<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ .
COMMISSION FILE NUMBER: 0-28540
VERSANT CORPORATION
(Name of small business issuer in its charter)
CALIFORNIA 94-3079392
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6539 DUMBARTON CIRCLE, FREMONT, CALIFORNIA 94555
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (510) 789-1500
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of our knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issurer's revenues for the year ended December 31, 1998 were
$23,233,000.
As of February 26, 1999, there were outstanding 10,124,746 shares of the
issurer's common stock, no par value per share. As of that date, the aggregate
market value of the shares of common stock held by non-affiliates of the issuer
(based on the closing price of $1.4688 for the issurer's common stock on the
Nasdaq National Market on February 26, 1998) was approximately $12,522,143. This
excludes 1,599,322 shares of common stock held by directors, officers and
certain stockholders of the issuer. Exclusion of shares held by any person
should not be construed to indicate that such person possesses power, direct or
indirect, to direct or cause the direction of the management or policies of the
issuer, or that such person is controlled by or is under common control with the
issuer.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's definitive proxy statement for the issuer's 1999
annual meeting of shareholders to be filed with the Securities and Exchange
Commission by April 30, 1999 are incorporated by reference in Part III of this
Form 10-KSB.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE> 2
VERSANT CORPORATION
ANNUAL REPORT ON
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
FORM 10-KSB
<TABLE>
<CAPTION>
ITEM NO. NAME OF ITEM PAGE
- -------- ------------ ----
<S> <C> <C>
PART I
Item 1 Description of Business 1
Item 2 Description of Property 13
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders 13
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 14
Item 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 16
Item 7A Quantitative and Qualitative Disclosures About Market Risk 33
Item 8 Financial Statements 33
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 33
PART III
Item 10 Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Exchange Act 34
Item 11 Executive Compensation 34
Item 12 Security Ownership of Certain Beneficial Owners and Management 34
Item 13 Certain Relationships and Related Transactions 34
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 34
Signatures 35
Index to Consolidated Financial Statements and Financial Statement Schedule F-1
</TABLE>
Versant(R) is a registered trademark of our company. This Form 10-KSB also
includes trade names and trademarks of other companies.
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
This Form 10-KSB contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933. These forward-looking statements involve a number of
risks and uncertainties which are described throughout this Form 10-KSB,
including under "Revenues" and "Risk Factors" in Item 6 of this Form 10-KSB. The
actual results that we achieve may differ materially from any forward-looking
statements due to such risks and uncertainties. We have identified, using a
preceding asterisk, various sentences within this Form 10-KSB which contain such
forward-looking statements, and words such as "believes," "anticipates,"
"expects," "intends" and similar expressions are intended to identify
forward-looking statements, but these are not the exclusive means of identifying
such statements. In addition, the section labeled "Risk Factors" in Item 6 of
this Form 10-KSB, which does not include asterisks for improved readability,
consists primarily of forward-looking statements and associated risks. We
undertake no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may arise after the date of this report.
Readers are urged to carefully review and consider the various disclosures made
by us in this report and in our other reports filed with the Securities and
Exchange Commission that attempt to advise interested parties of the risks and
factors that may affect our business.
OVERVIEW
Our company designs, develops, markets and supports high performance object
database management systems for commercial applications in distributed computing
environments. Our core product is the Versant ODBMS, or Versant Object Database
Management System, a highly scaleable database management system that combines
native support for object-oriented languages with high performance database
functionality and a client-server architecture. The Versant ODBMS enables users
to store, manage and distribute information that we believe often cannot be
supported effectively by traditional database technologies, including:
(1) abstract data, such as graphics, images, video, audio and unstructured
text;
(2) dynamic, highly interrelated data, such as network management data,
advanced financial instruments; and
(3) distributed, rapidly changing content in Internet-based applications.
We also provide peripheral products, including object-oriented programming
language interfaces, database query tools, application development tools, legacy
database access tools, Internet-based integration tools and multimedia
management tools.
In addition, we offer a variety of services, including training, consulting
and technical support, to assist users in developing and deploying applications
based on the Versant ODBMS.
Our customers include AT&T, Alcatel Network Systems, British Airways,
British Telecommunications plc, The Chicago Stock Exchange, EDS, HNC Software,
Lucent, MCI WorldCom, Sabre, Decision Technologies, Siemens, Sprint, Qantas,
Texaco and TRW. We are a leading provider of object database management systems
to the telecommunications industry, where our products are used in strategic
distributed applications such as network modeling and management, fault
diagnosis, service activation and assurance and customer billing. We have also
experienced customer acceptance in other vertical markets, including the
financial services, defense, health care and energy markets. These markets are
similar to the telecommunications market in their increasing need for high
performance support for distributed applications involving abstract data types
and dynamic, highly interrelated information.
We were incorporated in California in August 1988 as Object Sciences
Corporation. Our principal executive offices are located at 6539 Dumbarton
Circle, Fremont, California 94555, and our telephone number is (510) 789-1500.
BACKGROUND
Organizations are under increasing pressure to manage and adapt to the
forces of accelerating change and growing complexity. The combined demands of
global competition, deregulation and organizational restructuring, as well as
rapid changes in products and markets and a proliferation of new technologies,
increasingly complicate business operations. These pressures fall heavily on
corporate information systems, which must model this complexity, support
<PAGE> 4
increasingly distributed operations and manage new types of information that are
more diverse, interrelated and dynamic.
In attempting to respond to these pressures, traditional information
technologies are being stretched to deliver solutions for which they were
neither designed nor intended. This is particularly true in the areas of
software programming and database management, where many existing technology
paradigms date back to the 1970s or earlier. The "structured programming"
approach, which still dominates most software development, requires reduction of
a business problem to a series of segmented procedures that are implemented line
by line to build large, monolithic software programs. This approach can be slow
and error-prone, and often produces software programs that are costly to
maintain and difficult to change. We believe that a significant portion of
existing programming resources can be consumed in maintaining older, legacy
systems that cannot be efficiently evolved. These limitations have led a number
of industry observers to declare a "crisis" in software development.
A newer approach to software development, object-oriented programming,
responds to many of these limitations. Object-oriented programming languages,
such as C++, Java and Smalltalk, enable software developers to realistically
model the complexities of large scale, dynamic systems, and to develop, maintain
and evolve complex programs more quickly and at a higher level of quality than
is often possible using structured programming. In addition, Java allows
software developers to create applications once that will run on any computing
platform, unlike most other programming languages, which require developers to
modify an application every time it is ported to a different computing platform.
As a result, we believe that object-oriented programming languages, especially
Java, are increasingly being used by software developers.
While object-oriented technology can address many software development
problems, it places new demands on existing database management systems, most of
which were designed to operate with traditional programming methodologies and
simpler types of data in centralized environments. The hierarchical and
relational database management systems now prevalent were developed at a time
when data processing operations were highly structured and performed on
centralized mainframe platforms or, in the case of relational database
management systems, two-tier client/server applications. These systems perform
well with simple types of data (such as text and numbers) and static
relationships. However, businesses are increasingly required to deploy database
management systems that can effectively manage the problems and conditions
listed below:
o Abstract Data Types. Graphics, images, video, audio and unstructured
text, often combined in one application, are proliferating in business and
Internet-based applications.
o Complex Data Relationships. Telecommunications networks,
Internet-based applications, financial instruments, health care systems,
customer support systems, airline reservation systems and logistics
management often involve complex relationships among thousands of rapidly
changing items.
o Constant Change. Business rules, data relationships, technology and
information are constantly changing, requiring information systems and
applications that can be quickly deployed and flexibly evolved to adapt to
changes while maintaining overall system quality and data integrity and
while keeping the system in service.
o Highly Distributed Data. Complex, interrelated, constantly changing
data may be created in or distributed to dozens or hundreds of locations
around the world, and must be carefully managed to maintain integrity yet
be available on demand to many users on different platforms.
The growth of the Internet and the World Wide Web as mainstream computing
and communication platforms compounds these challenges. The Internet
incorporates new types and combinations of dynamic, abstract data, and involves
a complex array of relationships among users, service and content providers,
data sources and information repackagers and resellers. This computing
environment is inherently distributed and dynamic and is evolving at a rapid
pace. The use of the Internet for transactional applications, and the
proliferation of internal corporate Intranets and external corporate Extranets,
are accelerating this complexity, further increasing demand for new software and
database technologies. Companies are increasingly seeking to integrate Internet,
Intranet and Extranet applications with corporate databases, but the abstract
multimedia information and complex, changing data relationships prevalent in
these applications are not easily accommodated by hierarchical or relational
databases.
