation Law;
- to the fullest extent permitted by the Delaware General Corporation Law,
we are required to advance all expenses incurred by our directors and
executive officers in connection with a legal proceeding, subject to some
exceptions;
- the rights conferred in the bylaws are not exclusive;
- we are authorized to enter into indemnification agreements with our
directors, officers, employees and agents; and
- we may not retroactively amend the bylaws provisions relating to
indemnity.
55
<PAGE>
Our bylaws provide that we shall indemnify our directors to the fullest extent
permitted by Delaware law, including in circumstances in which indemnification
is otherwise discretionary under Delaware law.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned
by our Chief Executive Officer and the two other executive officers who were
serving as executive officers of our company during the fiscal year ended
December 31, 1999, and whose aggregate compensation exceeded $100,000 for
services rendered in all capacities to Adexa and our subsidiaries for that
fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- --------- --------- -------------
<S> <C> <C> <C>
K. Cyrus Hadavi ............................................ $156,250 $ 75,000 --
President and Chief Executive Officer
Hoon Chung ................................................. 250,000 281,720 --
Chief Operating Officer
Udo Dengler ................................................ 148,219 25,000 100,000
Chief Technology Officer
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to each of the named officers during the fiscal year ended December 31,
1999.
The figures representing percentages of total options granted to employees
in the last fiscal year are based on a total of 843,300 option shares granted to
our employees under our 1998 Stock Plan during the fiscal year ended
December 31, 1999.
The amount listed in the column entitled "Exercise Price" is equal to the
fair market value of our common stock, as determined by our board of directors
on the date of grant. In determining the fair market value, the board of
directors considered the purchase price paid by investors for shares of our
preferred stock, taking into account the liquidation preferences and other
rights, privileges and preferences associated with the preferred stock, and our
revenues, operating history and prospects.
We calculated the amounts listed in the column entitled "Potential
Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option
Term" based on the 10-year term of the option at the time of grant. For purposes
of this column, we assumed stock price appreciation of 5% and 10% per year
pursuant to rules promulgated by the Securities and Exchange Commission. These
rates do not represent a prediction of our stock price performance. We
calculated the potential realizable values at 5% and 10% appreciation by
assuming that the estimated fair market value on the date of grant increases at
the indicated rate for the entire term of the option, that the option is
exercised on the last day of its term and that the shares are sold at the
appreciated price. Information on how we determined the fair market value of our
common stock is provided in the preceding paragraph. The price to the public in
this offering is higher than the estimated fair market value on the date of
grant. Therefore, the potential realizable value of the option grant would be
significantly higher than the numbers shown in the table if future stock prices
were projected to the end of the option term by applying the same annual rates
of stock price appreciation to the public offering price.
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<PAGE>
No stock appreciation rights were granted to these individuals during the
fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -------------------
NAME GRANTED 1999 PER SHARE DATE 5% 10%
---- ---------- --------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
K. Cyrus Hadavi......... -- -- -- -- -- --
Hoon Chung.............. -- -- -- -- -- --
Udo Dengler............. 100,000 11.4% $1.95 2/7/09 $122,634 $310,780
</TABLE>
The option granted to Mr. Dengler is exercisable at any time following the
date of grant with respect to the first 51,282 shares and at any time following
January 1, 2000 with respect to the remaining 48,718 shares. All shares subject
to this option were fully vested from the date of grant. The option expires
before the expiration date shown above if Mr. Dengler's service terminates.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the year-end number
and value of unexercised options with respect to each of the named officers. No
options or stock appreciation rights were exercised by the named officers in
fiscal year 1999, and no stock appreciation rights were outstanding at the end
of that year.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
HELD AT FISCAL IN-THE-MONEY OPTIONS
YEAR END AT FISCAL YEAR END
--------------------- -----------------------
NAME UNVESTED VESTED UNVESTED VESTED
---- --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
K. Cyrus Hadavi................................. -- -- -- --
Hoon Chung...................................... 119,564 141,305 $ 358,692 $ 423,915
Udo Dengler..................................... 125,000 1,475,000 375,000 4,425,000
</TABLE>
The "Value of Unexercised In-the-Money Options at Fiscal Year End" is based
on a value of $3.00 per share, the fair market value of our common stock as of
December 31, 1999, as determined by the board of directors, less the per share
exercise price, multiplied by the number of shares issued upon exercise of the
option. All options were granted under our 1998 Stock Plan.
In a letter dated March 3, 1999, we agreed to pay Mr. Dengler cash bonuses
when he exercises options that we granted to him in 1998 under our 1998 Stock
Plan. The aggregate amount of these bonuses will not exceed $145,000. The
bonuses are not reflected in the table above.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
We have not entered into an employment contract with any of the executive
officers named in the summary compensation table above.
57
<PAGE>
The options held by Messrs. Chung and Dengler vest on an accelerated basis
if we are subject to a change in control and within 12 months after the change
in control:
- if the optionee is involuntarily discharged without cause, he receives an
additional 24 months' vesting credit.
- if the optionee resigns because his level of authority or responsibility
was significantly reduced and because his compensation was reduced, then
he also receives an additional 24 months' vesting credit.
- if the optionee resigns because he was asked to relocate his principal
place of employment by more than 50 miles, then he receives an additional
12 months' vesting credit.
EMPLOYEE STOCK PLANS
2000 STOCK INCENTIVE PLAN
SHARE RESERVE. Our board of directors adopted our 2000 Stock Incentive Plan
on August 24, 2000. We have reserved 2,000,000 shares of our common stock for
issuance under the 2000 Stock Incentive Plan. Any shares not yet issued under
our 1998 Stock Plan on the date of this offering will also be available under
the 2000 Stock Incentive Plan. On January 1 of each year, starting with the year
2001, the number of shares in the reserve will automatically increase by 5% of
the total number of shares of common stock that are outstanding at that time or
by 15,000,000 shares, whichever is less. In general, if options or shares
awarded under the 2000 Stock Incentive Plan or the 1998 Stock Plan are
forfeited, then those options or shares will again become available for awards
under the 2000 Stock Incentive Plan. We have not yet granted any options under
the 2000 Stock Incentive Plan.
ADMINISTRATION. Following the date of this offering the compensation
committee of our board of directors will administer the 2000 Stock Incentive
Plan. The committee has the complete discretion to make all decisions relating
to the interpretation and operation of our 2000 Stock Incentive Plan. The
committee has the discretion to determine who will receive an award, what type
of award it will be, how many shares will be covered by the award, what the
vesting requirements will be, and what the other features and conditions of each
award will be. The compensation committee may also reprice outstanding options
and modify outstanding awards in other ways.
ELIGIBILITY. The following groups of individuals are eligible to
participate in the 2000 Stock Incentive Plan:
- employees;
- members of our board of directors who are not employees; and
- consultants.
TYPES OF AWARDS. The 2000 Stock Incentive Plan provides for the following
types of awards:
- incentive stock options to purchase shares of our common stock;
- nonstatutory stock options to purchase shares of our common stock; and
- restricted shares of our common stock.
OPTIONS. An optionee who exercises an incentive stock option may qualify
for favorable tax treatment under Section 422 of the Internal Revenue Code of
1986. Nonstatutory stock options, however, do not qualify for such favorable tax
treatment. The exercise price for incentive stock options granted under the 2000
Stock Incentive Plan may not be less than 100% of the fair market value of our
common stock on the option grant date. In the case of nonstatutory stock
options, the minimum exercise price is 50% of the fair
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<PAGE>
market value of our common stock on the option grant date. Optionees may pay the
exercise price by using:
- cash;
- shares of common stock that the optionee already owns;
- a full-recourse promissory note;
- an immediate sale of the option shares through a broker designated by us;
or
- a loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by the compensation committee.
In most cases, our options vest over the four-year period following the date of
grant. Options generally expire 10 years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
2000 Stock Incentive Plan provides that no participant may receive options
covering more than 2,000,000 shares in the same year, except that a newly hired
employee may receive options covering up to 4,000,000 shares in the first year
of employment.
RESTRICTED SHARES. Restricted shares may be awarded under the 2000 Stock
Incentive Plan in return for:
- cash;
- a full-recourse promissory note; or
- services provided to us or to be provided to us.
Restricted shares vest at the time or times determined by the compensation
committee.
CHANGE IN CONTROL. If a change in control of Adexa occurs, an option or
restricted stock award under the 2000 Stock Incentive Plan may vest on an
accelerated basis to the extent determined by the compensation committee. The
compensation committee may determine that outstanding grants will vest in full
or in part at the time of the change in control. It may also determine that the
grants will vest on an accelerated basis only if the participant is actually or
constructively discharged within a specified period of time after the change in
control. Finally, the committee may determine that the grants will remain
outstanding without acceleration of vesting. However, if the surviving
corporation fails to assume an outstanding option or replace it with a
comparable option, then the option will always become fully vested as a result
of the change in control. A change in control includes:
- a merger of Adexa after which our own stockholders own 50% or less of the
surviving corporation or its parent company;
- a sale of all or substantially all of our assets;
- a proxy contest that results in the replacement of at least one-half of
our directors over a 24-month period; or
- an acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to Adexa, such as a holding company
owned by our stockholders.
AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS. Each non-employee director who
first joins our board after the effective date of this offering will receive an
initial option for 25,000 shares. That grant will occur when the director takes
office. The initial options vest in equal annual installments over the four-year
period following the date of grant. At the time of each of our annual
stockholders' meetings, beginning in 2001, each non-employee director who will
continue to be a director after that meeting will automatically be granted an
annual option for 6,000 shares of our common stock. However, a new non-employee
director who is receiving the 25,000-share initial option will not receive the
6,000-share annual option in the same
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<PAGE>
calendar year. The annual options vest in full one year following the date of
grant. The exercise price of each non-employee director's option will be equal
to the fair market value of our common stock on the option grant date. A
director may pay the exercise price by using cash, shares of common stock that
the director already owns, or an immediate sale of the option shares through a
broker designated by us. The non-employee directors' options expire after
10 years, or one year after a director leaves the board, whichever is earlier. A
non-employee director's option granted under the 2000 Stock Incentive Plan will
become fully vested if a change in control of Adexa occurs and the director does
not serve on the board of the surviving corporation for at least 12 months.
Vesting also accelerates in the event of the director's death, disability or
retirement after age 65.
AMENDMENTS OR TERMINATION. Our board may amend or terminate the 2000 Stock
Incentive Plan at any time. If our board amends the plan, it does not need to
ask for stockholder approval of the amendment unless applicable law requires it.
The 2000 Stock Incentive Plan will continue in effect indefinitely, unless the
board decides to terminate the plan.
2000 EMPLOYEE STOCK PURCHASE PLAN
SHARE RESERVE AND ADMINISTRATION. Our board of directors adopted our 2000
Employee Stock Purchase Plan on August 24, 2000. Our 2000 Employee Stock
Purchase Plan is intended to qualify under Section 423 of the Internal Revenue
Code. We have reserved 750,000 shares of our common stock for issuance under the
plan. On May 1 of each year, starting with the year 2001, the number of shares
in the reserve will be increased by the number of shares that have been issued
under the 2000 Employee Stock Purchase Plan during the prior 12-month period.
The compensation committee of our board of directors will administer the plan.
ELIGIBILITY. All of our employees are eligible to participate if we employ
them for more than 20 hours per week and for more than five months per year.
Eligible employees may begin participating in the 2000 Employee Stock Purchase
Plan at the start of any offering period. Each offering period lasts 24 months.
Overlapping offering periods start on May 1 and November 1 of each year.
However, the first offering period will start on the effective date of this
offering and end on October 31, 2002.
AMOUNT OF CONTRIBUTIONS. Our 2000 Employee Stock Purchase Plan permits each
eligible employee to purchase common stock through payroll deductions. Each
employee's payroll deductions may not exceed 15% of the employee's salary, bonus
and commissions. Purchases of our common stock will occur on April 30 and
October 31 of each year. Each participant may purchase up to 5,000 shares on any
purchase date, but no more than 10,000 shares per year. The value of the shares
purchased in any calendar year, measured as of the beginning of the applicable
offering period, may not exceed $25,000.
