SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
LEGATO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3077394
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7372
(Primary Standard Industrial
Classification Code Number)
3210 Porter Drive
Palo Alto, California 94304
(Address of principal executive offices) (Zip Code)
LEGATO SYSTEMS, INC.
1995 Stock Option/Stock Issuance Plan
Shares Issued Pursuant to a Written Agreement
(Full title of the Plan)
Louis C. Cole
President and Chief Executive Officer
LEGATO SYSTEMS, INC.
3210 Porter Drive
Palo Alto, California 94304
(Name and address of agent for service)
(415) 812-6000
(Telephone number, including area code, of agent for service)
CALCULATION OF REGISTRATION FEE
<TABLE>
Proposed Maximum Proposed Maximum
Amount to be Offering Price Aggregate Amount of
Title of Securities to be Registered Registered(1) per Share(2) Offering Price(2) Registration
Fee
- ------------------------------------------ ------------------------------------ ------------------- ----------------
<S> <C> <C> <C> <C>
1995 Stock Option/Stock Issuance Plan
Options to Purchase Common Stock 508,151 N/A N/A N/A
Common Stock, $0.0001 par value 508,151 shares $19.375 $9,845,425.625 $2,983.46
Written Agreement
Common Stock, $0.0001 par value 837 shares $19.375 $ 16,216.875 $ 4.91
<FN>
(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the 1995 Stock Option/Stock
Issuance Plan and the Written Agreement by reason of any stock dividend,
stock split, recapitalization or other similar transaction effected without
the receipt of consideration which results in an increase in the number of
the outstanding shares of Common Stock of Legato Systems, Inc.
(2) Calculated solely for purposes of this offering under Rule 457(h) of the
Securities Act of 1933, as amended, on the basis of the average of the high
and low prices per share of Common Stock of Legato Systems, Inc. as
reported on the Nasdaq National Market on May 27, 1997.
</FN>
</TABLE>
<PAGE>
EXPLANATORY NOTE
Pursuant to General Instruction C of Form S-8, this Registration
Statement contains a prospectus meeting the requirements of Part I of Form S-3
relating to the reoffer by a certain individual of shares of Common Stock, par
value $0.0001 per share, of Legato Systems, Inc. acquired pursuant to a Written
Agreement.
<PAGE>
LEGATO SYSTEMS, INC.
FORM S-8 CROSS REFERENCE SHEET SHOWING LOCATION OF INFORMATION
REQUIRED BY PART I OF FORM S-3
<TABLE>
<S> <C>
Form S-3 Item Number Location/Heading in Prospectus
1. Forepart of Registration Statement and Outside Cover page
Front Cover page of Prospectus
2. Inside Front and Outside Back Cover Page of Available Information; Incorporation of
Prospectus Certain Information by Reference
3. Summary Information, Risk Factors and Ratio of Risk Factors
Earnings to Fixed Charges
4. Use of Proceeds Not applicable
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holder Selling Security Holder
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Not Applicable
10. Interests of Named Experts and Counsel Not Applicable
11. Material Changes Not Applicable
12. Incorporation of Certain Information Documents Incorporated by Reference
13. Disclosure of Commission Position on Indemnification
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE>
PART II
Information Required in the Registration Statement
Item 3. Incorporation of Documents by Reference
Legato Systems, Inc. (the "Registrant") hereby incorporates by reference
into this Registration Statement the following documents previously filed with
the Securities and Exchange Commission (the "SEC"):
(a) The Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996; and
(b) The Registrant's Registration Statement No. 0-26130 on Form 8-A filed
with the SEC on May 19, 1995 pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), in which there is described the terms,
rights and provisions applicable to the Registrant's outstanding Common Stock.
All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of
this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Registration Statement
to the extent that a statement contained herein or in any subsequently filed
document which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.
Item 4. Description of Securities
Not Applicable.
Item 5. Interests of Named Experts and Counsel
Not Applicable.