2
<PAGE> 5
Database management systems have evolved through several generations of
technology, each responding to the data processing demands of its time but
limited in its ability to address new problems effectively. The first online
data management technologies indexed and stored data in a computer's file system
and provided database access to only one user at a time. These file systems are
extremely fast for single-user applications but are impractical when multiple
users need access to common data. Hierarchical databases, such as IBM's IMS,
enable multiple programs and users to process very large volumes of similarly
structured data, often in large batch operations. While these databases provide
high speed performance for such tasks as processing bank records, phone bills
and insurance information, they are relatively inflexible, and are often
inefficient in handling abstract data types and complex dynamic relationships.
The application programs developed for these systems are in many cases over 20
years old, and can be difficult and costly to maintain and error-prone when
modified. However, because they are well suited for certain applications,
hierarchical databases remain in wide use today.
RDBMSs, or relational database management systems, were developed in the
1970s to address the inflexibility of hierarchical databases. They were used
initially to perform ad hoc queries and later for online transaction processing
and decision support systems. An RDBMS stores data in a series of
two-dimensional tables and defines relationships between data by connecting rows
and columns and linking multiple tables. Complex queries are performed by
indexing multiple tables and then "joining" them to create a different view of
the data. RDBMSs are adept at handling simple types of information, such as
alphanumeric data, and managing static relationships, such as that between a
part number and an invoice. They are less effective in managing more abstract
data types, such as graphics, video and audio, which they must "decompose" into
a series of two-dimensional tables and then re-compose when needed, or must
store as isolated binary large objects that do not support analysis,
manipulation or relationships to other data. In addition, RDBMSs are relatively
inefficient when used to manage complex relationships because of the inherent
burden of indexing and joining multiple two-dimensional tables. This performance
burden can significantly lengthen response times and is compounded when users
seek to maintain data on more than one server in a distributed environment
because data must be transmitted to a central server where these joins can be
performed. The burden is increased as applications become more complex and
information more interrelated. As a result, we believe that RDBMSs cannot
provide the level of performance required by many users for a growing number of
complex distributed applications.
Relational database vendors have attempted to address some of the
shortcomings of RDBMSs by "extending" their support for abstract data types with
object-relational and pure object-oriented approaches, and the use of robust
middleware applications that enable organizations to connect object-oriented
applications to RDBMSs. While we acknowledge that the use of object-relational
and middleware approaches can improve relational performance, we believe that
the performance of object-relational systems or RDBMSs augmented by middleware
is limited by the two-dimensional kernel architecture of RDBMSs. We also believe
that the decision of relational database vendors to pursue object-relational or
object-oriented approaches supports our belief that object-oriented database
solutions will be increasingly demanded by business organizations.
For the foregoing reasons, we believe today's business organizations need
to manage abstract data types as well as complex dynamic relationships in a
vastly more distributed environment and that this need is often not effectively
addressed by hierarchical, relational and object-relational database management
systems.
THE VERSANT SOLUTION
The Versant ODBMS is a database management system that combines native
support for object-oriented languages with high performance database
functionality and a client-server architecture that supports two-tier and n-tier
applications. The Versant ODBMS is designed to meet commercial users'
requirements for high performance, scalability, reliability and compatibility
with heterogeneous computing platforms and legacy information systems. The
Versant ODBMS provides users with the following benefits:
o Management of Abstract Data Types. The Versant ODBMS allows users to
store and manage a wide range of abstract information, such as images, video,
audio and unstructured text, as well as traditional types of alphanumeric data.
Nearly any kind of information that can be digitized can be stored as an object
in the Versant ODBMS, while maintaining the application-defined behavior and
relationships of the objects.
o Language-Independent Support for Object-Oriented Programming. The Versant
ODBMS provides native support for the leading object-oriented software
development languages--C++, Java and Smalltalk. This support facilitates
3
<PAGE> 6
rapid and flexible development, maintenance and evolution of complex, dynamic
applications that closely model real-world systems and processes. Objects
developed in these languages are directly stored in the Versant ODBMS. In
addition, the Versant ODBMS is language-independent, allowing objects written in
one object-oriented language to interoperate with objects written in another
object-oriented language. Moreover, the Versant ODBMS supports Java, an
object-oriented language that allows the development of applications that will
run on any computing platform without modification.
o High Performance. The Versant ODBMS architecture provides direct access
(navigation) to stored objects. Its balanced client-server architecture enhances
performance by efficiently distributing processing burdens between the client
and the server to leverage the processing power of networked computers. As a
result, certain customers running complex applications involving highly
interrelated data on the Versant ODBMS have reported up to a hundred-fold
improvement in performance compared to RDBMSs running similar applications.
o Highly Scaleable Support for Distributed Computing. The Versant ODBMS
architecture is designed to support the transparent integration of up to 65,000
separate databases in one network, distributed over a range of hardware and
software platforms. Through object-level operations, Web browser support and
other design features, the Versant ODBMS can be scaled from small workgroup
operations to thousands of users over wide area networks or the Internet.
o Reliability, Availability and Serviceability. The Versant ODBMS offers a
number of features designed to permit continuous operation, including features
providing online backup and recovery and online modification of the database
system, as well as system utilities that can operate while the system is
running. These features, together with replication and disk mirroring provided
by our Fault Tolerant Server, support operations 24 hours per day, 365 days per
year in environments such as telecommunications network, commercial banking and
airline reservation systems, where it is critical that the database be
continuously available.
o Support for Three-Tier Architectures. Traditional two-tier architectures
are adequate for closely coupled client-server environments but become unwieldy
in large, distributed systems. The Versant ODBMS supports three-tier
architectures, in which application logic resides as a middle layer between
clients and data stores. This architecture insulates data from constant change,
allows an end-user or application to locate data across multiple databases and
improves the productivity and quality of application development and
maintenance.
o Support for Component Architectures. The Versant Enterprise Container
supports the BEA WebLogic application server. This enables users to deploy their
existing BEA WebLogic Enterprise Java Beans to the Versant Enterprise Container
without modification, gaining the inherent performance advantages of the Versant
ODBMS.
o Integration with Users' Existing Information Systems. The Versant ODBMS
operates on a wide range of client a server platforms, including
industry-leading UNIX platforms from Sun Microsystems, Hewlett-Packard, IBM,
Digital Equipment Corporation and Silicon Graphics, as well as Microsoft's
Windows 3.1, Windows 95, Windows 98, and Windows NT platforms and IBM's OS/2
platform. Objects can be readily accessed and stored by any combination of these
platforms in a heterogeneous network. In addition, Versant-based applications
can interoperate with information stored in relational database management
systems, enabling such applications to complement RDBMS strengths in structured
applications. These compatibilities allow users to protect their existing
investments in databases and information systems while migrating newer systems
to object-oriented platforms.
o Persistence. Traditionally, persistence for object-oriented applications
required explicit application code in some object programming language. The
emergence of application servers for Enterprise Java Beans offers an alternative
to explicit programming, where application components execute in containers that
provide object persistence services. The Versant Enterprise Container (scheduled
for introduction in the first half of 1999) will support Enterprise Java Beans
that interface to either the Versant ODBMS or existing information systems via a
Java database interface, enabling customers to utilize the Versant ODBMS as a
persistence solution.