PURCHASE PRICE. The price of each share of common stock purchased under our
2000 Employee Stock Purchase Plan will be 85% of the lower of:
- the fair market value per share of common stock on the date immediately
before the first day of the applicable offering period, or
- the fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the plan
will be 85% of the lower of:
- the price per share to the public in this offering, or
- the fair market value per share of common stock on the purchase date.
OTHER PROVISIONS. Employees may end their participation in the 2000
Employee Stock Purchase Plan at any time. Participation ends automatically upon
termination of employment with Adexa. If a change in control of Adexa occurs,
our 2000 Employee Stock Purchase Plan will end and shares will be purchased with
the payroll deductions accumulated to date by participating employees, unless
the surviving corporation or its parent assumes the plan. Our board of directors
may amend or terminate the plan at any time. If our board increases the number
of shares of common stock reserved for issuance under the plan, except for the
automatic increases described above, it must seek the approval of our
stockholders. The 2000 Employee Stock Purchase Plan will continue in effect for
20 years, unless the board decides to terminate the plan earlier.
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<PAGE>
RELATED PARTY TRANSACTIONS
EQUITY FINANCINGS
Since our inception we have financed our growth primarily through the sale
of preferred stock, resulting in the issuance of an aggregate of 4,130,170
shares of Series A convertible preferred stock at a purchase price of $1.18 per
share, 2,492,424 shares of Series B convertible preferred stock at a purchase
price of $3.30 per share, and 1,574,801 shares of Series C redeemable
convertible preferred stock at a purchase price of $12.70 per share. The buyers
of our Series A convertible preferred stock, Series B convertible preferred
stock and Series C redeemable convertible preferred stock included the following
directors, executive officers and 5% stockholders.
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
--------------------------------
SERIES A SERIES B SERIES C
--------- --------- --------
<S> <C> <C> <C>
DIRECTORS
William H. Younger, Jr.(1).................................. 276,086 24,922 8,287
William W. Lattin........................................... 42,356 -- --
ENTITIES AFFILIATED WITH DIRECTORS AND 5% STOCKHOLDERS
Entities Associated with Sutter Hill Ventures(2)............ 3,160,750 283,469 108,709
Entities Associated with Information Technology
Ventures(3)............................................... -- 1,818,182 59,055
</TABLE>
------------------------
(1) Includes investments made by Sutter Hill Associates which will have been
distributed to its partners prior to the date of this offering.
(2) William H. Younger, Jr., one of our directors, is a managing director of the
general partner of venture funds associated with Sutter Hill Ventures.
(3) Sam H. Lee, one of our directors, is a managing member of venture funds
associated with Information Technology Ventures.
On August 24, 2000, we sold an aggregate of 1,574,801 shares of our
Series C redeemable convertible preferred stock at a price of $12.70 per share
to a group of investors including J. & W. Seligman & Co., Amerindo Investment
Advisors, Vitria Technology, Inc., entities associated with Sutter Hill
Ventures, Information Technology Ventures II, L.P. and DRW Venture Partners
L.P., an affiliate of Dain Rauscher Incorporated, one of the underwriters of
this offering. This sale of our Series C redeemable convertible preferred stock
yielded gross proceeds to us of approximately $20.0 million. The Series C
redeemable convertible preferred stock will convert into shares of our common
stock upon the consummation of this offering. William H. Younger, Jr., one of
our directors, is a member of the board of directors of Vitria Technology, Inc.
AGREEMENTS WITH DIRECTORS AND OFFICERS AND INDEBTEDNESS OF MANAGEMENT
We made a loan of $200,000 to K. Cyrus Hadavi, our President and Chief
Executive Officer, evidenced by a promissory note dated July 31, 1997. The loan
is secured by a pledge of 1,694,920 shares of our common stock owned by
Dr. Hadavi. We have no recourse against other assets of Dr. Hadavi. The loan
bears interest at the rate of 5% per year and is payable in full on or before
July 31, 2002. In 1998, we offset a $30,000 debt that we owed to Dr. Hadavi
against the loan, reducing the loan balance to $170,000. The highest outstanding
balance since January 1999 including accrued interest was $178,500. As of
June 30, 2000, the loan balance including accrued interest was $174,250.
We made an unsecured loan of $300,000 to Udo Dengler, our Chief Technology
Officer, evidenced by a promissory note dated May 19, 2000. The loan bears
interest at the rate of 5% per year and is payable in
61
<PAGE>
full on or before May 19, 2008 or, if earlier, when Mr. Dengler's employment
terminates. As of June 30, 2000, the loan balance including accrued interest was
$301,708.
In addition, we have granted options and other arrangements to attract,
retain and provide incentive to our directors and executive officers. These
transactions are described in "Management."
INDEMNIFICATION
We have entered into an indemnification agreement with each of our
directors. See "Management--Indemnification" for a description of the
indemnification available to our officers and directors under our Certificate of
Incorporation, to be effective after the closing of this offering, and our
bylaws.
We believe that all of the transactions presented above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors on the board of directors, and will continue to
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.
62
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below presents selected information regarding beneficial ownership
of our outstanding common stock as of August 24, 2000, and as adjusted to
reflect the sale of common stock being sold in this offering by us, for the
following individuals:
- each person who is known by us to own beneficially more than 5% of our
common stock,
- each of our directors,
- our chief executive officer and our three other highest-paid executive
officers, and
- all of our executive officers and directors as a group.
The information below assumes no exercise of the underwriters'
over-allotment option and is based upon 18,912,431 shares outstanding prior to
the offering and shares outstanding after the offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Common stock subject to options currently
exercisable within 60 days of August 24, 2000 is deemed outstanding for purposes
of computing the percentage ownership of the person holding the option but is
not deemed outstanding for purposes of computing the percentage ownership of any
other person. Except where indicated, and subject to community property laws
where applicable, the persons in the table above have sole voting and investment
power with respect to all common stock shown as beneficially owned by them.
Unless otherwise indicated, the address of each of the individuals listed in the
table is c/o Adexa, Inc., 5933 West Century Boulevard, Twelfth Floor, Los
Angeles, CA 90045.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
-------------------
TOTAL NUMBER OF BEFORE AFTER
NAME AND ADDRESS SHARES OFFERING OFFERING
---------------- --------------- -------- --------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
K. Cyrus Hadavi(1)..................................... 8,700,000 46.0%
Udo Dengler(2)......................................... 1,605,000 7.8
Hoon Chung(3).......................................... 560,869 2.9
J. Timothy Romer(4).................................... 175,000 *
David R. Golob......................................... 33,474 *
William W. Lattin(5)................................... 67,356 *
Sam H. Lee(6).......................................... 1,877,237 9.9
William H. Younger, Jr.(7)............................. 3,552,928 18.8
All directors and officers as a group(8 persons)(8).... 16,571,864 77.8
OTHER 5% SHAREHOLDERS:
Funds affiliated with Sutter Hill Ventures(9).......... 3,552,928 18.8
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
Funds affiliated with Information Technology
Ventures(10)......................................... 1,877,237 9.9
100 Hamilton Avenue
Suite 400
Palo Alto, CA 94301
Kameron Hadavi......................................... 1,000,000 5.3
</TABLE>
------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of our common stock.
63
<PAGE>
(1) Includes 435,000 shares owned by the S. Hadavi Trust, 435,000 shares owned
by the C. Hadavi Trust, 50,000 shares owned by the R. S. Hadavi Trust, and
50,000 shares owned by the R. C. Hadavi Trust.
(2) Includes 1,600,000 shares subject to options that are exercisable within
60 days of August 24, 2000. Also includes 5,000 shares subject to options
that are exercisable within 60 days of August 24, 2000, that are owned by
Mr. Dengler's wife, Cordula Dengler.
(3) Includes 560,869 shares subject to options that are exercisable within
60 days of August 24, 2000.
(4) Includes 175,000 shares subject to options that are exercisable within
60 days of August 24, 2000.
(5) Includes 25,000 shares subject to options that are exercisable within
60 days of August 24, 2000.
(6) Includes 1,808,380 shares owned by Information Technology Ventures II,
L.P., and 68,857 shares owned by ITV Affiliates Fund II, L.P. Mr. Lee, a
managing member of each of these entities, disclaims beneficial ownership
in such shares, except to the extent of his pecuniary interest in each of
the limited partnerships.
(7) Includes 2,224,837 shares owned by Sutter Hill Ventures, 22,005 shares
owned by Sutter Hill Entrepreneurs Fund (AI), LP, 55,716 shares owned by
Sutter Hill Entrepreneurs Fund (QP), LP, and 1,250,370 shares held by other
parties affiliated with Sutter Hill Ventures, including 309,295 shares held
by William H. Younger Jr., Trustee, The Younger Living Trust. Mr. Younger
is a managing director of the general partner of Sutter Hill Ventures and
disclaims beneficial ownership of the shares held by these entities except
to the extent of his proportionate partnership interest therein.
(8) Includes 2,395,369 shares subject to options that are exercisable within
60 days of August 24, 2000.
(9) Includes 2,224,837 shares owned by Sutter Hill Ventures, 22,005 shares
owned by Sutter Hill Entrepreneurs Fund (AI), LP, 55,716 shares owned by
Sutter Hill Entrepreneurs Fund (QP), LP, and 1,250,370 shares held by other
parties affiliated with Sutter Hill Ventures. Sutter Hill Ventures
disclaims voting power and beneficial ownership to the shares held by its
affiliated parties.
(10) Includes 1,808,380 shares owned by Information Technology Ventures II,
L.P., and 68,857 shares owned by ITV Affiliates Fund II, L.P.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
On the closing of this offering, our authorized capital stock will consist
of 125,000,000 shares of common stock, no par value, and 10,000,000 shares of
preferred stock, no par value.
COMMON STOCK
As of August 24, 2000, there were 18,912,431 shares of common stock
outstanding that were held of record by approximately 89 stockholders after
giving effect to the conversion of our preferred stock into common stock on a
one-for-one basis. As of August 24, 2000, there were 5,082,143 shares of common
stock subject to outstanding options, all of which are currently exercisable.
There will be shares of common stock outstanding after giving effect to the
sale of the shares of common stock to the public offered by us and the
conversion of our preferred stock into common stock on a one-for-one basis,
assuming no exercise of the underwriters' over-allotment option and assuming no
exercise after August 24, 2000 of outstanding options or warrants.
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive dividends, if any, as may be declared from time to time by
the board of directors out of funds legally available for that purpose. In the
event of our liquidation, dissolution, or winding up, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued on
completion of this offering will be fully paid and nonassessable.
PREFERRED STOCK
On the closing of this offering, 10,000,000 shares of preferred stock will
be authorized and no shares will be outstanding. The board of directors has the
authority to issue the preferred stock in one or more series and to fix their
rights, preferences, privileges and restrictions, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of the series, without further vote or action by
the stockholders. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of us without further
action by the stockholders and may adversely affect the voting and other rights
of the holders of common stock. The issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of common
stock, including the loss of voting control to others. At present, we have no
plans to issue any of our preferred stock.
REGISTRATION RIGHTS
After this offering, the holders of approximately 18,425,407 shares of
common stock and rights to acquire common stock will be entitled to various
rights with respect to the registration of those shares under the Securities
Act. Under the terms of the agreement between us and the holders of these
registrable securities, if we propose to register any of our securities under
the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, these holders are entitled to
notice of any registration and may be entitled to include their shares of common
stock in that registration. Additionally, these holders are also entitled to
demand registration rights, which may require us on up to two occasions to
file a registration statement under the Securities Act at our expense with
respect to their shares of common stock, and we are required to use all
reasonable efforts to effect registration of those shares.