Item 6. 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 such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "1933 Act"). The Registrant's Bylaws provide 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 their fiduciary duty as directors to the Registrant and
its stockholders. This provision in the Certificate of Incorporation does not
eliminate the fiduciary duty of the directors, and, in appropriate
circumstances, equitable remedies such as 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 the Registrant 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, such as the federal securities laws or
state or federal environmental laws. The Registrant has entered into
Indemnification Agreements with its officers and directors. The Indemnification
Agreements provide the Registrant's officers and directors with further
indemnification to the maximum extent permitted by the Delaware General
Corporation Law.
Item 7. Exemption from Registration Claimed
Not Applicable.
Item 8. Exhibits
Exhibit Exhibit
Number
4 Instrument Defining Rights of Stockholders.
Reference is made to Registrant's Registration
Statement No. 0-26130 on Form 8-A, which is incorporated
herein by reference pursuant to Item 3(b) of this
Registration Statement.
5 Opinion and consent of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP.
23.1 Consent of Coopers & Lybrand LLP,
Independent Accountants.
23.2 Consent of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-3 of
this Registration Statement.
99.1 Written Agreement with Louis C. Cole.
Item 9. Undertakings
A. The undersigned Registrant hereby undertakes: (1) to file, during
any period in which offers or sales are being made, a post-effective amendment
to this Registration Statement (i) to include any prospectus required by Section
10(a)(3) of the 1933 Act, (ii) to reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in this
Registration Statement; provided, however, that clauses (1)(i) and (1)(ii) shall
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the 1934 Act that are
incorporated by reference into this Registration Statement; (2) that for the
purpose of determining any liability under the 1933 Act each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof and (3) to remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the Registrant's 1995
Stock Option/Stock Issuance Plan.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the 1933 Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the 1934 Act that is
incorporated by reference into this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the indemnification provisions summarized in Item 6 or
otherwise, the Registrant has been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the 1933 Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8, and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Palo Alto, State of California on this 2nd
day of June, 1997.
LEGATO SYSTEMS, INC.
/s/ Louis C. Cole
By:
Louis C. Cole
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Legato Systems, Inc., a
Delaware corporation, do hereby constitute and appoint Louis C. Cole and Stephen
C. Wise, and either of them, the lawful attorneys-in-fact and agents with full
power and authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, and either one of them, determine
may be necessary or advisable or required to enable said corporation to comply
with the Securities Act of 1933, as amended, and any rules or regulations or
requirements of the Securities and Exchange Commission in connection with this
Registration Statement. Without limiting the generality of the foregoing power
and authority, the powers granted include the power and authority to sign the
names of the undersigned officers and directors in the capacities indicated
below to this Registration Statement, to any and all amendments, both
pre-effective and post-effective, and supplements to this Registration
Statement, and to any and all instruments or documents filed as part of or in
conjunction with this Registration Statement or amendments or supplements
thereof, and either of the undersigned hereby ratifies and confirms all that
said attorneys and agents, or either one of them, shall do or cause to be done
by virtue hereof. This Power of Attorney may be signed in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
Signature Title Date
<S> <C> <C>
/s/ Louis C. Cole President, Chief Executive Officer June 2, 1997
------------------------- and Chairman of the Board
Louis C. Cole (Principal Executive Officer)
/s/ Stephen C. Wise Chief Financial Officer, Vice President of June 2, 1997
------------------------- Finance and Administration and
Stephen C. Wise Assistant Secretary (Principal Financial
and Accounting Officer)
/s/ Eric Benhamou
------------------------- Director June 2, 1997
Eric Benhamou
/s/ Kevin A. Fong
------------------------- Director June 2, 1997
Kevin A. Fong
/s/ David N. Strohm
------------------------- Director May 13, 1997
David N. Strohm
/s/ Phillip E. White
------------------------- Director June 2, 1997
Phillip E. White
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
TO
FORM S-8
UNDER
SECURITIES ACT OF 1933
LEGATO SYSTEMS, INC.
<PAGE>
EXHIBIT INDEX
Exhibit Exhibit
Number
4 Instrument Defining Rights of Stockholders. Reference is made
to Registrant's Registration Statement No. 0-26130 on Form 8-A,
which is incorporated herein byreference pursuant to Item 3(b)
of this Registration Statement.
5 Opinion and consent of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP.
23.1 Consent of Coopers & Lybrand LLP, Independent Accountants
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP is contained
in Exhibit 5.