4
<PAGE> 7
COMPANY STRATEGY
Versant's objective is to be the leading provider of high performance,
enterprise database management systems that store objects and support
application component development for commercial applications in distributed
computing environments. Key elements of our strategy to achieve this objective
include the following:
o Extend Technology Leadership. A significant component of our strategy is
to leverage our knowledge and expertise in object database management systems
for distributed commercial applications. We believe that our product
architecture includes a number of important technological advances and that this
technological leadership is essential to our continued ability to compete
effectively. In 1998, we released products that enable organizations to:
(1) utilize the Versant ODBMS in conjunction with the BEA WebLogic
application server family
(2) asynchronously replicate changes from one Versant database to another
(3) easily store time series of data within the Versant ODBMS
(4) utilize automatic code generation for the Versant ODBMS from within
the Rational Rose product
(5) integrate the Versant ODBMS with external transaction monitors such as
BEA M3
*We intend to extend our leadership position by continuing to invest in
internal research and development, establishing strategic relationships with
leading providers of complementary technologies and by integrating the Versant
ODBMS with products offered by third parties. We note that our technological
development efforts are subject to the risks typically associated with such
efforts, including development delays and the technological challenges of
creating new functionality and integrating third-party products into Versant's
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Factors--We depend on successful technology
development."
o Leverage Strength in Telecommunications to Other Vertical Markets. We are
a leading provider of object database management solutions to the
telecommunications market, where our products are used in such strategic,
distributed applications as network modeling and management, fault diagnosis,
fraud prevention, service activation and assurance and customer billing. We
believe that our experience and success in this demanding market positions us to
address other vertical markets such as financial services, defense, health care
and energy. These markets are similar to the telecommunications market in their
increasing reliance on large networks and need for high performance support for
abstract data types and for distributed, complex applications involving dynamic,
highly interrelated information. In 1998, we increased our focus on the
financial services market and conducted several seminars worldwide to expand
awareness of us and our products in this market. *We intend to continue to focus
on telecommunications and financial services in 1999, though we will seek
additional opportunities outside these markets as well. Our success in the
telecommunications, financial services and other markets is dependent, in part,
on our ability to compete with alternative technology providers and the extent
to which our customers and potential customers believe we have the expertise
necessary to provide effective solutions in these markets. If these conditions,
among others, are not satisfied, we may not be successful in generating
additional opportunities in these markets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --Risk Factors--We
rely on telecommunications and financial services markets."
o Capitalize on the Internet-based Market Opportunity. *We believe that the
growth of the Internet and Intranets and Extranets as computing environments
will significantly expand the market opportunity for our object database
management technology. Internet-based computing environments and applications
are highly distributed and are increasingly becoming more complex, requiring
highly scaleable, high performance database systems as their infrastructure. In
addition, Internet-based applications increasingly incorporate abstract data
types and are increasingly being addressed by object-oriented programming
languages such as C++, Java and Smalltalk. As a result, we believe that our
product architecture and our telecommunications experience position us to
capitalize upon the Internet-based market. Certain of our customers, including
Buzzeo, EDS, Intel, Primus and Spyglass, are using our technology to develop
and/or deploy Internet-based applications, including applications designed to
enhance the performance of Internet-based infrastructures. In 1998, we
significantly increased our focus on the Internet-based market opportunity,
particularly with the release of certain products designed to allow the
development of Web-based and Java applications. *We intend to continue focusing
on the Internet-based market opportunity and working with partners to improve
the performance of Internet-based infrastructures. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Risk Factors--We
rely on telecommunications and financial services markets."
5
<PAGE> 8
o Integrate with Component Middle-tier Servers. We intend to aggressively
integrate with leading providers of component-based servers offering persistence
services. Existing standards for enterprise Java Bean solutions and emerging
standards for CORBA, or common object request broker architecture, solutions
provide an important opportunity for Versant to expand into new markets.
o Expand Distribution Channels. *We intend to expand our indirect
distribution channels by recruiting additional value-added resellers,
distributors and other resellers. *As familiarity with object-oriented
technology and awareness of our products increase, we believe that we will be
able to increase our use of indirect sales channels to address a broader market
and to capitalize on resellers' integration capabilities. In addition, we
believe that international markets present attractive opportunities,
particularly as telecommunications and other industries face increasing change
and competitive pressures worldwide. *We intend to continue to expand our
international distribution network to capitalize on these opportunities,
particularly through Versant Europe, our European subsidiary. However, we may
not be successful expanding our distribution channels, and our international
business activities are subject to accompanying international risks. We have
experienced only limited success recruiting value-added resellers to date, which
we believe is due, in part, to the complexity of our solutions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors--We depend on our international operations."
o Enable Customers to Implement a Complete Solution. We believe that our
object database management systems can provide customers with a foundation upon
which they can build a broader object-oriented environment that includes
development language interface, component servers, object request brokers, class
libraries and tools for the development of applications and interface and for
the integration of existing data and applications. *We believe that our Versant
Enterprise Container product (scheduled for introduction in the first half of
1999) will enhance customers' ability to implement a complete solution. *We
intend to expand the breadth of our product offerings through internal
development efforts and through marketing, licensing and other relationships
with providers of complementary technologies and other market participants. *We
believe that by providing our customers with a more complete solution, we can
facilitate their adoption of object-oriented technology, accelerate the
development of applications in a component framework, and expand the use and
value of our products. However, Versant product offerings may not be
commercially accepted by our customers and are subject to potential development
delays due to the technological challenges of creating new product offerings,
and competing solutions may limit the market opportunity for Versant product
offerings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Factors--We depend on successful technology
development."
o Increase Penetration of Current Customer Base. We seek to generate
incremental, recurring revenue from our installed base of customers. In 1998, we
significantly increased our development licenses sold compared to 1997. This
action could generate significant follow-on sales of deployment licenses in
1999. A customer's successful development of an application under a development
license can lead to additional revenue from deployment licenses. The scalability
of the Versant ODBMS enables customers to add end-users, providing additional
license revenue to us as customers expand their use of the product. The
adaptability of the Versant ODBMS to a wide range of applications allows
customers who have successfully implemented the Versant ODBMS for one function
to develop applications for other functions. We also license our products on a
project basis, with development and deployment licenses bundled at a lower price
to the customer than if the customer had purchased such licenses separately.
*Although we seek to increase our number of customers, typically through
relatively smaller licenses, we believe that our practice of licensing our
products on a project basis will increase, which could result in our realizing
larger amounts of revenue at the beginning of a project than it otherwise would,
with potentially reduced recurring revenue opportunities from such project in
the future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Factors--Our revenue levels are unpredictable."
PRODUCTS AND SERVICES
Our core product is the Versant ODBMS, a high performance object database
management system. *In addition, we offer object-oriented programming language
interfaces, database query tools, application development tools, legacy database
access tools, the Versant Enterprise Container (scheduled for introduction in
the first half of 1999), Internet-based integration tools and multimedia
management tools. Customers licensing the Versant ODBMS receive the database
engine with one object-oriented programming language interface and a set of
integrated database utilities. For additional fees, customers may obtain
additional programming language interfaces, and users requiring continuous
operation in mission-critical environments can license the Versant Fault
Tolerant Server. We offer a variety of services
6
<PAGE> 9
to assist customers in the design, development and management of their database
applications, including training, consulting and custom development services.
PRODUCTS
Core Database Products
o Versant ODBMS. The Versant ODBMS is designed to support multi-user,
commercial applications in distributed environments. Its balanced client-server
architecture enables the system to process a wide variety of abstract data types
and complex applications in a highly concurrent, high performance manner. The
product is designed to integrate over 65,000 databases connected over a like
number of locations on a variety of hardware and software platforms. Each
database has a theoretical storage capacity of 4.6 million terabytes, an amount
far beyond the actual capacity of most existing operating systems. We believe
that the customer applications developed to date have used only a small portion
of this theoretical capacity. The Versant ODBMS implements a variety of database
features, including two-phase commits for distributed transaction integrity and
database triggers to monitor changing events and data and to notify users and
applications when specified events occur. In addition, on-line management
utilities enable routine maintenance to be performed while the database is
running. These include utilities to perform backup operations, manage log files,
dynamically evolve database schema, add, delete and compact volumes on disk
storage and related functions. These utilities provide multiple levels of
administrative access and application security. With version 5.2 of the Versant
ODBMS (released in December 1998), we provide external transaction coordination
from third-party transaction monitors, parallel queries to multiple Versant
databases, distributed on-line backup of multiple Versant databases, persistent
database event, and enhanced system management capabilities. We believe these
new features extend our role as the premier object database provider for
enterprise computing.
o Versant Fault Tolerant Server. For continuous operation in mission
critical environments, we offer the Versant Fault Tolerant Server. This product
ensures transparent failure recovery by connecting database clients to
synchronized copies of the database stored on physically separate computers. If
one of the databases fails due to operating system failure, hardware breakdown
or other interruption, the other database continues operation without
application interruption. When the failed database is restored, the two
databases automatically resynchronize and resume operations without application
interruption.