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<PAGE>
Further, these holders may require us to file an unlimited number of
additional registration statements on Form S-3 at our expense. All of these
registration rights terminate upon the earlier of (i) five (5) years following
the consummation of our initial public offering, or (ii) after we have completed
our initial public offering, the date on which the holder holds less than one
percent of our outstanding common stock and the holder may sell all of its
registrable securities under Rule 144 in any ninety day period. All of these
registration rights are subject to various conditions and limitations, among
them the right of the underwriters of an offering to limit the number of shares
included in any registration and our right not to effect a requested
registration within 180 days following the initial offering of our securities.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
GENERAL. Provisions of Delaware law and our certificate of incorporation
and bylaws could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, control of us. Such
provisions could limit the price that investors might be willing to pay in the
future for shares of our common stock. These provisions of Delaware law and the
certificate of incorporation and bylaws may also have the effect of discouraging
or preventing transactions involving an actual or threatened change of control
of us, including unsolicited takeover attempts, even though such a transaction
may offer our stockholders the opportunity to sell their stock at a price above
the prevailing market price.
DELAWARE TAKEOVER STATUTE. We are subject to the "business combination"
provision of Section 203 of the Delaware General Corporation Law. Subject to
exceptions, Section 203 prohibits a publicly-held Delaware corporation,
including those whose securities are listed on the Nasdaq National Market, from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder obtained interested stockholder status;
- upon consummation of the transaction that resulted in the stockholders
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and also
officers and (b) 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
- on or subsequent to the date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to exceptions, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years did own, 15% or more
of the corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.
A Delaware corporation may "opt out" of DGCL Section 203 with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from amendments approved
by the holders of at least a majority of the corporation's outstanding voting
shares. We have not "opted out" of the provisions of DGCL Section 203.
CERTIFICATE OF INCORPORATION AND BYLAWS. Provisions of the bylaws and the
amended and restated certificate of incorporation provide that the stockholders
may amend the bylaws or provisions of the amended and restated certificate of
incorporation only with the affirmative vote of two thirds of our capital
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<PAGE>
stock. These provisions of the amended and restated certificate of incorporation
and bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of Adexa. These provisions are intended to enhance
the likelihood of continuity and stability in the composition of the board of
directors and in the policies formulated by the board of directors and to
discourage some types of transactions that may involve an actual or threatened
change of control of Adexa. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal. The provisions also are
intended to discourage tactics that may be used in proxy fights. However, these
provisions could have the effect of discouraging others from making tender
offers for our shares and, as a consequence, they also may inhibit fluctuations
in the market price of our shares that could result from actual or rumored
takeover attempts. These provisions also may have the effect of preventing
changes in our management.
CLASSIFIED BOARD OF DIRECTORS.
Our board will be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the board of directors
will be elected each year. These provisions are likely to increase the time
required for stockholders to change the composition of our board of directors.
For example, in general at least two annual meetings will be necessary for
stockholders to effect a change in the majority of our board of directors.
Subject to the rights of the holders of any outstanding series of preferred
stock, the certificate of incorporation authorizes only the board of directors
to fill vacancies, including newly created directorships. The certificate of
incorporation also provides that directors may be removed by stockholders only
for cause and only by affirmative vote of holders of two-thirds of the
outstanding shares of voting stock.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. The certificate of
incorporation provides that stockholders may not take action by written consent,
but may only take action at duly called annual or special meetings of
stockholders. The certificate of incorporation further provides that special
meetings of our stockholders may be called only by the chairman of the board of
directors or a majority of the board of directors. This limitation on the right
of stockholders to call a special meeting could make it more difficult for
stockholders to initiate actions that are opposed by the board of directors.
These actions could include the removal of an incumbent director or the election
of a stockholder nominee as a director. They could also include the
implementation of a rule requiring stockholder ratification of specific
defensive strategies that have been adopted by the board of directors with
respect to unsolicited takeover bids. In addition, the limited ability of the
stockholders to call a special meeting of stockholders may make it more
difficult to change the existing board and management.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.
NASDAQ NATIONAL MARKET LISTING
We have requested approval to list our common stock on The Nasdaq Stock
Market's National Market under the symbol "ADXA."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is , and
its telephone number is .
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common
stock outstanding assuming no exercise of the underwriters' over-allotment
option and no exercise of options after August 24, 2000. Of this amount, all of
the shares offered by us in this offering will be available for
immediate sale in the public market as of the date of this prospectus, other
than shares purchased by our "affiliates," as that term is defined in Rule 144
under the Securities Act. This leaves 18,912,431 shares eligible for sale into
the public market as follows:
ELIGIBILITY OF SHARES FOR SALE IN THE PUBLIC MARKET
<TABLE>
<CAPTION>
APPROXIMATE
SHARES
ELIGIBLE FOR
RELEVANT DATES FUTURE SALE COMMENT
-------------- -------------- -------------------------------------
<S> <C> <C>
On effective date.................... Freely tradable shares sold in
offering and shares salable under
Rule 144(k) that are not subject to
180-day lock-up
180 days after effective date........ 17,337,630 Lock-up and market stand-off
provisions released; additional
shares salable under Rule 144, 144(k)
or 701
More than 180 days after effective 1,574,801 Additional shares salable under Rule
date............................... 144 more than 180 days after the
effective date
</TABLE>
LOCK-UP AGREEMENTS AND MARKET STAND-OFF PROVISIONS
All or substantially all of our employees, directors and stockholders are
subject to lock-up agreements or market stand-off provisions under which they
have agreed not to transfer or dispose of, directly or indirectly, any shares of
common stock or any securities convertible into or exercisable or exchangeable
for shares of common stock, for a period of 180 days after the date of this
prospectus. Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated may, however, in their sole discretion, at any time, without
notice, release all or any portion of the shares subject to lock-up agreements
to which they are parties. However, we may, without their consent, grant options
and sell shares pursuant to our stock plans.
RULE 144
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this prospectus a number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of common stock (approximately
shares immediately after the offering) or (ii) the average weekly
trading volume during the four calendar weeks preceding that sale, subject to
the filing of a Form 144 with respect to that sale. A person (or persons whose
shares are aggregated) who is not deemed to have been one of our affiliates at
any time during the 90 days immediately preceding the sale who has beneficially
owned his or her shares for at least two years is entitled to sell their shares
pursuant to Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under
Rule 144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers, and other factors. Prior to this
offering, there has been no public market for the common stock, and there can be
no
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<PAGE>
assurance that a significant public market for the common stock will develop or
be sustained after the offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock sold in this offering.
RULE 701
Some of our employees or consultants who purchased their shares under the
1998 Stock Plan or pursuant to a written compensatory plan or contract are
entitled to rely on the resale provisions of Rule 701, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with the Rule 144 holding period restrictions, in each case commencing
90 days after the date of this prospectus.
REGISTRATION OF SHARES ISSUED UNDER OUR EMPLOYEE BENEFIT PLANS
As of August 24, 2000, options to purchase 5,082,143 shares of our common
stock were issued and outstanding. No shares have been issued to date under our
2000 Stock Employee Stock Purchase Plan. We intend to file a registration
statement on Form S-8 under the Securities Act to register 2,750,000 shares of
common stock subject to outstanding stock options or reserved for issuance under
the 2000 Stock Incentive Plan and the 2000 Employee Stock Purchase Plan within
180 days after the date of this prospectus. We also intend to file a
registration statement on Form S-8 to register approximately 49,750 shares of
common stock subject to outstanding stock options or reserved for issuance under
the 1998 Stock Plan. These registration statements will permit the resale of
these shares by nonaffiliates in the public market without restriction under the
Securities Act.
REGISTRATION RIGHTS
After this offering, the holders of approximately 18,425,407 shares of our
common stock and rights to acquire common stock, or their transferees, will be
entitled to rights with respect to registration of their shares under the
Securities Act. Registration of these shares under the Securities Act would
result in these shares becoming freely tradable without restriction under the
Securities Act (except for shares purchased by our affiliates) immediately upon
the effectiveness of their registration. See "Description of Capital
Stock--Registration Rights" for a more complete description of these
registration rights.
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<PAGE>
UNDERWRITING
Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as joint bookrunners, and Dain Rauscher Incorporated are the
representatives of the underwriters. As joint bookrunners, Chase
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated will have
shared responsibility for managing this offering. Subject to the terms and
conditions of the underwriting agreement, the underwriters named below, through
their representatives, have severally agreed to purchase from us the following
respective numbers of shares of common stock.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Chase Securities Inc........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Dain Rauscher Incorporated..................................
------
Total...................................................
======
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to conditions precedent, including the absence of any material
adverse change in our business and the receipt of various certificates, opinions
and letters from us, our counsel and the independent auditors. The underwriters
are committed to purchase all of the shares offered by us if they purchase any
shares.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters in connection with this offering.
Such amounts are shown assuming both no exercise and full exercise of the
underwriters' over allotment option to purchase additional shares.
<TABLE>
<CAPTION>
PAID BY ADEXA
-------------------
NO FULL
EXERCISE EXERCISE
-------- --------
<S> <C> <C>
Per Share............................................... $ $
Total................................................... $ $
</TABLE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $ million.
The underwriters propose to offer the shares directly to the public at the
initial public offering price set forth on the cover page of this prospectus and
to various dealers at that price less a concession not in excess of $ per
share. The underwriters may allow and such dealers may re-allow a concession not
in excess of $ per share to various other dealers. If all of the shares are
not sold at the initial public offering price, the representatives may change
the offering price and other selling terms.
We have granted to the underwriters an option, exercisable no later than
30 days after the date of this prospectus, to purchase up to additional
shares of common stock at the initial public offering price, less the
underwriting discount set forth on the cover page of the prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage of these
option shares which the number of shares of common stock to be purchased by it
shown in the above table bears to the total number of shares of common stock
offered by this prospectus. We will be obligated, pursuant to this option, to
sell shares to the underwriters to the extent the option is exercised. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of shares of common stock in this offering.
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<PAGE>
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
We have agreed to indemnify the underwriters against liabilities specified
in the underwriting agreement, including liabilities under the Securities Act,
and to contribute to payments the underwriters may be required to make in
respect of these liabilities.
Our officers and directors and all or substantially all of our stockholders
have agreed that they will not, without the prior written consent of Chase
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, directly
or indirectly, offer, sell, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose of any shares of
capital stock, options or warrants to acquire shares of capital stock or
securities exchangeable for or convertible into shares of capital stock owned by
them or any other rights to purchase or acquire capital stock for a period of
180 days following the effective date of the registration statement that
includes this prospectus. We have agreed that we will not, without the prior
written consent of Chase Securities Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, offer, sell or otherwise dispose of any shares of capital
stock, options or warrants to acquire shares of capital stock or securities
exchangeable for or convertible into shares of capital stock for a period of
180 days following the date of this prospectus, except that we may issue shares
upon the exercise of options granted prior to the date of this prospectus and
may grant additional options or sell additional shares under our stock option or
stock purchase plans. Without the prior written consent of Chase
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, any
additional options granted shall not be exercisable during this 180-day period.
In connection with this offering, the underwriters may effect transactions
that could have the effect of raising or maintaining, or preventing or retarding
a decline in, the market price of our shares. As a result, the price of our
shares may be higher than the price that might otherwise exist in the open
market. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
In particular, the underwriters may make short sales of our shares and may
purchase our shares on the open market to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. Covered short sales
are sales made in an amount not greater than the over-allotment option. The
underwriters may close out any covered short position by either exercising their
over-allotment option or purchasing shares in the open market. In determining
the source of shares to close out the covered short position, the underwriters
will consider, among other things, the price of shares available for purchase in
the open market as compared to the price at which they may purchase shares
through the over-allotment option. Naked short sales are sales in excess of the
over-allotment option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after pricing that could
adversely affect investors who purchase in this offering.
In addition, an underwriter may enter a stabilizing bid in connection with
the offering, which is the placing of any bid or effecting of any purchase, for
the purposes of pegging, fixing or maintaining the price of the shares. The
underwriters may also impose penalty bids, which permit them to reclaim the
selling concession from a syndicate member when shares sold by the syndicate
member are purchased in syndicate covering transactions. Any stabilizing, if
commenced, may be discontinued at any time.
The underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority that exceed 5% of the total number of shares of
common stock offered by them.
Prior to this offering, there has been no public market for our shares. The
initial public offering price for the shares will be determined by negotiations
among us and the representatives. Among the factors considered in determining
the initial public offering will be prevailing market and economic conditions,
71
<PAGE>
our revenue, the prospects for our future earnings, market valuations of other
companies engaged in activities similar to our business operations and our
management. The estimated initial public offering price range set forth on the
cover of this preliminary prospectus is subject to change as a result of market
conditions or other factors.