24 Power of Attorney. Reference is made to page II-3 of this
Registration Statement.
99.1 Written Agreement with Louis C. Cole.
<PAGE>
EXHIBIT 5
Opinion and Consent of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
May 28, 1997
Legato Systems, Inc.
3210 Porter Drive
Palo Alto, CA 94304
Re: Legato Systems, Inc. Registration Statement
for Offering of 508,151 Shares of Common Stock
and Reoffering of 837 Shares of Common Stock
Ladies and Gentlemen:
We refer to your registration on Form S-8 (the "Registration
Statement") under the Securities Act of 1933, as amended, of (i) 508,151 shares
of Common Stock available for issuance under the Company's 1995 Stock
Option/Stock Issuance Plan and (ii) 837 shares of Common Stock under the Written
Agreement between the Company and Louis C. Cole. We advise you that, in our
opinion, when such shares have been issued and sold pursuant to the applicable
provisions of the 1995 Stock Option/Stock Issuance Plan and the Written
Agreement between the Company and Louis C. Cole, and in accordance with the
Registration Statement, such shares will be validly issued, fully paid and
nonassessable shares of the Company's Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
<PAGE>
EXHIBIT 23.1
Consent of Coopers & Lybrand LLP, Independent Accountants
ONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Legato Systems, Inc. and Subsidiaries on Form S-8 of our report dated January
20, 1997, on our audits of the consolidated financial statements and financial
statement schedule of Legato Systems, Inc. and Subsidiaries as of December 31,
1996 and 1995, and for the years ended December 31, 1996, 1995 and 1994,
appearing in the Annual Report on Form 10-K of Legato Systems, Inc. filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1934.
COOPERS & LYBRAND L.L.P.
San Jose, California
May 28, 1997
<PAGE>
EXHIBIT 99.1
Written Agreement with Louis C. Cole
AGREEMENT
Agreement entered into as of this 31st day of January, 1997 between
Legato Systems, Inc., a Delaware corporation ("Corporation"), and Louis C. Cole
("Purchaser").
Whereas, the Corporation wishes to retain the services of Purchaser and
Purchaser wishes to be engaged by the Corporation to perform services and, in
consideration of the services to be performed by Purchaser, the Corporation has
this day awarded Purchaser the right to purchase shares of the Common Stock of
the Corporation.
NOW, THEREFORE, it is agreed as follows:
D. Award of Shares. Purchaser has been awarded the right to purchase
shares, subject to and upon terms and conditions identical to the terms and
conditions applicable to the purchase of shares under the Corporation's Employee
Stock Purchase Plan.
E. Successors and Assigns. The provisions of this Agreement shall inure to
the benefit of, and be binding upon, the successors, administrators, heirs,
legal representatives and assigns of Purchaser and the successors and assigns of
the Corporation.
F. Governing Law. The interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
LEGATO SYSTEMS, INC.
By: /s/ Stephen C. Wise
Title: Chief Financial Officer
/s/ Louis C. Cole
Address: 3210 Porter Drive
Palo Alto, CA 94304
<PAGE>
REOFFER PROSPECTUS
837 Shares
Legato Systems, Inc.
Common Stock
This Reoffer Prospectus relates to the offer and sale of up to 837
shares of the Common Stock, par value $.0001 (the "Common Stock"), of Legato
Systems, Inc. (the "Company"), which may be offered from time to time by the
registered stockholder named herein (the "Selling Security Holder"). It is
anticipated that the Selling Security Holder will offer shares for sale at
prevailing prices on the Nasdaq National Market System on the date of sale. The
Company will receive no part of the proceeds of sale made hereunder. All
expenses of registration incurred in connection with this offering are being
borne by the Company, but all selling and other expenses incurred by the Selling
Security Holder will be borne by such Selling Security Holder.
The Company's Common Stock is quoted on the Nasdaq National Market
under the symbol LGTO. On May 27, the average of the high and low selling
prices of the Common Stock was $19.375 per share.