Language Solutions
The Versant ODBMS implements an object model that is a superset of the
capabilities of C++, Java and Smalltalk. The interface to these object-oriented
languages make the database appear to be a natural and transparent extension of
the language. Programs written in any of these languages can use objects written
in another, allowing integration of corporate data stores regardless of
application development language. In 1997, we commercially released our Versant
Java Direct Interface, which enables the development of applications that will
run on any computing platform without modification. Versant's Smalltalk
interface supports both IBM VisualAge and ParcPlace VisualWorks Smalltalk
environments. In addition, we provide a C language interface.
Internet-based Products
o Versant Multimedia Access. Versant Multimedia Access enables
organizations to store and manage multimedia files flexibly and extensibly.
Versant Multimedia Access automatically loads multimedia files into the Versant
ODBMS as instances of predefined text, audio, video, URL or application-specific
classes, and allows customization of multimedia classes and loading methods. In
addition, Versant Multimedia Access embeds Verity, Inc.'s Verity Search '97 to
create and maintain collections of indices for each database and Verity
Information Server to provide the user with an intuitive Web interface for
composing queries and data retrieval.
o VersantWeb. VersantWeb is a C++ application development framework that
enables developers to construct and deploy interactive systems for corporate
Intranets and Extranets and the Internet while taking advantage of the
flexibility and portability of Web servers and browsers. VersantWeb tightly
integrates Versant databases with Web servers to extend the reach of
sophisticated client/server applications to a broad range of application users
without sacrificing performance.
7
<PAGE> 10
o Versant Enterprise Container. *The Versant Enterprise Container will
enable users to deploy Java-based applications called Java Beans that take
advantage of the capabilities of the Versant ODBMS without customizing the
applications for the Versant ODBMS. *The Versant Enterprise Container will
initially support the BEA WebLogic application server family and is scheduled
for introduction in the first half of 1999. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Risk Factors--We
depend on successful technology development."
Data Access and Integration Tools
The Versant ODBMS allows users a choice of access methods for querying and
manipulating data in the Versant ODBMS and to obtain data from relational
databases. With the Versant SQL Suite, we offer open database connectivity
capability and structured query language access to data stored in relational
databases using industry-standard off-the-shelf query and reporting tools. These
tools permit customers to retain their investments in legacy systems while
addressing new applications with the productivity, flexibility and performance
characteristics available through object technology.
LICENSING AND PRICING OF PRODUCTS
We license our products directly to end-users principally through four
types of licenses--development licenses, deployment server licenses, deployment
client licenses and project licenses (which include development and deployment
licenses). Development licenses are sold on a per seat basis and authorize the
customer to develop an application program that uses the Versant ODBMS. Before a
customer may deploy an application, it must purchase at least one deployment
server license and one deployment client license for each computer connected to
the server that will run the application using the database. If the customer
wishes to install several copies of the application, separate deployment
licenses are required for each server computer and each client that will run the
particular application. We also license our products on a project basis, where
the customer simultaneously purchases development and deployment licenses for an
entire project.
List price of a development license currently is $6,750 per seat. List
prices of deployment licenses range from $1,500 for a single user to over
$432,000 for a 24 central processing unit multiprocessor machine, with unlimited
users. We provide alternative pricing for non-interactive environments where the
product is deeply embedded in a component, such as a telephone switch, and does
not have end users. License fees to customers may vary from list prices
depending on a number of factors. Sales through distributors generally involve a
significant discount to list prices. Prices for project licenses will vary with
the scope and nature of the underlying project.
A typical value-added reseller develops an application incorporating the
Versant ODBMS and then licenses the application to our customer. Value-added
resellers purchase development licenses from us on a per seat basis on terms
similar to those of development licenses sold directly to end-users. Value-added
resellers are authorized by us to sub-license deployment copies of the Versant
ODBMS, together with the value-added resellers' applications, to end-users.
Deployment license pricing for sales through value-added resellers generally is
based either on a percentage of the total price charged by the value-added
reseller to our end-user customers or are based on a percentage of our list
prices. We also enter into project licenses with certain value-added resellers.
SERVICES
We offer a variety of services to assist customers in the design,
development and management of their database applications. Training is offered
in a variety of Versant-specific and object-related technologies and ranges from
beginning to advanced levels. Consulting services are available for analysis and
design assistance, mentoring and technical transfer, application coding, design
reviews and performance analysis. In addition, we provide custom development
services to customers that request unique or proprietary product extensions.
These services may be performed by third-party integrators, consultants, or us,
depending on the nature and complexity of the request. Maintenance and technical
support services are available at an annual fee typically equal to 16.5% of the
net price of the software. Maintenance and support contracts, which typically
have twelve-month terms, are offered concurrently with the initial license of a
Versant product and entitle the customer to telephone support and to product and
documentation updates. For additional fees, customers may purchase a special
support package providing a dedicated support engineer, and may obtain telephone
support available 24 hours per day. All maintenance contracts are renewable
annually.
8
<PAGE> 11
CUSTOMERS AND APPLICATIONS
The Versant ODBMS is licensed for development and/or deployment in a wide
range of applications. Many of our customers have licensed multiple copies for
use in different applications. Sales to Sprint and Bank Sarasin together
represented 13% of our total revenue in 1998; however, no single customer
accounts for 10% or more of our 1998 total revenue.
In any given quarter, it is typical for a relatively small number of
customers to constitute a significant percentage of our total revenue. In 1996,
1997 and 1998, 62%, 39% and 42% of our total revenue were attributable to sales
of products and services to telecommunications companies. In addition, in 1998,
15% and 7% of our total revenue were attributable to sales of products and
services in the financial services and technology markets. *Our future
performance will depend in significant part on the continued growth of the use
of ODBMSs in telecommunications and financial market applications and the
acceptance of our products within the telecommunications and financial services
industries. *In addition, we expect to become increasingly dependent upon the
Internet-based and financial services markets. The failure of our products to
perform favorably in and become an accepted component of telecommunications,
Internet-based or financial services applications, or a slower than expected
increase or a decrease in the volume of sales of our products and services to
telecommunications, Internet-based or financial services companies, could have a
material adverse effect on us.
The following examples illustrate some of the new applications for the
Versant ODBMS in our target telecommunications, Internet-based and financial
services markets.
TELECOMMUNICATIONS
British Telecommunications plc has integrated the Versant ODBMS into its
SHERIFF (Statistical Heuristic Engine to Reliably and Intelligently Fight Fraud)
product, a global telephone fraud detection and management system. SHERIFF
leverages the Versant ODBMS's object-oriented architecture and ability to define
and model complex relationships in mission-critical environments in order to
identify telephone fraud online at the time of each call, rather than over time
after a pattern of fraudulent activity has been detected, thereby helping to
minimize potential damage. The Versant ODBMS helps SHERIFF to analyze every BT
call that is made, where a call comes from and goes to, and to whom the call is
billed, and, after analyzing these criteria against a series of rules and
algorithms designed to detect abuse or other anomalies, automatically notifies
BT's specialist fraud case investigators, presenting them with the facts
necessary to make an informed decision on whether fraudulent activity is
occurring and appropriate steps to combat the fraud. *This system is currently
completing trials and is planned to cover all BT voice services over time. As
with all new applications, the rollout of SHERIFF is subject to a number of
risks, including the technological challenges of integrating the Versant ODBMS.
INTERNET-BASED
Buzzeo, Inc., a provider of higher education information technology, has
developed an open, network-centric enterprise solution using the Versant ODBMS
that allows academic institutions to provide Internet or Intranet access to a
wide range of online services, including recruitment, admissions, student
registration and grade management. Buzzeo leverages Versant's Java Direct
Language Interface to allow college and university staff to update data, run and
schedule reports and access records, all using a Web browser. Buzzeo's ZeoLogix
Framework, written entirely in Java, relies upon the ability of the Versant
ODBMS to manage data in real-time, without database downtime, and to provide
mission-critical reliability, fault tolerance, automated replication and
interoperability.