At our request, the underwriters have reserved up to shares of common
stock for sale at the initial public offering price to our directors, officers,
employees, business associates and related persons. The number of shares of
common stock available for sale to the general public will be reduced if such
persons purchase the reserved shares. Any reserved shares which are not so
purchased may be offered by the underwriters to the general public on the same
basis as the other shares offered by this prospectus.
As of August 24, 2000, we sold 1,574,801 shares of our Series C redeemable
convertible preferred stock in a private placement at a price of $12.70 per
share. In this private placement, DRW Venture Partners L.P., an affiliate of
Dain Rauscher Incorporated, one of the underwriters of this offering, purchased
59,055 shares of Series C redeemable convertible preferred stock, all on the
same terms as the other investors in the private placement.
LEGAL MATTERS
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California will pass upon the validity of the common stock in this offering for
Adexa. Simpson Thacher & Bartlett, New York, New York, will pass upon legal
matters in connection with this offering for the underwriters. As of the date of
this prospectus, some members and employees of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP beneficially owned an aggregate of 7,259
shares of our stock.
EXPERTS
The financial statements included in this prospectus and the related
financial statement schedule included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
72
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act relating to
the common stock offered by us. This prospectus does not contain all of the
information presented in the registration statement and the exhibits and
schedules to the registration statement. For further information about Adexa and
the common stock that we are offering, reference is made to the registration
statement and the exhibits and schedules filed as a part of the registration
statement. Statements contained in this prospectus concerning the contents of
any contract or any other document referred to are not necessarily complete and
summarize only the provisions of these documents that are material to investors.
You should refer to the exhibits to this registration statement for the complete
contents of these contracts and documents. Each statement is qualified by
reference to that exhibit. The registration statement, including the exhibits
and schedules, may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission in Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of
the document may be obtained from that office after payment of fees prescribed
by the Securities and Exchange Commission. The Securities and Exchange
Commission maintains a world wide Web site that contains reports, proxy and
information statements and other information regarding registrants, including
us, that file electronically with the Securities and Exchange Commission at
http://www.sec.gov.
73
<PAGE>
ADEXA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999
and June 30, 2000......................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999,
and the Six Months Ended June 30, 1999 (unaudited) and
June 30, 2000............................................. F-4
Consolidated Statement of Stockholders Equity (Deficit) for
the Years Ended December 31, 1997, 1998 and 1999, and the
Six Months Ended June 30, 2000............................ F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999, and the Six Months Ended
June 30, 1999 (unaudited) and June 30, 2000............... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Adexa, Inc.:
We have audited the accompanying consolidated balance sheets of Adexa, Inc.
and subsidiaries (the "Company") as of December 31, 1998 and 1999 and June 30,
2000, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
December 31, 1999 and the six months ended June 30, 2000. 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 of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1998 and 1999 and June 30, 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 and the six months ended June 30, 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
August 24, 2000
F-2
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 2000
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 2000
--------------------------- ---------------------------
1998 1999 ACTUAL PRO FORMA
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 1,285,736 $ 6,231,569 $ 3,604,492 $ 23,604,465
Short-term investments................................. 3,138,292
Accounts receivable, net of allowance for doubtful
accounts of $480,000, $528,000, and $863,771 as of
December 31, 1998 and 1999 and June 30, 2000......... 2,327,548 4,448,375 9,521,793 9,521,793
Prepaid and other current assets....................... 110,412 189,306 420,439 420,439
------------ ------------ ------------ ------------
Total current assets............................. 6,861,988 10,869,250 13,546,724 33,546,697
------------ ------------ ------------ ------------
Property and Equipment, Net.............................. 997,220 1,149,455 1,840,498 1,840,498
Loans Receivable from Related Parties.................... 226,500 214,556 510,306 510,306
Other Assets............................................. 96,469 113,749 163,712 163,712
------------ ------------ ------------ ------------
Total Assets............................................. $ 8,182,177 $ 12,347,010 $ 16,061,240 $ 36,061,213
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Line of credit......................................... $ 2,100,000 $ 5,000,000 $ 1,063,225 $ 1,063,225
Accounts payable....................................... 212,551 969,321 2,333,914 2,333,914
Accrued wages and related liabilities.................. 742,308 2,393,372 2,741,477 2,741,477
Accrued expenses and other current liabilities......... 110,370 1,139,069 2,780,705 2,780,705
Accrued taxes payable.................................. 1,440,870 1,841,633 1,841,633
Deferred revenues...................................... 781,482 2,012,149 7,881,619 7,881,619
Current portion of capital lease obligations........... 109,428 123,286 155,030 155,030
------------ ------------ ------------ ------------
Total current liabilities........................ 4,056,139 13,078,067 18,797,603 18,797,603
------------ ------------ ------------ ------------
Capital Lease Obligations................................ 237,951 117,406 176,811 176,811
------------ ------------ ------------ ------------
Total Liabilities........................................ 4,294,090 13,195,473 18,974,414 18,974,414
------------ ------------ ------------ ------------
Commitments and Contingencies
Stockholders' Equity (Deficit):
Series A preferred stock, no par value; 4,358,186
shares authorized; 4,130,170 shares issued and
outstanding as of December 31, 1998 and 1999 and
June 30, 2000; no shares issued and outstanding as of
June 30, 2000 (unaudited pro forma).................. 4,283,838 4,283,838 4,283,838
Series B preferred stock, no par value; 2,900,000
shares authorized; 2,492,424 shares issued and
outstanding as of December 31, 1998 and 1999 and
June 30, 2000; no shares issued and outstanding as of
June 30, 2000 (unaudited pro forma).................. 8,125,738 8,125,738 8,125,738
Undesignated preferred stock, no par value; 10,000,000
shares authorized, no shares issued and outstanding
as of June 30, 2000 (unaudited pro forma)............
Common stock, no par value; 23,000,000 shares
authorized as of December 31, 1998 and 1999 and
June 30, 2000, 125,000,000 shares authorized
(unaudited pro forma); 10,000,000, 10,460,161, and
10,715,036 shares issued and outstanding as of
December 31, 1998 and 1999 and June 30, 2000,
respectively; 18,912,431 shares issued and
outstanding as of June 30, 2000 (unaudited pro
forma)............................................... 78,500 154,149 308,480 32,718,029
Additional paid-in capital............................. 2,249,041 2,531,090 8,114,188 16,459,542
Unearned stock-based compensation...................... (654,106) (683,092) (5,407,362) (5,407,362)
Accumulated deficit.................................... (10,074,705) (15,260,186) (18,338,056) (26,683,410)
Accumulated other comprehensive loss................... (120,219)
------------ ------------ ------------ ------------
Total stockholders' equity (deficit)............. 3,888,087 (848,463) (2,913,174) 17,086,799
------------ ------------ ------------ ------------
Total Liabilities and Stockholder's Equity............... $ 8,182,177 $ 12,347,010 $ 16,061,240 $ 36,061,213
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999 AND
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) AND JUNE 30, 2000
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -------------------------
1999
1997 1998 1999 (UNAUDITED) 2000
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
License revenues............................... $3,734,725 $ 4,840,992 $16,092,786 $ 5,577,785 $13,336,173
Service revenues............................... 2,034,664 2,251,411 5,174,889 2,489,289 5,958,357
Maintenance revenues........................... 415,961 1,020,223 2,393,057 793,247 2,414,570
---------- ----------- ----------- ----------- -----------
Total revenues........................... 6,185,350 8,112,626 23,660,732 8,860,321 21,709,100
---------- ----------- ----------- ----------- -----------
Cost of Revenues:
Cost of revenues (excluding stock-based
compensation)................................ 1,887,358 4,982,494 6,006,349 2,707,380 6,808,175
Stock-based compensation--Cost of Revenues..... 261,468 38,575 19,288 142,635
---------- ----------- ----------- ----------- -----------
Total cost of revenues................... 1,887,358 5,243,962 6,044,924 2,726,668 6,950,810
---------- ----------- ----------- ----------- -----------
Gross Profit..................................... 4,297,992 2,868,664 17,615,808 6,133,653 14,758,290
---------- ----------- ----------- ----------- -----------
Operating Expenses:
Sales and marketing (excluding stock-based
compensation)................................ 3,663,973 7,859,925 12,929,224 4,921,994 10,030,260
Research and development (excluding stock-based
compensation)................................ 979,657 1,706,680 4,534,197 1,815,133 3,315,091
General administrative (excluding stock-based
compensation)................................ 747,541 1,436,867 2,689,005 1,047,380 2,729,036
---------- ----------- ----------- ----------- -----------
Total operating expenses (excluding
stock-based compensation)............. 5,391,171 11,003,472 20,152,426 7,784,507 16,074,387
---------- ----------- ----------- ----------- -----------
Stock-based compensation--Operating Expenses:
Sales and marketing.......................... 190,600 60,793 30,398 499,655
Research and development..................... 833,562 127,017 63,508 143,191
General and administrative................... 38,399 26,678 13,340 73,347
---------- ----------- ----------- ----------- -----------
Total stock-based compensation--Operating
Expenses.............................. 1,062,561 214,488 107,246 716,193
---------- ----------- ----------- ----------- -----------
Total operating expenses................. 5,391,171 12,066,033 20,366,914 7,891,753 16,790,580
---------- ----------- ----------- ----------- -----------
Operating Loss................................... (1,093,179) (9,197,369) (2,751,106) (1,758,100) (2,032,290)
---------- ----------- ----------- ----------- -----------
Interest and Other Income (Expense):
Interest income................................ 66,176 202,759 149,674 118,434 27,628
Interest expense............................... (8,118) (137,438) (293,630) (101,806) (154,471)
Other income (expense)......................... (56,547) (175,952) (151,602) 8,490
---------- ----------- ----------- ----------- -----------
Total interest and other income
(expense)............................. 58,058 8,774 (319,908) (134,974) (118,353)
---------- ----------- ----------- ----------- -----------
Loss before Income Taxes......................... (1,035,121) (9,188,595) (3,071,014) (1,893,074) (2,150,643)
Provision (Benefit) for Income Taxes............. (188,458) 245,494 2,114,467 857,411 927,227
---------- ----------- ----------- ----------- -----------
Net Loss......................................... $ (846,663) $(9,434,089) $(5,185,481) $(2,750,485) $(3,077,870)
========== =========== =========== =========== ===========
Basic and Diluted Net Loss per Share............. $ (0.08) $ (0.94) $ (0.51) $ (0.27) $ (0.29)
========== =========== =========== =========== ===========
Weighted Average Shares of Common Stock.......... 10,000,000 10,000,000 10,098,992 10,027,317 10,621,660
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999 AND SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------------ ------------------------ ----------------------
NUMBER OF NUMBER OF NUMBER OF ADDITIONAL
SHARES SHARES SHARES PAID-IN
OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL
----------- ---------- ----------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 10,000,000 $ 78,500
Issuance of Series A preferred
stock, net of offering
costs........................ 4,075,170 $4,218,938
Issuance of preferred stock and
common stock purchase
warrants..................... $ 270,906
Dividends......................
Net loss.......................
--------- ---------- ---------- -------- ----------
Balance, December 31, 1997....... 4,075,170 4,218,938 10,000,000 78,500 270,906
Comprehensive income:
Net loss.......................
Other comprehensive loss--
Unrealized loss on
investments................
Comprehensive loss...........
Issuance of Series A preferred
stock, net of offering
costs........................ 55,000 64,900
Issuance of Series B preferred
stock, net of offering
costs........................ 2,492,424 $8,125,738
Unearned stock-based
compensation................. 1,950,681
Amortization of stock-based
compensation.................
Common stock options issued for
services..................... 27,454
--------- ---------- --------- ---------- ---------- -------- ----------
Balance, December 31, 1998....... 4,130,170 4,283,838 2,492,424 8,125,738 10,000,000 78,500 2,249,041
Comprehensive income:
Net loss.....................