The Selling Security Holder and any broker executing selling orders on
behalf of the Selling Security Holder may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"), in
which event commissions received by such broker may be deemed to be underwriting
commissions under the Securities Act.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD
BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering described herein, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any Selling Security Holder. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, nor shall there be any sale of these
securities by any person in any jurisdiction in which it is unlawful for such
person to make such offer, solicitation or sale. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create an
implication that the information contained herein is correct as of any time
subsequent to the date hereof.
The date of this Prospectus is June 3, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements and other information can be inspected and copied at the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's regional offices at 219 South Dearborn Street, Chicago,
IL 60604; 26 Federal Plaza, New York, NY 10007; and 5757 Wilshire Boulevard, Los
Angeles, CA 90036, at prescribed rates. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding companies that file electronically with the Commission at
http://www.sec.gov. The Common Stock of the Company is quoted on the Nasdaq
National Market System. Reports, proxy statements, information statements and
other information concerning the Company can be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
A copy of any document incorporated by reference in the Registration
Statement (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that the Registration Statement incorporates) of which this
Reoffer Prospectus forms a part but which is not delivered with this Reoffer
Prospectus will be provided by the Company without charge to any person
(including any beneficial owner) to whom this Reoffer Prospectus has been
delivered upon the oral or written request of such person. Such requests should
be directed to Rick Ruiz, Investor Relations, Legato Systems, Inc., 3210 Porter
Drive, Palo Alto, California 94304. The Company's telephone number at that
location is (415) 812-6000.
TABLE OF CONTENTS
Page
THE COMPANY...................................................................3
RISK FACTORS..................................................................3
SELLING SECURITY HOLDER.......................................................9
PLAN OF DISTRIBUTION..........................................................9
DOCUMENTS INCORPORATED BY REFERENCE..........................................10
INDEMNIFICATION..............................................................10
<PAGE>
THE COMPANY
Legato Systems, Inc. (the "Company") develops, markets and supports
network storage management software products for heterogeneous client/server
computing environments. The Company believes it is currently a technology leader
in the network storage management software market because of the heterogeneity,
scalability, performance and ease of use of its software products. The Company's
NetWorker software supports many storage management server platforms and can
accommodate a variety of clients, servers and storage devices. The Company's
long term strategy is to create an integrated set of solutions centered around
storage management that enhance and simplify network computing as a whole.
The Company utilizes multiple distribution channels, including
resellers, OEMs and direct sales, as a part of the Company's strategy to achieve
comprehensive coverage in the market. The Company licenses its source code to
leading computer system and software suppliers, including Amdahl, Banyan, Data
General, Digital, ICL, Siemens Nixdorf, Silicon Graphics, Sony, SunSoft,
Nihon-Unisys and Unisys, which port the products to their proprietary platforms,
sell the products through their direct and indirect distribution channels and
provide primary support for the products after installation. These relationships
enable the Company to reach a broad customer base, while reducing development,
support and product costs.
The Company's executive offices are located at 3210 Porter Drive, Palo
Alto, California 94304. The Company's telephone number is (415) 812-6000.
RISK FACTORS
Fluctuations in Quarterly Operating Results; Future Operating Results Uncertain
The Company's quarterly operating results have in the past varied and
may in the future vary significantly depending on a number of factors, including
the size and timing of significant orders; increased competition; market
acceptance of new products, applications and product enhancements; changes in
pricing policies by the Company and its competitors; the ability of the Company
to timely develop, introduce and market new products, applications and product
enhancements and to control costs; the Company's success in expanding its sales
and marketing programs; technological changes in the network storage management
market; the mix of sales among the Company's channels; deferrals of customer
orders in anticipation of new products, applications or product enhancements;
changes in Company strategy; personnel changes; and general economic factors.
The Company's future revenues are difficult to predict. The Company
operates with virtually no order backlog because its software products typically
are shipped shortly after orders are received. In addition, the Company does not
recognize revenues on sales to domestic distributors until the products are sold
through to end users. As a result, product revenues in any quarter are
substantially dependent on orders booked and shipped and on sell-through to end
users in that quarter. Revenues for any future quarter are not predictable with
any significant degree of certainty. Product and software subscription revenues
are also difficult to forecast because the network storage management market is
rapidly evolving and the Company's sales cycle varies substantially from
customer to customer. Royalty and license revenues are substantially dependent
upon sales by OEMs of their products that incorporate the Company's software.