FINANCIAL SERVICES
The Chicago Stock Exchange has implemented an object-based, real-time
trading application built on the Versant ODBMS. This application, responsible
for the entire volume of stock trading on The Chicago Stock Exchange, relies on
the scalability, fault tolerance and mission-critical high performance
capabilities of the Versant ODBMS. By using the Versant ODBMS rather than a
relational database, The Chicago Stock Exchange eliminated the complexities and
overhead of mapping objects and object references to the tables and rows of a
relational database, thereby significantly
9
<PAGE> 12
increasing developer productivity. In addition, the trading application uses
Versant's ability to support a three-tier client/application server/object
server architecture to improve network performance.
MARKETING AND SALES
We market and sell the Versant ODBMS in the United States principally
through our direct sales force and value-added resellers and internationally
through our distributors, direct sales force and value-added resellers.
DIRECT SALES
As of December 31, 1998, our direct sales organization consisted of 49
employees based at our corporate headquarters in Fremont, California and at our
other regional offices around the world. The direct sales organization includes
a telesales force that supports our field sales personnel and maintenance
renewals and handles smaller orders. The direct sales organization also includes
systems engineers who answer technical questions and assist customers in running
benchmarks against competitive products and developing prototype applications.
In 1996, 1997 and 1998, sales by our direct sales force (including sales to
value-added resellers) accounted for over 89%, 99% and 99%, respectively, of our
total revenue.
INDIRECT SALES
An important part of our sales strategy is the development of indirect
distribution channels, such as value-added resellers, systems integrators and
foreign distributors. Typical value-added resellers build application programs
in which they embed a deployment copy of the Versant ODBMS. Systems integrators
may include our products with those of others to provide a complete solution to
their customers. Foreign distributors include distributors based in Japan, Italy
and Israel. Value-added resellers are typically not subject to any minimum
purchase or resale requirements and can cease marketing our products at any
time. Certain value-added resellers, distributors and systems integrators also
offer competing products that they produce or that are produced by third
parties.
MARKETING
We conduct marketing programs intended to position and promote our products
and services, including direct mail, advertising, seminars, trade shows, public
relations and distribution of product literature. We also maintain a Web site
where prospective customers can obtain general information about our products,
services and distribution partners, and can download Windows NT and Solaris
versions of our products for evaluation for a limited period. Marketing
personnel provide price lists and product descriptive materials, including white
papers, and assist the direct sales force in their efforts through lead
generation and sales training. The marketing department also has a leading role
in product marketing activities, including product management, cooperative
positioning and long-term product direction.
SALES PROCESS
Due in part to the strategic nature of certain Versant ODBMS applications
and magnitude of the associated hardware, networking, software and consulting
expenditures, potential customers are typically cautious when making product
acquisition decisions. For these and other reasons, the sales cycle for our
products to new customers often exceeds six months and may extend to a year or
more. However, for existing customers with successful deployed applications,
sales cycles for new applications of the Versant ODBMS are generally not as
long. During the sales cycle, meetings involving both technical and management
staff are frequently conducted at the customer's site and at our headquarters.
We face significant competition in the database management system marketplace,
and prospective customers typically perform a detailed technical evaluation or
benchmark of the Versant ODBMS and, often, competitive products, as a part of
the selection process. Upon completion of the evaluation, the customer may
purchase one or more development licenses for the team of programmers that will
build the application. Additionally, the customer may order maintenance,
training courses and assistance from our consultants. While the customer can
purchase a deployment license at the same time as it purchases a development
license, or can purchase a project license that covers development and
deployment for an entire project, many customers defer their purchase of a
deployment license and related maintenance until they complete application
development (a process that typically takes at least six months and can exceed
one year) and then decide to deploy the application. Even after obtaining a
development license,
10
<PAGE> 13
customers may not complete the development of an application successfully, and
even if an application is successfully developed, the customer may decide not to
deploy the Versant ODBMS.
For deployed applications, a customer may purchase additional deployment
licenses as additional users are added to a system, without further deliveries
from us, providing additional revenue over an extended period at a relatively
low incremental cost to us. Depending on the application type and the customer
size, it is possible for the price of a customer's deployment licenses to
substantially exceed the price of earlier development licenses.
SALES OF THIRD PARTY PRODUCTS
In order to enhance the functionality of the Versant ODBMS, we offer
certain products licensed from third parties, which are either embedded within
or offered in connection with the Versant ODBMS. For example, we have embedded
Verity, Inc.'s Verity Search '97 and Verity Information Server into our Versant
Multimedia Access product and have an agreement with Rational Software
Corporation to offer Rational Rose (an application development tool).
SHIPPING AND BACKLOG
Our software is typically shipped to customers shortly after the execution
of a license agreement and upon our receipt of the order. As a result, we
typically do not have a material backlog of unfilled license orders at any given
time, and we do not consider backlog to be a meaningful indicator of future
performance.
RESEARCH AND DEVELOPMENT
*We have committed, and expect to continue to commit, substantial resources
to our research and development efforts. Our current development efforts are
focused on:
(1) continuing to leverage Java
(2) developing application development tools, especially in Internet-based
environments
(3) improving performance of the Versant ODBMS, particularly on the
Windows NT platform and
(4) improving integration between the Versant ODBMS and legacy databases
Research and development expenses were approximately $3.3 million, $5.2
million and $7.7 million in 1996, 1997 and 1998. In addition, we incurred
$528,000 in acquired in-process R&D expense during 1998. To date, all research
and development expenditures have been expensed as incurred.
The Versant ODBMS has, to date, been almost entirely developed by our
research and development personnel. Our development team consisted of 69
full-time employees as of December 31, 1998, most of whom are software engineers
with significant experience in such technologies as:
(1) object-oriented software development, including Java
(2) relational database technology
(3) platform engineering (4) design and integration and
(5) large-scale run-time environments
We selectively supplement our internal staff with outside consultants
having expertise in specific areas.
In 1997, we began performing certain porting and enhancement engineering
work in Pune, India, by subcontracting work through Netcon Systems, a Software
Technology Park company. A Software Technology Park company is a software
development company shielded from import and export duties, so that India can
promote its specialized software labor pool. In December 1998, we, with two
Indian citizens, sponsored the creation of a Software Technology Park company
named Versant India. In March 1999, we purchased the common stock of Versant
India from its founders for $24,000. Versant India then purchased certain assets
of Netcon for $73,000, and all of the employees of Netcon became Versant India
employees. Versant India is our wholly owned subsidiary and will continue to do
porting and development projects for us. Versant India has 14 employees and
occupies a rented facility of 7,500 square feet in Pune, India. *The purchase
price and legal and accounting fees of $50,000 incurred in connection with our
acquisition of Versant India will be capitalized in March 1999. *The acquisition
of Netcon's assets will be accounted for using the
11
<PAGE> 14
purchase method and will result in our recording an intangible asset
representing the cost in excess of fair value of the net assets acquired. This
transaction is not considered to be material to us.
In 1998, we also added 14 engineers with our acquisition of Soft Mountain.
*Our future success will depend on our ability to attract, train and retain
highly skilled research and development personnel. Competition for such
personnel is intense, especially the competition for personnel familiar with
object-oriented technology. *We expect that such competition will continue for
the foreseeable future and may intensify.
*We believe that our future results will depend on our ability to improve
our current technologies and to develop new products and product enhancements on
a timely basis. The market for our products and services is characterized by
changing customer demands, rapid technological change and frequent introductions
of new products and product enhancements. Customer requirements for products can
change rapidly as a result of innovations or changes within the computer
hardware and software industries, the introduction of new products and
technologies (including new hardware platforms and programming languages) and
the emergence, evolution or widespread adoption of industry standards. The
actual or anticipated introduction of new products, technologies and industry
standards can render existing products obsolete or unmarketable or result in
delays in the purchase of such products. As a result, the life cycles of our
products are difficult to estimate. *We have in the past experienced delays in
the introduction of new products and features, and may experience such delays in
the future. If we are unable, for technological or other reasons, to develop new
products or enhancements of existing products in a timely manner in response to
changing market conditions or customer requirements, our business, operating
results and financial condition will be materially adversely affected.
New products or new versions of existing products may, despite testing,
contain undetected or unresolved errors or bugs that will delay their
introduction or adversely affect their commercial acceptance, which could have a
material adverse effect on our business, operating results and financial
condition.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We rely primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary technology. For example, we license our software pursuant to signed
license agreements and, to a lesser extent, "shrink-wrap" licenses displayed in
product packaging, which impose certain restrictions on the licensee's ability
to utilize the software. In addition, we seek to avoid disclosure of our trade
secrets, including requiring those persons with access to our proprietary
information to execute confidentiality agreements with us, and we restrict
access to our source code. We seek to protect our software, documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection. On October 13, 1998 we were awarded a United States patent
(No. 5,822,759) for our proprietary Cache System used within our Versant ODBMS
product.