Other comprehensive income--
Reclassification adjustment
for loss on investments
included in net loss.....
Comprehensive loss.............
Issuance of common stock upon
exercise of options.......... 460,161 75,649
Unearned stock-based
compensation................. 212,103
Amortization of stock-based
compensation.................
Common stock options issued for
services..................... 69,946
--------- ---------- --------- ---------- ---------- -------- ----------
Balance, December 31, 1999....... 4,130,170 4,283,838 2,492,424 8,125,738 10,460,161 154,149 2,531,090
Net loss.......................
Issuance of common stock upon
exercise of options.......... 254,875 154,331
Unearned stock-based
compensation................. 5,273,199
Amortization of stock-based
compensation.................
Common stock options issued for
services..................... 309,899
--------- ---------- --------- ---------- ---------- -------- ----------
Balance, June 30, 2000........... 4,130,170 $4,283,838 2,492,424 $8,125,738 10,715,036 $308,480 $8,114,188
========= ========== ========= ========== ========== ======== ==========
<CAPTION>
RETAINED ACCUMULATED
UNEARNED EARNINGS OTHER
STOCK-BASED (ACCUMULATED COMPREHENSIVE
COMPENSATION DEFICIT) LOSS TOTAL
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 289,505 $ 368,005
Issuance of Series A preferred
stock, net of offering
costs........................ 4,218,938
Issuance of preferred stock and
common stock purchase
warrants..................... 270,906
Dividends...................... (83,458) (83,458)
Net loss....................... (846,663) (846,663)
------------ -----------
Balance, December 31, 1997....... (640,616) 3,927,728
Comprehensive income:
Net loss....................... (9,434,089) (9,434,089)
Other comprehensive loss--
Unrealized loss on
investments................ $(120,219) (120,219)
-----------
Comprehensive loss........... (9,554,308)
-----------
Issuance of Series A preferred
stock, net of offering
costs........................ 64,900
Issuance of Series B preferred
stock, net of offering
costs........................ 8,125,738
Unearned stock-based
compensation................. $(1,950,681)
Amortization of stock-based
compensation................. 1,296,575 1,296,575
Common stock options issued for
services..................... 27,454
----------- ------------ --------- -----------
Balance, December 31, 1998....... (654,106) (10,074,705) (120,219) 3,888,087
Comprehensive income:
Net loss..................... (5,185,481) (5,185,481)
Other comprehensive income--
Reclassification adjustment
for loss on investments
included in net loss..... 120,219 120,219
-----------
Comprehensive loss............. (5,065,262)
-----------
Issuance of common stock upon
exercise of options.......... 75,649
Unearned stock-based
compensation................. (212,103)
Amortization of stock-based
compensation................. 183,117 183,117
Common stock options issued for
services..................... 69,946
----------- ------------ --------- -----------
Balance, December 31, 1999....... (683,092) (15,260,186) (848,463)
Net loss....................... (3,077,870) (3,077,870)
Issuance of common stock upon
exercise of options.......... 154,331
Unearned stock-based
compensation................. (5,273,199)
Amortization of stock-based
compensation................. 548,929 548,929
Common stock options issued for
services..................... 309,899
----------- ------------ --------- -----------
Balance, June 30, 2000........... $(5,407,362) $(18,338,056) $ -- $(2,913,174)
=========== ============ ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999 AND
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) AND JUNE 30, 2000
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -------------------------
1997 1998 1999 1999 2000
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.......................................... $ (846,663) $(9,434,089) $(5,185,481) $(2,750,485) $(3,077,870)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 151,121 414,857 562,028 265,061 378,764
Provision for losses on receivables............. 25,000 412,843 920,000 480,117 440,819
Loss on disposal of property and equipment...... 21,022
Stock-based compensation........................ 1,324,029 253,063 126,534 858,828
Deferred income taxes........................... (189,258) 189,258
Changes in operating assets and liabilities:
Accounts receivable........................... (2,325,571) 219,086 (3,040,827) (5,738,541) (5,514,237)
Prepaid and other current assets.............. 63,017 (35,866) (78,894) (47,989) (231,133)
Accounts payable.............................. (90,224) (184,061) 756,770 944,430 1,364,593
Accrued wages and related liabilities......... 142,091 600,217 1,651,064 360,600 348,104
Accrued expenses and other current
liabilities................................. 266,775 (236,940) 1,028,702 231,078 1,641,637
Accrued taxes payable......................... 1,440,870 625,557 400,763
Deferred revenue.............................. 1,993,391 (1,890,909) 1,230,667 2,190,651 5,869,470
---------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities................................ (810,321) (8,621,575) (441,016) (3,312,987) 2,479,738
---------- ----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Net (purchases) sales of short-term investments... (2,284,375) (974,136) 3,258,511 2,799,542
Purchases of property and equipment............... (737,546) (212,985) (731,503) (275,231) (911,251)
Loans receivable from related parties............. (200,000) (26,500) 11,944 (4,250) (295,750)
Other assets...................................... (55,638) (13,493) (17,280) (5,665) (49,963)
---------- ----------- ----------- ----------- -----------
Net cash (used in) provided by investing
activities................................ (3,277,559) (1,227,114) 2,521,672 2,514,396 (1,256,964)
---------- ----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Net borrowings (repayments) under line of
credit.......................................... 2,100,000 2,900,000 (3,936,775)
Payments on capital lease obligations............. (4,901) (80,758) (110,472) (53,310) (67,407)
Net proceeds from sale of preferred stock......... 4,489,844 8,190,638
Proceeds from the exercise of common stock
options......................................... 75,649 5,550 154,331
Dividends......................................... (83,458)
---------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities................................ 4,401,485 10,209,880 2,865,177 (47,760) (3,849,851)
---------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents....................................... 313,605 361,191 4,945,833 (789,851) (2,627,077)
Cash and Cash Equivalents, Beginning of Period...... 610,940 924,545 1,285,736 1,285,736 6,231,569
---------- ----------- ----------- ----------- -----------
Cash and Cash Equivalents, End of Period............ $ 924,545 $ 1,285,736 $ 6,231,569 $ 495,885 $ 3,604,492
========== =========== =========== =========== ===========
Supplemental Disclosures of Cash Flow Information--
Cash Paid during the Year for:
Interest........................................ $ 3,770 $ 137,438 $ 266,568 $ 101,806 $ 154,041
Income taxes.................................... 800 56,236 57,354 2,537 2,948
Foreign taxes withheld by customers............. 55,436 833,111 10,606 332,731
Noncash Investing and Financing Activities--
During the years ended December 31, 1997, 1998, and 1999 and the six months ended June 30, 2000, the Company financed
acquisitions of equipment amounting to $74,598, $358,440, $3,779, and $158,556, respectively, under capital lease
arrangements.
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Adexa, Inc. and its subsidiaries (collectively, the "Company") develop and
market software products that enable collaborative commerce, or c-Commerce. The
Company's applications provide visibility into multi-tiered supply chains and
are designed to intelligently synchronize and optimize complex and
interdependent supply chain activities. The Company's software enables companies
to address the increasing volume, complexity and speed of business interactions
within and across the extended supply chain and automates selected inter- and
intra-company business processes based on user-defined rules. The Company's
software allows electronic exchanges to provide value-added services to their
participants, including collaborative demand planning, multi-tiered supply chain
planning and available-to-promise capabilities. Fundamentally, the software
enables enterprises and exchange participants to make faster, more informed
decisions about their supply chain interactions, resulting in enhanced supply
chain efficiency, greater customer responsiveness and improved strategic
planning and flexibility.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The accompanying financial statements have been
prepared assuming the Company will continue as a going concern. The Company's
financial statements reflect losses from operations, a stockholders' deficit and
negative working capital. As discussed in Notes 4 and 12, subsequent to
June 30, 2000, the Company has entered into a new line of credit arrangement
with a bank and has completed the sale of its Series C redeemable convertible
preferred stock. Management believes that its cash balances, the available line
of credit and the additional equity referred to above will be sufficient to meet
the Company's future operating needs for the next twelve months.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS--The condensed
consolidated statement of operations and condensed consolidated statement of
cash flows for the six months ended June 30, 1999 are unaudited. In the opinion
of management, the interim financial statements have been prepared on the same
basis as the annual financial statements and include all adjustments necessary
for a fair presentation of the financial statements. Results of interim periods
are not necessarily indicative of the results to be expected for the entire
fiscal year.
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS--Cash equivalents are highly liquid investments
with insignificant interest rate risk and original maturities of 90 days or less
and are stated at amounts that approximate fair values, based on quoted market
prices. Cash equivalents consist principally of money market mutual funds and
highly liquid debt securities of certain U.S. municipalities.
INVESTMENTS--Investments consist primarily of highly liquid municipal bonds,
commercial paper, and equity securities. Investments are categorized as
available for sale and are carried at fair value. The fair value of investments
is determined by the quoted market prices for each investment. Investments with
a maturity of less than one year but greater than three months when purchased
are classified as short-term investments. Realized and unrealized gains or
losses on investments are measured using the specific
F-7
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
identification method. Realized gains or losses on the sale of investments are
recognized in the statements of operations in the period sold. Unrealized
holding gains and losses on investments available for sale represent other
comprehensive income (loss) and are included as a component of stockholders'
equity until realized. Interest income and dividends on investment securities of
$56,176, $162,555, and $52,750 are reflected as interest income during the years
ended December 31, 1997, 1998, and 1999, respectively.
CONCENTRATION OF CREDIT RISK--Financial instruments that potentially subject
the Company to a concentration of credit risk principally consist of cash, cash
equivalents, investments, and accounts receivable. The Company places its cash,
cash equivalents, and investments with high credit quality institutions. Three
customers represented 28 percent, 13 percent and 11 percent of total revenues in
1997. Two customers represented 30 percent and 11 percent of total revenues in
1998. Three customers represented 13 percent, 12 percent and 11 percent of total
revenues in 1999. For the six months ended June 30, 2000, two customers
repesented 21 percent and 12 percent of total revenues. Four customers
represented 24 percent, 15 percent, 11 percent, and 11 percent of total gross
accounts receivable at December 31, 1998. Three customers represented
25 percent, 12 percent, and 11 percent of total gross accounts receivable at
December 31, 1999. One customer represented 20 percent of total gross accounts
receivable at June 30, 2000.
The Company generally does not require collateral on accounts receivable, as
the Company's customers are generally large, well-established companies. The
Company periodically performs credit evaluations of its customers and maintains
reserves for potential credit losses.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is provided for using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized over the lesser of the lease terms or the useful lives of the
improvements.
PRO FORMA BALANCE SHEET (UNAUDITED)--The unaudited pro forma consolidated
balance sheet at June 30, 2000 reflects the following:
- the automatic conversion of Series A and B convertible preferred stock,
outstanding as of June 30, 2000, into 6,622,594 additional shares of
common stock immediately prior to the closing of the initial public
offering of the Company's common stock; and
- the issuance on August 24, 2000 of an aggregate 1,574,801 shares of
Series C redeemable convertible preferred stock for gross proceeds of
$19,999,973, the deemed payment of a dividend representing the value of
the beneficial conversion feature of the Series C redeemable convertible
preferred stock and the conversion of these shares into 1,574,801 shares
of common stock
REVENUE RECOGNITION--The Company's revenues consist of license revenues,
service revenues, and maintenance revenues.
Revenue is recognized in accordance with the American Institute of Certified
Public Accountants Statement of Position ("SOP") No. 97-2, "Software Revenue
Recognition," as amended by SOP No. 98-4, "Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition" and SOP No. 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions." Accordingly, software license revenue is recognized when
persuasive evidence of an arrangement exists, delivery of the product component
has occurred, the fee is fixed and determinable and
F-8
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
collectibility is probable. If any of these criteria is not met, revenue
recognition is deferred until such time as all of the criteria are met.
The Company recognizes revenue for certain software contracts in accordance
with paragraphs 48 and 49 of SOP No. 97-2, whereby customer contracts that
require delivery of unspecified additional software products in the future are
accounted for as subscriptions. The Company recognizes this revenue ratably over
the term of the arrangement beginning with the delivery of the first product.