Accordingly, royalty and license revenues are subject to OEMs' product cycles,
which are also difficult to predict. Royalty and license revenues are further
impacted by fluctuations in licensing activity from quarter-to-quarter, because
initial license fees generally are non-recurring and recognized upon the signing
of the license agreement. The Company's expense levels are based, in part, on
its expectations as to future revenues. If revenue levels are below
expectations, operating results are likely to be adversely affected. Net income
may be disproportionately affected by a reduction in revenues because a
proportionately smaller amount of the Company's expenses varies with its
revenues. As a result, the Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. Due to all of the foregoing
factors, it is possible that in some future quarter the Company's operating
results may be below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock would likely be
materially adversely affected.
Product Concentration
The Company currently derives a substantial majority of its revenues
from its NetWorker software products and related services, and the Company
expects that revenues from NetWorker will continue to account for a majority of
the Company's revenues for the foreseeable future. Broad market acceptance of
NetWorker is, therefore, critical to the Company's future success. As a result,
a decline in unit prices of or demand for NetWorker, or failure to achieve broad
market acceptance of NetWorker, as a result of competition, technological change
or otherwise, would have a material adverse effect on the business, operating
results and financial condition of the Company. The life cycle of NetWorker is
difficult to estimate due in large measure to the recent emergence of the
Company's market, the effect of new products, applications or product
enhancements, technological changes in the network storage management
environment in which NetWorker operates and future competition. The Company's
future financial performance will depend in part on the successful development,
introduction and market acceptance of new products, applications and product
enhancements. There can be no assurance that the Company will continue to be
successful in marketing NetWorker or any new products, applications or product
enhancements.
Competition
The network storage management market is intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving
standards. Competitors vary in size and in the scope and breadth of the products
and services offered. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
materially adversely affect the Company's business, operating results and
financial condition. Many of the Company's current and potential competitors
have significantly greater financial, technical, marketing and other resources
than the Company. As a result, they may be able to respond more quickly to new
or emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion, sale and support of their
products than the Company. The Company also expects that competition will
increase as a result of future software industry consolidations, which have
occurred in the network storage management market in the past. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. In addition, network operating system
vendors could introduce new or upgrade existing operating systems or
environments that include storage management functionality offered by the
Company's products, which could render the Company's products obsolete and
unmarketable. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
faced by the Company will not materially adversely affect its business,
operating results and financial condition.
Dependence on New Software Products; Rapid Technological Change
The network storage management market is characterized by rapid
technological change, changing customer needs, frequent new software product
introductions and evolving industry standards. The introduction of products
embodying new technologies and the emergence of new industry standards could
render the Company's existing products obsolete and unmarketable. The Company's
future success will depend upon its ability to develop and introduce new
software products (including new releases, applications and enhancements) on a
timely basis that keep pace with technological developments and emerging
industry standards and address the increasingly sophisticated needs of its
customers. There can be no assurance that the Company will be successful in
developing and marketing new products that respond to technological changes or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these new products, or that its new products will adequately meet
the requirements of the marketplace and achieve market acceptance. If the
Company is unable, for technological or other reasons, to develop and introduce
new products in a timely manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition will be materially adversely affected. The Company currently has plans
to introduce and market several potential new products in the next twelve
months. Some of the Company's competitors currently offer certain of these
potential new products. Due to the complexity of client/server software and the
difficulty in gauging the engineering effort required to produce these potential
new products, such potential new products are subject to significant technical
risks. There can be no assurance that such potential new products will be
introduced on a timely basis or at all. In the past, the Company has experienced
delays in the commencement of commercial shipments of its new products,
resulting in customer frustrations and delay or loss of product revenues. If
potential new products are delayed or do not achieve market acceptance, the
Company's business, operating results and financial condition will be materially
adversely affected. The Company has also, in the past, experienced delays in
purchases of its products by customers anticipating the launch of new products
by the Company. There can be no assurance that material order deferrals in
anticipation of new product introductions will not occur.