For a discussion of the intellectual property risks we face, see
"Management's Discussion and Analysis of financial Condition and Results of
Operations--Risk Factors--We must protect our intellectual property."
COMPETITION
For a discussion of the competition we face in our business, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors--We face intense competition."
EMPLOYEES
As of December 31, 1998, we and our subsidiaries had a total of 173
employees, 108 of whom were based in the United States, 47 of whom were based in
Europe, 3 of whom were based in Australia, and 15 of whom were based in India as
contractors. Of the total, 69 were engaged in engineering and technical
services, 59 were engaged in sales and marketing, 25 were engaged in the
services organization and 20 were engaged in administration and finance. Since
December 31, 1998, in connection with our efforts to control costs, we have
reduced our total number of employees to 122. None of our employees is
represented by a labor union with respect to his or her employment by us. We
have experienced no organized work stoppage to date and believe that our
relationship with our employees is good.
12
<PAGE> 15
*Our future performance depends in significant part upon the continued
service of our key technical, sales and senior management personnel. The loss of
the services of one or more of our key employees could have a material adverse
effect on our business, operating results and financial condition. *Our future
success also depends on our continuing ability to attract, train and motivate
highly qualified technical, sales and managerial personnel. Competition for such
personnel is intense, especially in Silicon Valley where our headquarters are
located, and we may not be able to attract, train and motivate such personnel.
ITEM 2. DESCRIPTION OF PROPERTY
In August 1997, we moved our principal administrative, sales, marketing and
research and development operations to a new headquarters facility in Fremont,
California, where we occupy 54,000 square feet under a 10 year lease. We believe
that the Fremont facility will be adequate for our requirements for the next
several years. We and our subsidiaries also lease space for sales offices,
generally under one-year operating lease agreements, in New York City, New York;
Dallas, Texas; Frankfurt, Germany; Munich, Germany; Paris, France; and
Hampshire, England.
ITEM 3. LEGAL PROCEEDINGS
We and certain of our present and former officers and directors were named
as defendants in four class action lawsuits filed in the United States District
Court for the Northern District of California, filed on January 26, 1998,
February 5, 1998, March 11, 1998 and March 18, 1998, respectively. On June 19,
1998 a consolidated amended complaint was filed in this court by the lead
plaintiff named by the court. The amended complaint alleges violations of
Sections 10(b) and 20(a) of the Securities Exchange Act, and Securities and
Exchange Commission Rule 10b-5 promulgated under the Securities Exchange Act, in
connection with public statements about our expected financial performance. The
complaint seeks an unspecified amount of damages. We vigorously deny the
plaintiffs' claims and have moved to dismiss the allegations. The plaintiff has
filed a response to our motion to dismiss, and we have filed an opposition to
plaintiff's response. The motion to dismiss was submitted to the court for
consideration on November 13, 1998, and the court has not yet issued a decision.
Securities litigation can be expensive to defend, consume significant amounts of
management time and result in adverse judgments or settlements that could have a
material adverse effect on our results of operations and financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
13
<PAGE> 16
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under the symbol
"VSNT." Our common stock commenced trading on the Nasdaq National Market on July
18, 1996. Prior to July 18, 1996, there was no public trading market for our
common stock. The following table lists the high and low closing prices during
for the last two quarters of 1996 and for 1997 (based on closing prices as
reported by the Nasdaq National Market).
<TABLE>
<CAPTION>
HIGH LOW
------- --------
<S> <C> <C>
1996:
First Quarter -- --
Second Quarter -- --
Third Quarter (commencing July 18, 1996) $27 5/8 $ 8
Fourth Quarter $24 $15 7/8
1997:
First Quarter $22 3/4 $ 8 1/2
Second Quarter $ 9 3/8 $ 4 1/8
Third Quarter $16 1/4 $ 6
Fourth Quarter $18 5/8 $11 1/8
1998:
First Quarter $14 9/16 $ 5 1/8
Second Quarter $ 7 5/16 $ 3 3/4
Third Quarter $ 5 1/2 $ 2 1/8
Fourth Quarter $ 4 1/4 $ 1 13/16
</TABLE>
There were approximately 152 holders of record of our common stock as of
February 26, 1998. We believe that a significant number of beneficial owners of
our common stock hold their shares in street name. Based on information
available to us, we believe we have at least 400 beneficial shareholders of our
common stock.
DIVIDEND POLICY
We have neither declared nor paid cash dividends on our common stock in the
past. *We intend to retain future earnings, if any, to fund development and
growth of our business and, therefore, do not anticipate that we will declare or
pay cash dividends on our common stock in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
On December 28, 1998, we raised $1,443,750 in a private placement of
700,000 shares of our common stock and warrants to purchase 350,000 shares of
our common stock. The purchase price for the shares was $2.00 per share and the
purchase price for the warrants was $0.125 per share. The funding was provided
by Special Situations Fund III LP, Special Situations Cayman LP and Special
Situations Technology Fund LP. The warrants issued to these investors are
exercisable at any time into our common stock at a price of $2.25 per share. The
warrants expire on December 28, 2001, or earlier under certain circumstances.
The shares and warrants were issued pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act.
On October 16, 1998, we raised $3.6 million through the private placement
of a convertible secured subordinated promissory note. The funding was provided
by Vertex Technology Fund Pte., one of the funds managed by Vertex Management.
The note issued to Vertex is convertible at Vertex's option into our common
stock at a price of $1.925 per share. The note is secured by our assets, is
subordinated to our existing lines of credit and is due in October 2001, but may
mature or be automatically converted sooner under certain circumstances. The
note was issued pursuant to the exemption from registration provided by Section
4(2) of the Securities Act.
14
<PAGE> 17
On September 15, 1998, we acquired 100% of the outstanding equity of Soft
Mountain S.A., a French company. In the acquisition, we acquired all of Soft
Mountain's equity from the shareholders of Soft Mountain in return for 810,000
French Francs in cash (approximately $136,000) and 245,586 shares of our common
stock. We funded the cash portion of the purchase price using working capital.
The shares of our common stock issued to the shareholders of Soft Mountain were
issued pursuant to the exemption from registration provided by Section 4(2) of
the Securities Act.
15
<PAGE> 18
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As indicated in the first paragraph of Item 1, above, this Form 10-KSB
contains certain forward looking statements within the meaning of the Securities
Exchange Act the Securities Act. We have identified, with a preceding asterisk,
various sentences within this Form 10-KSB which contain such forward-looking
statements and words such as "believe," "anticipate," "expect," "intend" and
similar expressions are also intended to identify forward looking statements,
but these are not the exclusive means of identifying such statements. The
forward looking statements included in this Form 10-KSB involve numerous risks
and uncertainties which are described throughout this Form 10-KSB, including
under "Revenues" and "Risk Factors" within this Item 6. The actual results that
we achieve may differ materially from any forward looking statements due to such
risks and uncertainties.