Effective January 1, 2000, the Company adopted SOP No. 98-9 which specifies,
when arrangements include multiple product components or other elements and
vendor specific objective evidence exists for the value of all undelivered
elements, the Company accounts for the delivered elements in accordance with the
residual method. Revenues on undelivered elements are recognized once delivery
is complete. The Company has established vendor specific objective evidence
based on the price established for each element when that element is sold
separately, or in the case of an element not yet sold separately, on the price
established by management. In those instances where arrangements include
contractual milestones, acceptance criteria or other contingencies, the Company
accounts for the transaction using contract accounting. For those arrangements
that include extended payment terms, the Company recognizes revenue when these
fees are due and payable.
The Company records amounts billed to customers in excess of recognizable
revenue as deferred revenues in the accompanying consolidated balance sheets, as
in cases involving license revenues when subscription accounting applies, when
undelivered elements exist or when contract accounting applies, and maintenance
revenues. Amounts recognized as revenue in advance of billing are recorded as
unbilled receivables and generally involve maintenance and service revenues.
Accounts receivable include unbilled revenue amounting to $132,500 as of
December 31, 1998, $1,355,050 as of December 31, 1999, and $2,046,082 as of
June 30, 2000.
The Company generally enters into separate contracts for professional
services. The Company recognizes revenues from services delivered on a
time-and-materials basis as the services are performed. Revenues from
fixed-price arrangements are recognized on a percentage-of-completion basis.
The Company recognizes revenues from maintenance and support arrangements on
a straight-line basis over the life of the agreement, which is typically one
year. If maintenance and support are included in a license agreement, amounts
related to this element are allocated based on vendor specific objective
evidence.
COST OF REVENUES--Cost of revenues consists of cost of license revenues,
cost of service revenues and cost of maintenance revenues. The Company has not
accounted for each of these costs separately. Cost of license revenues includes
royalties to third parties for software embedded in the Company's products,
royalties for the resale of third party software to the Company's customers and
the costs of documentation, delivery, and packaging. Cost of service revenues
include salaries and related expenses for the implementation and training
services, travel, costs of third parties contracted to provide implementation
services to the Company's customers and associated overhead expenses. Cost of
maintenance revenues includes salaries and related expenses for the customer
support organization, travel and associated overhead expenses.
RESEARCH AND DEVELOPMENT--Research and development costs consist primarily
of salaries and other personnel-related costs, bonuses, facility costs, and
third party services. The Company maintains a research and development staff to
enhance its products and to develop new products. In accordance with Statement
F-9
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed," software costs are
expensed as incurred until technological feasibility of the software is
determined and the recovery of the cost can reasonably be expected, after which
any additional costs are capitalized. The Company has expensed all software
development costs because the establishment of technological feasibility of
products and their availability for sale have substantially coincided.
PRODUCT WARRANTY--The Company generally warrants that its products will
function substantially in accordance with documentation provided to customers
for approximately 3 to 12 months following initial shipment to the customer. As
of June 30, 2000, the Company had not incurred any significant expenses related
to warranty claims.
STOCK-BASED COMPENSATION--The Company accounts for stock-based employee
compensation arrangements in accordance with provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
complies with the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Under APB Opinion No. 25, compensation expense is
based on the difference, if any, on the date of grant, between the fair value of
the Company's stock and the exercise price. The Company accounts for stock
options issued to non-employees in accordance with the provisions of SFAS
No. 123 and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."
INCOME TAXES--Deferred income tax assets and liabilities are computed
annually for temporary differences between the financial statement and income
tax bases of assets and liabilities. Such deferred income tax asset and
liability computations are based on enacted tax laws and rates applicable to
years in which the differences are expected to reverse. Income tax expense is
the tax payable or refundable for the year plus or minus the change during the
year in deferred income tax assets and liabilities. A valuation allowance is
established, when necessary, to reduce deferred income tax assets to the amount
that is more likely than not to be realized.
NET LOSS PER SHARE OF COMMON STOCK--Basic earnings or loss per share
excludes dilution for potentially dilutive securities and is computed by
dividing income or loss available to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted earnings or loss
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock. Potentially dilutive securities are excluded from the computation of
diluted earnings or loss per share when their inclusion would be antidilutive.
Potentially dilutive securities outstanding as of June 30, 2000 consist of
the following:
<TABLE>
<CAPTION>
<S> <C>
Series A convertible preferred stock........................ 4,130,170
Series B convertible preferred stock........................ 2,492,424
Series A convertible preferred stock warrants............... 228,012
Common stock options........................................ 4,987,393
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS--SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments", requires disclosure about the fair value of
financial instruments whether or not such instruments are recognized in the
balance sheet. Due to the short-term nature of the Company's financial
F-10
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
instruments, other than debt, fair values are not materially different from
their carrying values. Based on the borrowing rates available to the Company for
similar variable rate debt, the carrying value of debt approximates fair value.
The fair value of loans receivable from related parties cannot be determined due
to their related party nature.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS--In December 1998, the American
Institute of Certified Public Accountants issued SOP No. 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions,"
which amends SOP No. 97-2, and was effective for transactions entered into by
the Company beginning January 1, 2000. Adoption of SOP No. 98-9 did not have a
material impact on the Company's consolidated financial position or results of
operation.
In June 1998, June 1999, and June 2000, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133,"
and SFAS No. 138, "Accounting for Derivative Instruments and Hedging
Activities--An Amendment of SFAS No. 133." SFAS No. 133, as amended, requires
the recognition of all derivatives as either assets or liabilities in the
balance sheet and the measurement of those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the planned
use of the derivative and the resulting designation. The Company is required to
implement SFAS No. 133, as amended, in the first quarter of 2001. The Company
has not determined the effects, if any, adoption of SFAS No. 133, as amended,
will have on the its consolidated financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation--an
interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB
Opinion No. 25 and, among other issues, clarifies the following: the definition
of an employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of the previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either
December 15, 1998 or January 12, 2000. The Company does not expect the
application of FIN 44 to have a material impact on the Company's consolidated
financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which summarizes the views of the staff of the SEC in applying
generally accepted accounting principles to revenue recognition in financial
statements. In March 2000 and June 2000, the SEC issued SAB No. 101A and SAB
No. 101B, which delayed the implementation dates of SAB No. 101. The Company
will be required to adopt the accounting provisions of SAB No. 101, as amended,
no later than the fourth quarter of 2000. The Company does not believe that the
implementation of SAB No. 101 will have a material impact on the Company's
consolidated financial position or results of operations.
F-11
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
The major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL ----------------------- JUNE 30,
LIVES 1998 1999 2000
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Computers and related
equipment...................... 3 years $1,170,618 $1,573,044 $2,366,753
Furniture and fixtures........... 4 years 443,530 516,839 790,856
Leasehold improvements........... 5 years 16,528 82,744 84,825
---------- ---------- ----------
1,630,676 2,172,627 3,242,434
Less accumulated depreciation and
amortization................... 633,456 1,023,172 1,401,936
---------- ---------- ----------
Total............................ $ 997,220 $1,149,455 $1,840,498
========== ========== ==========
</TABLE>
Depreciation and amortization expense related to property and equipment was
$151,121, $414,857, and $562,028 for the years ended December 31, 1997, 1998 and
1999 and $378,764 for the six months ended June 30, 2000. The total cost and
accumulated depreciation of equipment acquired under capital leases were
$433,038 and $129,070 as of December 31, 1998, $435,993 and $242,823 as of
December 31, 1999, and $594,549 and $300,482 as of June 30, 2000.
4. LINE OF CREDIT
In March 1999, the Company entered into a loan agreement with a bank. The
agreement, as amended in July 2000, provided for line-of-credit borrowings based
on a formula aggregating up to $5,000,000. The line of credit was secured by
substantially all of the Company's assets. Borrowings under the line of credit
bear interest at the bank's prime rate plus 1 percent (10.5 percent at June 30,
2000).
On August 22, 2000, the Company entered into a new loan agreement with its
bank that replaced the prior bank credit line. The amount available under this
line of credit is generally limited to the lower of $5,000,000, or an amount
equal to 70 percent of eligible domestic accounts receivable, and bears interest
at the bank's prime rate plus 1.50 percent. Borrowings outstanding under the new
loan agreement are due on August 22, 2001.
The new loan agreement contains covenants that, among other things, limit
the type and amount of additional indebtedness that may be incurred by the
Company or any of its subsidiaries and impose limitations on investments, loans,
advances, sales, or transfers of assets, the making of dividends and other
payments, the creation of liens, and certain mergers. The Company is also
required to maintain minimum tangible net worth, as defined in the agreement.
5. COMMITMENTS AND CONTINGENCIES
LEASES--The Company leases its facilities and some equipment under lease
agreements that expire at various dates through 2003. Rental expense under
operating leases for the years ended December 31, 1997, 1998, and 1999 and the
six months ended June 30, 2000 totaled approximately $170,000, $418,000,
F-12
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
$492,661, and $778,327, respectively. Minimum annual payments under all leases
as of June 30, 2000 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
2000 (six months ending December 31, 2000)............. $ 95,661 $ 627,770
2001................................................... 146,347 980,968
2002................................................... 70,915 744,232
2003................................................... 43,683 156,236
2004................................................... 40,002 122,280
Thereafter............................................. 17,386 61,140
-------- ----------
413,994 $2,692,626
==========
Less imputed interest.................................. 82,153
--------
Present value of minimum capital lease payments........ 331,841
Less current portion of capital lease obligations...... 155,030
--------
Capital lease obligations.............................. $176,811
========
</TABLE>
LITIGATION--The Company is involved in legal proceedings, claims, and
litigation arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a materially
adverse effect on the Company's consolidated financial statements.
6. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) employee benefit plan covering eligible employees
whereby the Company will match employee contributions up to an amount generally
determined annually by the Board of Directors. The Company's contributions to
the plan were approximately $7,140, $40,842, and $56,270 for the years ended
December 31, 1997, 1998, and 1999, respectively, and $44,274 for the six months
ended June 30, 2000.
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
----------------------------------- ENDED JUNE 30,
1997 1998 1999 2000
--------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Current:
State....................................... $ 800 $ 800 $ 800
Foreign..................................... 55,436 2,113,667 $927,227
--------- ---------- ---------- --------
Total current................................. 800 56,236 2,114,467 927,227
--------- ---------- ---------- --------
Deferred:
Federal..................................... (505,547) (2,430,855) (866,002) (776,203)
State....................................... (87,314) (310,130) (225,160) (129,842)
--------- ---------- ---------- --------
Total deferred................................ (592,861) (2,740,985) (1,091,162) (906,045)
--------- ---------- ---------- --------
Valuation allowance........................... 403,603 2,930,243 1,091,162 906,045
--------- ---------- ---------- --------
Total......................................... $(188,458) $ 245,494 $2,114,467 $927,227
========= ========== ========== ========
</TABLE>
F-13
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The components of net deferred income taxes consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Current deferred income tax assets:
Accounts receivable allowances........................... $ 205,515 $ 266,195 $ 147,190
Accrued vacation......................................... 255,097 322,798
Accrued bonuses.......................................... 323,736 331,435
Other.................................................... (4,684) 16,820 25,229
Valuation allowance...................................... (200,831) (821,848) (826,652)
---------- ---------- ----------
Total current deferred income tax assets................... -- -- --
---------- ---------- ----------
Non-current deferred income tax assets:
Net operating loss carryforwards......................... 3,621,330 3,942,980 4,759,265
Accrual to cash basis.................................... (488,315) (339,820) (254,865)
Valuation allowance...................................... (3,133,015) (3,603,160) (4,504,400)
---------- ---------- ----------
Total non-current deferred income tax assets............... -- -- --
---------- ---------- ----------
Net deferred income tax assets............................. $ -- $ -- $ --
========== ========== ==========
</TABLE>
The effective income tax rate differs from the federal statutory income tax
rate applied to loss before income taxes due to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------------------ ENDED JUNE 30,
1997 1998 1999 2000
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Federal statutory income tax rate................ (35.0)% (35.0)% (35.0)% (35.0)%
Foreign income taxes............................. 0.6 68.9 29.4
Valuation allowance.............................. 45.7 36.4 30.9 24.6
Non-deductible stock-based compensation.......... 9.5
Net deferred income tax benefit recognized upon
conversion to a C corporation.................. (38.2)
Other............................................ 3.2 0.7 4.1 0.9
-------- -------- -------- ---------
(24.3)% 2.7 % 68.9 % 29.4 %
======== ======== ======== =========
</TABLE>
Foreign income taxes arise from the Company's contractual arrangements to
license its software or provide services to customers in certain foreign
countries.