Software products as complex as those offered by the Company may
contain undetected errors or failures when first introduced or as new versions
are released. The Company has in the past discovered software errors in certain
of its new products after their introduction and has experienced delays or lost
revenues during the period required to correct these errors. Although the
Company has not experienced material adverse effects resulting from any such
errors to date, there can be no assurance that, despite testing by the Company
and by current and potential customers, errors will not be found in new products
after commencement of commercial shipments, resulting in loss of or delay in
market acceptance, which could have a material adverse effect upon the Company's
business, operating results and financial condition.
Risks Associated with Strategy of Expanding OEM Channel; Reliance on Resellers
An integral part of the Company's strategy is to increase the
proportion of the Company's customers licensed through OEMs. There can be no
assurance that such customers will continue to account for a significant
percentage of the Company's revenues in the future. The Company is currently
investing, and intends to continue to invest, significant resources to develop
this channel, which could materially adversely affect the Company's operating
margins. There can be no assurance that the Company will be successful in its
efforts to increase the revenues represented by this channel. The Company is
dependent upon its OEMs' ability to develop new products, applications and
product enhancements on a timely and cost-effective basis that will meet
changing customer needs and respond to emerging industry standards and other
technological changes. There is no assurance that the Company's OEMs will
effectively meet these technological challenges. These OEMs are not within the
control of the Company, may incorporate into their products the technologies of
other companies in addition to those of the Company and are not obligated to
purchase products from the Company. In addition, the Company's OEMs generally
have exclusive rights to the Company's technology on their respective platforms,
subject to certain minimum royalty obligations. There can be no assurance that
any OEM will continue to carry the Company's products, and the inability to
recruit, or the loss of, important OEMs could materially adversely affect the
Company's business, operating results and financial condition.
The Company also relies significantly on its distributors, systems
integrators and value added resellers (collectively, "resellers") for the
marketing and distribution of its products. The Company's agreements with
resellers are generally not exclusive and in many cases may be terminated by
either party without cause. Many of the Company's resellers carry product lines
that are competitive with those of the Company. There can be no assurance that
these resellers will give a high priority to the marketing of the Company's
products (they may, in fact, give a higher priority to other products, including
the products of competitors) or that they will continue to carry the Company's
products. Events or occurrences of this nature could materially adversely affect
the Company's business, operating results and financial condition. The Company's
results of operations could also be materially adversely affected by changes in
reseller inventory strategies, which could occur rapidly, and in many cases, may
not be related to end user demand. There can be no assurance that the Company
will retain any of its current resellers, nor can there be any assurance that,
in such event, the Company will be successful in recruiting replacement or new
organizations to represent it. Any such changes in the Company's distribution
channels could materially adversely affect the Company's business, operating
results and financial condition.
<PAGE>
International Operations; Risks Associated with International Sales
The Company believes that its continued growth and profitability will
require further expansion of its international operations. In order to
successfully expand international sales, the Company must establish additional
foreign operations, hire additional personnel and recruit additional
international resellers. This will require significant management attention and
financial resources and could materially adversely affect the Company's
operating margins. To the extent that the Company is unable to effect these
additions in a timely manner, the Company's growth, if any, in international
sales will be limited, and the Company's business, operating results and
financial condition could be materially adversely affected. In addition, there
can be no assurance that the Company will be able to maintain or increase
international market demand for the Company's products. The Company's
international sales are currently denominated in U.S. dollars. An increase in
the value of the U.S. dollar relative to foreign currencies could make the
Company's products more expensive and, therefore, potentially less competitive
in those markets. In some markets, localization of the Company's products is
essential to achieve market penetration. The Company may incur substantial costs
and experience delays in localizing its products, and there can be no assurance
that any localized product will ever generate significant revenues. In addition,
the Company relies significantly on its distributors and other resellers in
international sales efforts. Since these distributors and other resellers are
not employees of the Company and typically do not offer the Company's products
exclusively, there can be no assurance that they will continue to market the
Company's products. Additional risks inherent in the Company's international
business activities generally include unexpected changes in regulatory
requirements, tariffs and other trade barriers, lack of acceptance of localized
products, if any, in foreign countries, longer accounts receivable payment
cycles, difficulties in managing international operations, potentially adverse
tax consequences including restrictions on the repatriation of earnings, and the
burdens of complying with a wide variety of foreign laws. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future international sales and, consequently, the Company's business,
operating results and financial condition.