The following table presents statement of operations data for the five
years ended December 31, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenue:
License $ 14,463 $ 21,363 $ 12,202 $ 7,810 $ 5,649
Services 8,770 7,827 6,191 4,067 2,590
-------- -------- -------- -------- --------
Total revenue 23,233 29,190 18,393 11,877 8,239
Cost of revenue:
License 2,846 1,445 1,144 1,062 930
Services 6,893 5,010 2,987 2,258 1,563
-------- -------- -------- -------- --------
Total cost of revenue 9,739 6,455 4,131 3,320 2,493
-------- -------- -------- -------- --------
Gross profit 13,494 22,735 14,262 8,557 5,746
-------- -------- -------- -------- --------
Operating expenses:
Marketing and sales 18,511 17,265 8,327 6,319 5,710
Research and development 7,722 5,225 3,323 2,048 2,063
General and administrative 3,857 2,880 1,501 1,419 1,093
Amortization of goodwill 546 370 -- -- --
Write down of assets 1,555 -- -- -- --
Acquired in-process R&D cost 528 -- -- -- --
-------- -------- -------- -------- --------
Total operating expenses 32,719 25,740 13,151 9,786 8,866
-------- -------- -------- -------- --------
Income (loss) from operations (19,225) (3,005) 1,111 (1,229) (3,120)
Interest income (expense) and other, net (692) 705 429 70 117
-------- -------- -------- -------- --------
Income (loss) before taxes (19,917) (2,300) 1,540 (1,159) (3,003)
Provision for income taxes 18 40 129 73 56
-------- -------- -------- -------- --------
Net income (loss) $(19,935) $ (2,340) $ 1,411 $ (1,232) $ (3,059)
======== ======== ======== ======== ========
Basic net income (loss) per share $ (2.16) $ (0.26 ) $ 0.24 $ (0.41) $ (1.57)
======== ======== ======== ======== ========
Shares used in calculating basic net
income (loss) per share 9,209 8,931 5,916 2,987 1,953
======== ======== ======== ======== ========
Diluted net income (loss) per share $ (2.16) $ (0.26) $ 0.18 $ (0.41) $ (1.57)
======== ======== ======== ======== ========
Shares used in calculating diluted net
income (loss) per share 9,209 8,931 7,690 2,987 1,953
======== ======== ======== ======== ========
</TABLE>
OVERVIEW
We were incorporated in August 1988 and commenced commercial shipments of
our principal product, the Versant ODBMS, in 1991. Since that time,
substantially all of our revenue has been derived from:
(1) sales of development, deployment licenses and project licenses for the
Versant ODBMS (2) sales of the peripheral products for the Versant
ODBMS
(3) related maintenance and support, training, consulting and nonrecurring
engineering fees received in connection with providing services
associated with the Versant ODBMS and
(4) the resale of licenses, maintenance, training and consulting for
third-party products that complement the Versant ODBMS
16
<PAGE> 19
We released Version 5.2 of the Versant ODBMS in December 1998. *We
currently expect that licenses of the Versant ODBMS and peripheral products and
sales of associated services will be our principal sources of revenue for the
foreseeable future. *As a consequence, our future operating results will depend
upon our ability to expand market acceptance of the Versant ODBMS. In 1996, 1997
and 1998, three customers, combined, accounted for approximately 49%, 36% and
17% of our total revenue, and the telecommunications industry accounted for 62%,
39% and 42% of our total revenue. In addition, in 1998, 15% and 7% of our total
revenue were attributable to sales of products and services in the financial
services and high technology markets. *Our future performance will depend in
significant part on the continued growth of the use of ODBMSs in
telecommunications and financial services applications and the acceptance of our
products within the telecommunications and financial services industries. *In
addition, we expect to become increasingly dependent upon the telecommunications
and financial services markets. The failure of our products to perform favorably
in and become an accepted component of telecommunications and financial services
applications, or a slower than expected increase or a decrease in the volume of
sales of our products and services to telecommunications, and financial services
companies, could have a material adverse effect on us.
We license our products directly to end-users principally through four
types of licenses-development licenses, deployment server licenses, deployment
client licenses and project licenses. Development licenses are sold on a per
seat basis and authorize the customer to develop an application program that
uses the Versant ODBMS. Before a customer may deploy an application it has
developed under a development license, it must purchase at least one deployment
server license and one deployment client license for each computer connected to
the server that will run the application using the database management system.
If the customer wishes to install several copies of the application, separate
deployment licenses are required for each server computer and each client that
will run the particular application. Pricing of the Versant ODBMS varies
according to several factors, including the computer platform on which the
application will run and the number of users that will be able to access the
server at any one time. For certain applications, we offer deployment licenses
priced on a per user basis. We also license our products on a project basis,
where the customer simultaneously purchases development and deployment licenses
for an entire project.
Value-added resellers purchase development licenses from us on a per seat
basis, on terms similar to those of development licenses sold directly to end
users. Value-added resellers are authorized by us to sub-license deployment
copies of the Versant ODBMS, together with the value-added reseller's
application, to end-users. Deployment license pricing for sales through
value-added resellers generally represents either a percentage of the total
price charged by the value-added reseller to our end-user customers or a
percentage of our list prices. We also license our products to certain
value-added resellers on a project basis.
Our development, deployment and project license agreements and agreements
with value-added resellers typically require the payment of a nonrefundable,
one-time license fee for a license of perpetual term, although certain licenses
to value-added resellers are for a limited term and/or are limited to particular
applications. Revenue from license agreements is recognized upon shipment of the
software if there is no significant modification of the software, payments are
due within our normal payment terms and collection of the resulting receivable
is deemed probable. If an acceptance period is required, revenue is recognized
upon the earlier of customer acceptance or the expiration of the acceptance
period. Maintenance revenue is recognized ratably over the term of the
maintenance contract, which is typically twelve months. Training and consulting
revenue is recognized when a customer's order has been received and the services
have been performed. We have entered into contracts with certain of our
customers that require us to perform development work in return for nonrecurring
engineering fees. Revenue related to such nonrecurring engineering fees
generally is recognized using the percentage-of-completion method of accounting.
Amounts received from customers under certain license, maintenance and
nonrecurring engineering agreements involving significant continuing obligations
to be performed by us are included on our balance sheet as deferred revenue.
We license the Versant ODBMS and peripheral products and sell associated
services primarily through our direct sales force to end-user customers and
value-added resellers. Through late 1993, we focused our sales efforts on
developing indirect sales channels and contracting for nonrecurring engineering
fees from our marketing partners. In late 1993, we changed our sales strategy to
a direct sales model and began increasing the size of our direct sales force.
During 1995, we entered into an agreement with ISAR-Vermogensverwaltung Gbr
mbH, an entity formed by a group of European investors, pursuant to which ISAR
organized and funded Versant Europe. Versant provided Versant Europe with
exclusive European distribution rights for our products, subject to the rights
of existing distributors, and with management responsibilities for Versant's
existing distributors in Europe. In March 1997, we exercised our option
17
<PAGE> 20
to acquire Versant Europe. This acquisition, in which Versant paid approximately
$3.6 million in cash and stock, has been accounted for as a purchase. See note
11 of notes to our consolidated financial statements. As of December 31, 1998,
Versant Europe had 33 employees.
Since inception, we have invested significant resources in developing the
Versant ODBMS and in building our sales, marketing, consulting and
administrative organizations. *Due to our financial performance in 1998, we
restructured our worldwide organization by significantly reducing headcount in
order to bring expenses in line with anticipated 1999 revenue. *Because of this
action, we do not expect to hire additional personnel and expect a decrease in
our promotion and selling expenditures during 1999. The labor market in which we
operate is highly competitive, and we may be unable to retain key employees
without substantial increases in our operating expenses.
RECENT EVENTS
Vertex Financing
On October 16, 1998, we raised $3.6 million through the private placement
of a convertible secured subordinated promissory note. The funding was provided
by Vertex Technology Fund Pte., one of the funds managed by Vertex Management.
The note issued to Vertex is convertible at Vertex's option into our common
stock at a price of $1.925 per share. The note is secured by our assets, is
subordinated to our existing lines of credit and is due in October 2001, but may
mature or be automatically converted sooner under certain circumstances. Vertex
has agreed not to sell its interest in the note or underlying common stock for a
period of six months following its purchase of the note.
Special Situations Fund Financing
On December 28, 1998, we raised $1,443,750 in a private placement of
700,000 shares of our common stock and warrants to purchase 350,000 shares of
our common stock. The purchase price for the shares was $2.00 per share and the
purchase price for the warrants was $0.125 per share. The funding was provided
by Special Situations Fund III LP, Special Situations Cayman LP and Special
Situations Technology Fund LP. The warrants issued to these investors are
exercisable at any time into our common stock at a price of $2.25 per share. The
warrants expire on December 28, 2001, or earlier under certain circumstances.
Acquisition of Soft Mountain
On September 15, 1998, we acquired 100% of the outstanding equity of Soft
Mountain S.A., a French company. Soft Mountain develops event-driven middleware
solutions that combine object orientation and deterministic event processing in
a distributed business system. *We believe that the Soft Mountain acquisition
will enable us to broaden the scope of our object-oriented database solutions by
leveraging Soft Mountain's technology, particularly for electronic commerce
applications. However, our success in using this technology in our product line,
for electronic commerce applications or otherwise, is subject to a number of
risks. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition--Risk Factors."