Effective August 5, 1997, the Company changed its status for federal and
state income tax purposes from an S corporation to a C corporation. As an S
corporation, other than a 1.5 percent state surtax, the Company's income or loss
passed through to its stockholders for income tax purposes.
At December 31, 1999, the Company has net operating loss carryforwards
totaling approximately $10,331,000 and $5,549,000 for federal and state income
tax purposes, which may be used to offset future taxable income and expire in
varying amounts in 2012 through 2019 and 2002 through 2004, respectively.
F-14
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY
CAPITAL STOCK--The Company's capital stock as of June 30, 2000 consisted of
common stock, Series A preferred stock and Series B preferred stock.
During 1997, the Company issued 4,075,170 shares of Series A convertible
preferred stock at $1.18 per share for cash proceeds of $4,489,844, net of
$320,708 in offering costs. The Company also issued a warrant to purchase
228,012 shares of Series A convertible preferred stock to an investment bank as
consideration for its services rendered in connection with the private
placement. The warrant issued to the investment bank expires August 1, 2002 and
is convertible into Series A convertible preferred stock at an exercise price of
$1.18 per share. The warrant was recorded as offering costs and an increase in
additional paid-in capital at its estimated fair value of $269,054. In
February 1998, the Company issued 55,000 shares of Series A preferred stock to
unrelated third parties at $1.18 per share for proceeds of $64,900.
During 1998, the Company issued 2,492,424 shares of Series B preferred stock
for $3.30 per share. The Company received cash proceeds of $8,125,738, net of
$99,261 in offering costs, from the Series B preferred stock transaction in
1998.
Significant terms of the Series A and Series B preferred stocks are as
follows:
- At the option of the holder, each share of preferred stock is convertible
at any time into one share of common stock, subject to adjustment for
certain dilutive issuances. As of June 30, 2000, no such adjustments had
occurred. Shares automatically convert into common stock upon the earlier
of (a) completion of an initial public offering with aggregate proceeds
greater than $10,000,000 at not less than $5.90 per share or (b) upon the
consent of more than two-thirds of the holders of the preferred stock,
voting together as a single class.
- Series A and B preferred stockholders are entitled to annual noncumulative
cash dividends when and if dividends are declared on common stock by the
Company's Board of Directors.
- In the event of any liquidation of the Company (which includes the
acquisition of the Company by another entity), the holders of Series A and
Series B preferred stock have a liquidation preference over common stock
of $1.18 per share and $3.30 per share, respectively, plus all declared
but unpaid dividends. In the event the assets are insufficient to cover
the aforesaid amounts, the Series A and Series B stockholders would share
in the assets ratably in proportion to the full preferential amount. After
the Series A and Series B stockholders have received their full
preferential distributions as described above, the remaining assets will
be distributed to the Series A, Series B, and common stockholders on a pro
rata as-converted basis until the Series B stockholders have received an
aggregate of $6.60 per share. Thereafter, remaining assets will be
distributed to the holders of Series A preferred stock and common stock on
a pro rata as-converted basis until the holders of Series A preferred
stock have received an aggregate of $5.90 per share. Thereafter, the
holders of common stock shall receive all of the remaining assets of the
Company pro rata based on number of shares held by each.
- The preferred stock is not redeemable.
- Holders of preferred stock have the same voting rights as the holders of
common stock.
STOCKHOLDER AGREEMENT AND INVESTOR RIGHTS AGREEMENT--The Company, the common
stockholders and the preferred stockholders have entered into a Stockholder
Agreement, which, among other things, establishes the voting criteria for the
election of the Board of Directors and provides that the preferred
F-15
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
stockholders participate in any sale of common shares to any party (other than
in an initial public offering) on a pro rata basis. Additionally, the Company,
the preferred stockholders, the common stockholders, and a warrant holder have
entered into an Investor Rights Agreement, wherein the Company extended certain
registration rights to the parties.
9. STOCK OPTION PLAN
In February 1998, the Company established the 1998 Stock Option Plan (the
"1998 Plan") under which employees, consultants, and directors may be granted
options to purchase up to an aggregate of 4,620,118 shares of the Company's
common stock. During the six months ended June 30, 2000, the Company increased
the number of options available under the 1998 Plan to a total of 6,120,118.
Options vest over a period of one to four years and expire ten years from the
grant date. The 1998 Plan also provides for early exercise of options prior to
full vesting. Any unvested shares purchased are subject to repurchase by the
Company upon occurrence of certain events or conditions, such as employment
termination, at the original purchase price. At June 30, 2000, there were 37,250
shares subject to repurchase at a weighted-average exercise price of $0.53 per
share. When the exercise price of employee stock options issued under the 1998
Plan equals the fair value of the underlying stock on the grant date, no
compensation expense is recorded. Compensation expense is recognized for the
fair value of options granted to non-employees and to the extent the fair value
of the underlying stock exceeds the exercise price of employee stock options.
During the years ended December 1998 and 1999 and the six months ended
June 30, 2000, the Company granted non-employees 52,000, 10,000, and 87,000
stock options, at a weighted-average exercise price of $0.84, $2.10 and $4.00,
respectively, for services performed and to be rendered in the future. In each
period in which the option shares are earned, stock option compensation will be
recorded. The amount of stock option compensation will be the fair value of the
option shares earned during the period. The fair value of the option shares
earned is calculated using the Black-Scholes option-pricing model. The primary
component in the Black-Scholes calculation is the value of the Company's common
stock at the time the option shares are earned. The value of the option shares,
and the corresponding stock option compensation, increases as the fair value of
the Company's common stock increases. Conversely, the value of the option shares
earned, and the corresponding stock option compensation, decreases as the fair
value of the Company's common stock decreases. Since the fair value of the
Company's common stock in the future cannot be estimated, it is not possible to
estimate the amount of stock option compensation that could be recorded in
connection with the non-employee stock options granted and outstanding as of
June 30, 2000. During the years ended December 31, 1998 and 1999, and the six
months ended June 30, 2000 stock option compensation to non-employees amounting
to $27,454, $69,946 and $309,899, respectively, was recognized in the
accompanying consolidated statements of operations.
During the years ended December 31, 1998 and 1999, and the six months ended
June 30, 2000 the Company issued employee common stock options with exercise
prices less than the fair value of its underlying common stock. Accordingly, the
Company recorded $1,950,681, $212,103 and $5,273,199 during the years ended
December 31, 1998 and 1999, and the six months ended June 30, 2000,
respectively, as the intrinsic value of such options. Stock-based compensation
of $1,296,575, $183,117 and $548,929 was amortized to expense during the years
ended December 31, 1998 and 1999, and the six months ended June 30, 2000,
respectively.
F-16
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLAN (CONTINUED)
At June 30, 2000, the Company had $5,407,362 in deferred stock compensation
related to these options, which will be amortized to expense through 2004.
A summary of the Company's stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE RANGE OF
OF EXERCISE EXERCISE
OPTIONS PRICE PRICES
--------- --------- -----------
<S> <C> <C> <C>
Granted in 1998............................. 4,393,010 $0.31 $0.15-$1.95
Canceled.................................. (734,806) 0.16 0.15-1.00
---------
Outstanding, December 31, 1998.............. 3,658,204 0.34 0.15-1.95
Granted................................... 843,300 2.20 1.95-3.00
Exercised................................. (460,161) 0.16 0.15-1.95
Canceled.................................. (82,250) 1.17 0.15-1.95
---------
Outstanding, December 31, 1999.............. 3,959,093 0.74 0.15-3.00
Granted................................... 1,536,700 4.06 4.00-6.00
Exercised................................. (254,875) 0.61 0.15-2.10
Canceled.................................. (253,525) 2.49 0.15-6.00
---------
Outstanding, June 30, 2000.................. 4,987,393 $1.69 $0.15-$6.00
=========
</TABLE>
Information regarding stock option grants during the years ended
December 31, 1998 and 1999 and the six months ended June 30, 2000 is summarized
as follows:
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------------------------- SIX MONTHS ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999 JUNE 30, 2000
---------------------------------- ---------------------------------- ----------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED
EXERCISE AVERAGE EXERCISE AVERAGE EXERCISE AVERAGE
SHARES PRICE FAIR VALUE SHARES PRICE FAIR VALUE SHARES PRICE FAIR VALUE
--------- --------- ---------- --------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise price
exceeds market
price.............. 503,800 $1.96 $0.82
Exercise price is
less than market
price.............. 4,393,010 $0.31 $0.85 339,500 $2.55 $3.34 1,536,700 $4.06 $7.71
</TABLE>
As of June 30, 2000, there were 417,689 shares available for future grant
under the 1998 Plan.
F-17
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLAN (CONTINUED)
The following table summarizes information about stock options outstanding
at June 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE ---------------------
REMAINING WEIGHTED- WEIGHTED-
CONTRACT AVERAGE AVERAGE
EXERCISE NUMBER OF LIFE EXERCISE NUMBER OF EXERCISE
PRICE OPTIONS (YEARS) PRICE OPTIONS PRICE
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.15..................... 2,525,793 7.62 $0.15 1,972,772 $0.15
1.00..................... 106,000 7.91 1.00 53,000 1.00
1.75..................... 22,500 8.03 1.75 8,750 1.75
1.85..................... 16,500 8.17 1.85 4,125 1.85
1.95..................... 497,300 8.75 1.95 107,325 1.95
2.10..................... 151,500 9.30 2.10
3.00..................... 168,500 9.44 3.00
4.00..................... 1,442,900 9.66 4.00
5.00..................... 15,000 9.92 5.00
6.00..................... 41,400 9.96 6.00
--------- ----- ---------
4,987,393.. 8.47 $1.69 2,145,972 $0.27
========= ===== =========
</TABLE>
As discussed in Note 2, the Company accounts for its stock-based awards to
employees using the intrinsic value method in accordance with APB Opinion
No. 25 and its related interpretations. SFAS No. 123 requires the disclosure of
pro forma net income (loss) had the Company adopted the fair value method of
that statement. The pro forma disclosures required by SFAS No. 123 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------- ENDED JUNE 30,
1998 1999 2000
----------- ----------- --------------
<S> <C> <C> <C>
Net Loss:
As reported.......................... $(9,434,089) $(5,185,481) $(3,077,870)
Pro forma............................ (9,588,427) (5,285,112) (3,341,029)
Basic and diluted net loss per share:
As reported.......................... $(0.94) $(0.51) $(0.29)
Pro forma............................ (0.96) (0.52) (0.31)
</TABLE>
The amounts above are based on the minimum value for each option computed as
(a) the current price of the stock on the date of grant reduced to exclude the
present value of any expected dividends during the options' minimum life and
(b) the present value of the exercise price. Assumptions used in the computation
include the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS
------------------- ENDED JUNE 30,
1998 1999 2000
-------- -------- --------------
<S> <C> <C> <C>
Risk-free interest rate.......................... 5.2% 6.1% 6.6%
Dividends yield.................................. -- -- --
Expected life (years)............................ 10 10 10
</TABLE>
F-18
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLAN (CONTINUED)
The weighted-average estimated minimum value of employee stock options
granted was $0.64, $0.78, and $5.58 for the years ended December 31, 1998 and
1999, and the six months ended June 30, 2000, respectively.
10. LOANS RECEIVABLE FROM RELATED PARTIES
On July 31, 1997, the Company loaned $200,000 to a stockholder/officer in
the form of a note receivable. The note receivable accrues interest at five
percent and is payable semiannually. Unpaid interest is added to principal. The
outstanding principal and accrued interest on the note are due on July 31, 2002.