Management of Expanding Operations
The Company has recently experienced a period of significant expansion
of its operations that has placed a significant strain upon its management
systems and resources. In addition, the Company has recently hired a significant
number of employees, and plans to further increase its total headcount. The
Company also plans to expand the geographic scope of its customer base and
operations. This expansion has resulted and will continue to result in
substantial demands on the Company's management resources. From time to time,
the Company receives customer complaints about the timeliness and accuracy of
customer support. Although the Company plans to add customer support personnel
in order to address current customer support needs and intends to closely
monitor progress in this area, there can be no assurance that these efforts will
be successful. If the Company's efforts are not successful, the Company's
business, operating results and financial condition could be materially
adversely affected. The Company's ability to compete effectively and to manage
future expansion of its operations, if any, will require the Company to continue
to improve its financial and management controls, reporting systems and
procedures on a timely basis and expand, train and manage its employee work
force. There can be no assurance that the Company will be able to do so
successfully. The Company's failure to do so could have a material adverse
effect upon the Company's business, operating results and financial condition.
Dependence Upon Key Personnel
The Company's future performance also depends in significant part upon
the continued service of its key technical and senior management personnel, none
of whom is bound by an employment agreement. The loss of the services of one or
more of the Company's officers or other key employees could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's future success also depends on its continuing ability
to attract and retain highly qualified technical and managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company can retain its key technical and managerial employees or that it can
attract, assimilate or retain other highly qualified technical and managerial
personnel in the future.
Dependence on Growth in the Network Storage Management Market; General Economic
and Market Conditions
All of the Company's business is in the network storage management
market, which is still an emerging market. The Company's future financial
performance will depend in large part on continued growth in the number of
organizations adopting network storage management solutions for their
client/server computing environments. There can be no assurance that the market
for network storage management will continue to grow. If the network storage
management market fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, operating results and financial condition
would be materially adversely affected. During recent years, segments of the
computer industry have experienced significant economic downturns characterized
by decreased product demand, production over capacity, price erosion, work
slowdowns and layoffs. The Company's operations may in the future experience
substantial fluctuations from period-to-period as a consequence of such industry
patterns, general economic conditions affecting the timing of orders from major
customers, and other factors affecting capital spending. There can be no
assurance that such factors will not have a material adverse effect on the
Company's business, operating results or financial condition.
Dependence on Proprietary Technology; Risks of Infringement
The Company depends significantly upon proprietary technology. The
Company relies on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company seeks to protect its software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. There can be no assurance that the Company will develop
proprietary products or technologies that are patentable, that any issued patent
will provide the Company with any competitive advantages or will not be
challenged by third parties, or that the patents of others will not have a
material adverse effect on the Company's ability to do business. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult, and although the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. In selling its products, the
Company relies primarily on "shrink wrap" licenses that are not signed by
licensees, and, therefore, such licenses may be unenforceable under the laws of
certain jurisdictions. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to as great an extent as do the laws of
the United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology, duplicate the
Company's products or design around patents issued to the Company or other
intellectual property rights of the Company.
There has also been substantial amounts of litigation in the software
industry regarding intellectual property rights. The Company has from time to
time received claims that it is infringing third parties' intellectual property
rights, and there can be no assurance that third parties will not in the future
claim infringement by the Company with respect to current or future products,
trademarks or other proprietary rights. The Company expects that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in the Company's industry segment grows and
the functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect upon the Company's business,
operating results and financial condition.
Product Liability
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. In selling its products, the Company relies primarily on
"shrink wrap" licenses that are not signed by licensees, and, therefore, such
licenses may be unenforceable under the laws of certain jurisdictions. As a
result of these and other factors, the limitation of liability provisions
contained in the Company's license agreements may not be effective. The
Company's products can be used to manage data critical to organizations, and, as
a result, the sale and support of products by the Company may entail the risk of
product liability claims. A successful product liability claim brought against
the Company could have a material adverse effect upon the Company's business,
operating results and financial condition.