The note is collateralized by 1,694,920 shares of the Company's common stock
owned by the stockholder/officer.
During the six months ended June 30, 2000, the Company loaned $300,000 to
another officer, who is not a stockholder, in the form of a promissory note
receivable. The unsecured loan accrues interest at five percent and is payable
in full on or before May 19, 2008. Principal and accrued interest amounting to
$301,708 is included in loans receivable from related parties in the
accompanying consolidated balance sheet as of June 30 2000.
11. SEGMENT INFORMATION
The Company is principally engaged in the design, development, marketing,
licensing, and support of computer software products operating on a diverse
range of hardware platforms and operating systems. Accordingly, the Company
considers itself to be operating in a single industry segment. The Company's
chief operating decision maker reviews financial information presented on a
consolidated basis, accompanied by disaggregated information about revenue, by
geographic region for purposes of assessing financial performance and making
operating decisions. The following table represents revenue in each of the
geographical regions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, SIX MONTHS
------------------------------ ENDED JUNE 30,
1997 1998 1999 2000
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Geographic region:
United States........................... 48% 64% 43% 59%
Japan................................... 31 13 35 24
Taiwan.................................. 14 14 15 6
Other................................... 7 9 7 11
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
</TABLE>
12. SUBSEQUENT EVENTS
PREFERRED STOCK--On August 24, 2000, the Company issued an aggregate of
1,574,801 shares of Series C redeemable convertible preferred stock for $12.70
per share and gross proceeds of $19,999,973. The Series C redeemable convertible
preferred stock has rights and privileges similar to that of the Series A and B
preferred stock (see Note 8), except as follows:
- Series C preferred shares automatically convert into common stock upon the
earlier of (a) an initial public offering of the Company's common stock
for aggregate proceeds of $25,000,000 with an
F-19
<PAGE>
ADEXA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS (CONTINUED)
offering price of at least $19.05 per share or (b) upon the consent of a
majority of the holders of the Series C preferred stock.
- In the event of a liquidation of the Company, the Series C preferred
stockholders will be entitled to receive, in preference to the Series A
and B preferred stockholders the greater of (i) the sum of $22.23 per
share, plus declared and unpaid dividends, if any, or (ii) the amount per
share that would have been payable had each share of Series C preferred
stock been converted into common stock on the effective date of such
liquidation.
- The Series C preferred stock is mandatorily redeemable upon the election
of at least a majority of the holders of the then-outstanding shares of
Series C preferred stock, or at any time after July 30, 2005. The
aggregate redemption amount is $12.70 per share plus all declared but
unpaid dividends.
The Series C redeemable convertible preferred stock was issued with a
beneficial conversion feature that will be recorded in the third quarter of 2000
as an increase in additional paid-in capital and a deemed dividend to the
preferred stockholders.
2000 STOCK INCENTIVE PLAN--On August 24, 2000, the Company's board of
directors adopted the 2000 Stock Incentive Plan (the "2000 Plan"). Under the
2000 Plan, employees, consultants and directors may be granted options to
purchase up to an aggregate of 2,000,000 shares of the Company's common stock.
1998 STOCK OPTION PLAN--On August 10, 2000, the Company increased the number
of options available under the 1998 Plan to a total of 6,770,118.
On August 24, 2000, the Company accelerated the vesting schedule of all
unvested stock options outstanding that were granted prior to August 24, 2000.
The Company converted the vesting schedule from 25 percent for each annual
anniversary of optionee's vesting commencement date to 25 percent vesting one
year after an optionee's vesting commencement date with the balance of shares
vesting in equal monthly installments over the following 36 months. No
compensation related to the accelerated vesting modification has been recognized
as of August 24, 2000. In the future, should information become available that
would indicate that stock options that would otherwise have been forfeited,
absent the modification, will be retained and exercised, the Company will
recognize the related compensation expense representing the difference between
the original exercise price of the stock option grant and the estimated fair
value at the date of the modification.
2000 EMPLOYEE STOCK PURCHASE PLAN--On August 24, 2000, the Board of
Directors adopted the 2000 Employee Stock Purchase Plan (the "2000 Purchase
Plan") to be effective upon completion of the Company's initial public offering.
Under the 2000 Purchase Plan, eligible employees are allowed to have salary
withholdings of up to 15 percent of their base compensation to purchase shares
of common stock at a price equal to 85 percent of the lower of the market value
of the stock at the beginning or end of defined purchase periods. The initial
purchase period will commence on the effective date of the Company's initial
public offering. The Company has reserved 750,000 shares of common stock for
issuance under the 2000 Purchase Plan.
F-20
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES
[LOGO]
COMMON STOCK
-----------
PROSPECTUS
-----------
CHASE H&Q MERRILL LYNCH & CO.
DAIN RAUSCHER WESSELS
-------------
, 2000
--------------
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF OUR COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 2000, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Adexa in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $19,800
NASD fee.................................................... 8,000
Nasdaq National Market listing fee..........................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses..................................
Transfer agent fees.........................................
Miscellaneous fees and expenses.............................
-------
Total..................................................... $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit indemnification
under some circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). Article VII, Section 6, of the Registrant's Bylaws provides for mandatory
indemnification of its directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's Certificate of Incorporation provides
that, pursuant to Delaware law, its directors shall not be liable for monetary
damages for breach of the directors' fiduciary duty as directors to Adexa and
its stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies including injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director will
continue to be subject to liability for breach of the director's duty of loyalty
to Adexa for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, including the federal securities laws or state or federal environmental
laws. The Registrant has entered into Indemnification Agreements with its
officers and directors, a form of which is attached as Exhibit 10.1 hereto and
incorporated herein by reference. The Indemnification Agreements provide the
Registrant's officers and directors with further indemnification to the maximum
extent permitted by the Delaware General Corporation Law." Reference is made to
Section of the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against some types of
liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, the
Registrant has issued and sold the following securities:
- During the period between August 4, 1997 and February 28, 1998, Registrant
sold an aggregate of 4,130,170 shares of its Series A Preferred Stock to
19 investors at a purchase price of $1.18 per share.
- During the period between July 2, 1998 and October 30, 1998, Registrant
sold an aggregate of 2,492,424 shares of its Series B Preferred Stock to
19 investors at a purchase price of $3.30 per share.
- On August 24, 2000, Registrant sold an aggregate of 1,574,801 shares of
its Series C Preferred Stock to 34 investors at a purchase price of $12.70
per share.
- As of August 24, 2000, Registrant has sold and issued 715,036 shares of
its common stock for an aggregate purchase price of $229,980 to employees
and consultants pursuant to direct issuance and to exercises of options
under its 1998 Stock Plan.
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by
an issuer not involving any public offering or transactions pursuant to
compensation benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution of those securities, and
appropriate legends were affixed to the share certificates issued in those
transactions. All recipients had adequate access, through their relationships
with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Registrant, as amended
to date
3.2* Form of Restated Certificate of Incorporation to be filed
upon the closing of this offering
3.3* Bylaws of the Registrant
3.4* Form of Amended and Restated Bylaws to take effect as of the
closing of the offering
4.1* Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4
4.2* Specimen common stock certificate
4.3 Amended and Restated Investors' Rights Agreement
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
10.1* Form of Indemnification Agreement
10.2 Lease between the Registrant and Haseko Corporation, a
Japanese corporation, dated June 20, 1996, as amended
10.3 Lease between the Registrant and 20 Adelaide St. East, a
co-ownership, dated August 30, 1999
10.4 1998 Stock Plan
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.5 2000 Stock Incentive Plan
10.6 2000 Employee Stock Purchase Plan
10.7 Promissory note from K. Cyrus Hadavi to the Registrant dated
July 31, 1997
10.8 Promissory note from Udo Dengler to the Registrant dated
May 19, 2000
10.9 Loan from Silicon Valley Bank to the Company dated
August 22, 2000
23.1 Consent of Independent Accountants
23.2* Consent of Counsel. Reference is made to Exhibit 5.1
24.1 Power of Attorney (see page II-4)
27.1 Financial Data Schedule
</TABLE>
------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule VIII--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be presented therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in the denominations and
registered in the names 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 this indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against these liabilities (other than the
payment by 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 an 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
the indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of that issue.
The Registrant 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 the securities at that time shall be deemed to be its
initial bona fide offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on this 28th day of August, 2000.
<TABLE>
<S> <C> <C>
ADEXA, INC.
By: /s/ K. CYRUS HADAVI
------------------------------------------
K. Cyrus Hadavi
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints K. Cyrus Hadavi and J. Timothy Romer, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to sign any registration statement for the
same offering covered by this registration statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, 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>
<C> <S> <C>
/s/ K. CYRUS HADAVI President and Chief Executive August 28,
------------------------------------ Officer (Principal Executive 2000
K. Cyrus Hadavi Officer) and Director
/s/ J. TIMOTHY ROMER Chief Financial Officer (Principal August 28,
------------------------------------ Financial and Accounting 2000
J. Timothy Romer Officer)
/s/ DAVID R. GOLOB Director August 28,
------------------------------------ 2000
David R. Golob
/s/ WILLIAM W. LATTIN Director August 28,
------------------------------------ 2000
William W. Lattin
/s/ SAM H. LEE Director August 28,
------------------------------------ 2000
Sam H. Lee
/s/ WILLIAM H. YOUNGER, JR. Director August 28,
------------------------------------ 2000
William H. Younger, Jr.
</TABLE>
II-4
<PAGE>
ADEXA, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS/
BALANCE AT (DEDUCTIONS)
BEGINNING CHARGED TO COSTS BALANCE AT
DESRIPTION OF PERIOD AND EXPENSES DEDUCTIONS END OF PERIOD
---------- ---------- ---------------- ---------- -------------
<S> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
Allowances Deducted from Assets
Accounts receivable....................... $528,000 440,819 (105,048) $863,771
-------- ------- --------- --------
Total Allowances Deducted from Assets..... $528,000 440,819 (105,048) $863,771
======== ======= ========= ========
FOR THE YEAR ENDED DECEMBER 31, 1999
Allowances Deducted from Assets
Accounts receivable....................... $480,000 920,000 (872,000) $528,000
-------- ------- --------- --------
Total Allowances Deducted from Assets..... $480,000 920,000 (872,000) $528,000
======== ======= ========= ========
FOR THE YEAR ENDED DECEMBER 31, 1998
Allowances Deducted from Assets
Accounts receivable....................... $ 67,157 412,843 $480,000
-------- ------- --------- --------
Total Allowances Deducted from Assets..... $ 67,157 412,843 -- $480,000
======== ======= ========= ========
FOR THE YEAR ENDED DECEMBER 31, 1997
Allowances Deducted from Assets
Accounts receivable....................... $ 42,157 25,000 $ 67,157
-------- ------- --------- --------
Total Allowances Deducted from Assets..... $ 42,157 25,000 -- $ 67,157
======== ======= ========= ========
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Registrant, as amended
to date
3.2* Form of Restated Certificate of Incorporation to be filed
upon the closing of this offering
3.3* Bylaws of the Registrant
3.4* Form of Amended and Restated Bylaws to take effect as of the
closing of the offering
4.1* Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4
4.2* Specimen common stock certificate
4.3 Amended and Restated Investors' Rights Agreement
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
10.1* Form of Indemnification Agreement
10.2 Lease between the Registrant and Haseko Corporation, a
Japanese corporation, dated June 20, 1996, as amended
10.3 Lease between the Registrant and 20 Adelaide St. East, a
co-ownership, dated August 30, 1999
10.4 1998 Stock Plan
10.5 2000 Stock Incentive Plan
10.6 2000 Employee Stock Purchase Plan
10.7 Promissory note from K. Cyrus Hadavi to the Company dated
July 31, 1997
10.8 Promissory note from Udo Dangler to the Company dated
May 19, 2000
10.9 Loan from Silicon Valley Bank to the Company dated
August 22, 2000
23.1 Consent of Independent Accountants
23.2* Consent of Counsel. Reference is made to Exhibit 5.1
24.1 Power of Attorney (see page II-4)
27.1 Financial Data Schedule
</TABLE>
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* To be filed by amendment.