Possible Volatility of Stock Price
The trading price of the Company's Common Stock has been subject to
wide fluctuations in 1996. The trading price of the Company's Common Stock could
be subject to wide fluctuations in the future in response to quarterly
variations in operating results, announcements of technological innovations or
new products, applications or product enhancements by the Company or its
competitors, changes in financial estimates by securities analysts and other
events or factors. In addition, the stock market has experienced volatility that
has particularly affected the market prices of equity securities of many high
technology companies and that often has been unrelated to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock.
SELLING SECURITY HOLDER
The Reoffer Prospectus relates to shares of Common Stock which have
been acquired by a certain key employee (the "Selling Security Holder") of the
Company, pursuant to a written agreement between the Company and such person
dated as of January 31, 1997.
The following table sets forth certain information with respect to the
Selling Security Holder as of April 4, 1997:
<TABLE>
Number of Percentage of
Shares Shares
Number of Shares Number of Beneficially Beneficially
Selling Beneficially Owned Shares to be Owned After Owned After
Security Holder Position with as of May 1, 1997 Offered Hereby Offering Offering
the Company
<S> <C> <C> <C> <C>
Louis C. Cole Chairman of the 822,683 (1) 837 shares 821,846 (1) 4.76%
Board, President
and Chief Executive
Officer
<FN>
(1) Includes 821,846 shares held by The Louis and Jolene Cole 1988 Revocable
Trust, dated November 7, 1988, of which Mr. Cole is a trustee.
</FN>
</TABLE>
PLAN OF DISTRIBUTION
The shares of Common Stock covered by this Reoffer Prospectus are being
registered by the Company for the account of the Selling Security Holder. The
Company understands that none of such shares will be offered through
underwriters.
Shares of Common Stock covered by this Reoffer Prospectus may be
offered and sold from time to time by the Selling Security Holder through the
Nasdaq National Market System, the over-the-counter market, negotiated
transactions or otherwise, at the prices prevailing at the time of such sales,
at prices relating to such prevailing market prices or at prices otherwise
negotiated. To the Company's knowledge, no specific brokers or dealers have been
designated by the Selling Security Holder nor has any agreement been entered
into in respect of brokerage commissions or for the exclusive or coordinated
sale of any securities which may be offered pursuant to this Reoffer Prospectus.
The Selling Security Holder and any broker dealer through whom sales are made by
the Selling Security Holder may be regarded as "underwriters" within the meaning
of the Securities Act although the Selling Security Holder disclaims such
status, and their compensation may be regarded as underwriter's compensation.
The Company will not receive any of the proceeds from the offering
hereunder. All expenses of registration incurred in connection with this
offering are being borne by the Company, but all selling and other expenses
incurred by the Selling Security Holder will be borne by such Selling Security
Holder.
On May 27, 1997, the closing sales price of the Common Stock, as
reported on the Nasdaq National Market System, was $19.75.
DOCUMENTS INCORPORATED BY REFERENCE
The Company hereby incorporates by reference into this Prospectus the
following documents previously filed with the Commission:
(a) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996; and
(b) The Company's Registration Statement No. 0-26130 on Form 8-A
filed with the SEC on May 19, 1995 pursuant to Section 12 of
the Exchange Act, in which there is described the terms,
rights and provisions applicable to the Company's outstanding
Common Stock.
All of such documents are on file with the Commission. All documents
subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act, prior to the filing of a post-effective amendment which
indicates that all securities to be offered pursuant hereto have been sold or
which deregisters all such securities then remaining unsold shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents.
INDEMNIFICATION
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 such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. The
Company's Bylaws provide 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 Company's
Certificate of Incorporation provides that, pursuant to Delaware law, its
directors shall not be liable for monetary damages for breach of their fiduciary
duty as directors to the Company and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the fiduciary duty of the
directors, and, in appropriate circumstances, equitable remedies such as
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 the Company 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, such as the federal
securities laws or state or federal environmental laws. The Company has entered
into Indemnification Agreements with its officers and directors. The
Indemnification Agreements provide the Company's officers and directors with
further indemnification to the maximum extent permitted by the Delaware General
Corporation Law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the 1933 Act, and is, therefore, unenforceable.