In the acquisition, we acquired all of Soft Mountain's equity from the
shareholders of Soft Mountain in return for 810,000 French Francs in cash
(approximately $136,000) and 245,586 shares of our common stock. We funded the
cash portion of the purchase price using working capital. The acquisition of
Soft Mountain in September 1998 resulted in our writing off $528,000 of
in-process research and development expenses associated with the purchased
software and recording an intangible asset representing the cost in excess of
fair value of the net assets acquired in the amount of $1.2 million, which is
being amortized over a five-year period.
Nasdaq Listing Review
In February and March 1999, the Nasdaq Stock Market notified us that our
securities were scheduled to be delisted from Nasdaq unless we demonstrated our
ability to regain compliance with Nasdaq's net tangible asset requirement and to
sustain long-term compliance with all applicable maintenance criteria for
continued inclusion on Nasdaq. We are currently pursuing all opportunities
available to us to satisfy the requirements for continued listing on the Nasdaq
National Market. We have scheduled a hearing with Nasdaq for April 22, 1999 at
which time we will present our justification for continued listing on Nasdaq.
Based upon this hearing, Nasdaq will decide:
(1) To continue listing our common stock on the Nasdaq National Market;
18
<PAGE> 21
(2) To change our Nasdaq listing to the Nasdaq SmallCap Market; or
(3) To delist our securities from Nasdaq.
If our securities are delisted from Nasdaq, a sustained trading market may not
continue to exist for our common stock.
Restructuring and Going Concern Qualification
In January 1999, we restructured our worldwide organization in light of our
financial performance in 1998. Specifically, we significantly reduced headcount
in all functional areas in order to bring expenses in line with anticipated 1999
revenue. Notwithstanding these restructuring efforts, we may not be able to meet
our obligations as they become due in 1999 without additional debt or equity
financing. As our independent public accountants note in their report on our
financial statements, our recurring losses from operations and net working
capital deficiency raise substantial doubt about our ability to continue as a
going concern. *We plan to pursue all opportunities available to us to reduce or
eliminate this doubt, including attempting to generate positive cash flows from
operations, extending the terms of our short-term debt, seeking additional debt
or equity financing, and/or entertaining potential acquisition offers. However,
we may not be successful in any of these endeavors, and certain of these actions
may require the approval of our shareholders or creditors.
RESULTS OF OPERATIONS
REVENUE
<TABLE>
<CAPTION>
1996 % Change 1997 % Change 1998
----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
License revenue $12,202,000 75% $21,363,000 (32%) $14,463,000
As a percentage of
total revenue 66% 73% 62%
Services revenue 6,191,000 26% 7,827,000 12% 8,770,000
As a percentage of
total revenue 34% 27% 38%
Total revenue 18,393,000 59% 29,190,000 (20%) 23,233,000
</TABLE>
Total revenue increased 59% from 1996 to 1997 and declined 20% from 1997 to
1998. We continue to experience significant annual and quarterly fluctuations in
total revenue. For example, total revenue in the first quarter of 1998 was $4.6
million, representing a 20% increase over first quarter 1997 total revenue of
$3.8 million, and a 47% decrease from fourth quarter 1997 total revenue of $8.6
million. We attributed the first quarter 1998 total revenue performance to the
timing and complexity issues associated with selling licenses of our products.
*We have experienced a seasonal pattern in our operating results, with the
fourth quarter typically having higher total revenue and income from operations
than the first quarter of the following year, and we expect this trend to
continue in 1999 compared to 1998. Also, see the section below labeled "Risk
Factors."
The increase in license revenue during 1997 compared to 1996 was
attributable principally to:
(1) wider acceptance of object databases and market growth of the object
database market
(2) increased customer deployments of applications previously subject only
to development licenses, particularly in the telecommunications market
(3) substantial increase in the number of Company sales personnel
(4) increased sales within the Internet-based and financial services
markets and
(5) acceleration of deployment revenue associated with project licenses
The decrease in license revenue in 1998 compared to 1997 was due primarily
to the timing, complexity and our inability to close large project
opportunities. In addition, we accelerated a number of large projects into 1997,
and we were therefore required to focus a significant amount of effort on
developing new customers in 1998. *We expect license revenue to increase in 1999
in absolute dollar terms compared to 1998, due to increased license purchases by
telecommunications and financial services customers and increased sales by our
Versant Europe subsidiary, each as a result of our 1998 customer development
activities. *We also believe that license revenue as a percentage of total
revenue will increase in 1999 compared to 1998. However, due to risks
highlighted in the section, "Risk Factors,"
19
<PAGE> 22
below, license revenue may decrease in absolute dollar terms or as a percentage
of total revenue in 1999 when compared to 1998.
The increase in services revenue during 1997 compared to 1996 was
attributable principally to increased maintenance revenue from a significantly
larger installed customer base, while training and consulting revenue remained
relatively constant. The increase in services revenue during 1998 compared to
1997 was attributable principally to increased maintenance revenue from a
significantly larger installed customer base, while training and consulting
revenue declined due to the reduction in overall license revenues. *We expect
that services revenue will remain flat in absolute dollar terms in 1999, and
that services revenue will decline as a percentage of total revenue as we
increase our focus on licensing our products. However, due to the risks
highlighted in the section, "Risk Factors," below, services revenue may not
remain flat in absolute dollar terms, and could increase as a percentage of
total revenue, in 1999 compared to 1998.
The following table sets forth, for the periods indicated, the revenues
generated by our largest customers in 1996, 1997 and 1998, other domestic
customers as a group and other international customers as a group, in absolute
dollars and as a percentage of total revenue.
Source of Total Revenue
<TABLE>
<CAPTION>
1996 % Change 1997 % Change 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sprint $ 2,067,000 179% $ 5,776,000 (68%) $ 1,856,000
Bank Sarasin -- n/a -- n/a 1,165,000
France Telecom -- n/a -- n/a 933,000
United States Government 108,000 2,775% 3,105,000 (79%) 663,000
MCI 5,117,000 (98%) 107,000 6% 113,000
Versant Europe 1,868,000 n/a -- n/a --
Scotiabank 355,000 n/a -- n/a --
----------- ----------- ----------- ----------- -----------
Other Domestic Customers 6,887,000 69% 11,632,000 (13%)
10,114,000
Other International Customers 1,991,000 330% 8,570,000 (2%) 8,389,000
----------- ----------- ----------- ----------- -----------
Total revenue $18,393,000 59% $29,190,000 (20%) $23,233,000
=========== =========== =========== =========== ===========
</TABLE>
Percentage of Total Revenue
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Sprint 11% 20% 8%
Bank Sarasin -- -- 5%
France Telecom -- -- 4%
United States Government 1% 11% 3%
MCI 28% -- --
Versant Europe 10% -- --
Scotiabank 2% -- --
--- --- ---
Other Domestic Customers 37% 40% 44%
Other International Customers 11% 29% 36%
--- --- ---
Total revenue 100% 100% 100%
=== === ===
</TABLE>
As illustrated in the table above, we derive a significant amount of
revenue from a limited number of customers. In addition, our major customers
tend to change from year to year *The loss of any one or more of our major
customers or our inability to replace a customer that has become less
significant in a given year with a different major customer has harmed us in the
past and could harm us in the future. See "Risk Factors--Our customer
concentration increases the potential volatility of our operating results."
International revenue increased 105% from $4.2 million in 1996 to $8.6
million in 1997. The significant increase in international revenue from 1996 to
1997 was driven principally by significantly higher sales by Versant Europe
resulting from our increased marketing and sales investment, partially offset by
decreased sales in Australia. International revenue increased 22% from $8.6
million in 1997 to $10.5 million in 1998. The increase in international revenue
from 1997 to 1998 was driven principally by higher sales by Versant Europe,
Australia and Asia Pacific, resulting from our increased marketing and sales
investment, partially offset by decreased sales in Japan. In addition, as a
result of the acquisition of Versant Europe in March 1997, we began recognizing
license and service revenue from Versant Europe
20
<PAGE> 23
that would have been recognized only at 40 % and 25 % royalty rates had Versant
Europe not been acquired. *We intend to maintain our sales and marketing
activities outside the United States, including Europe, Japan and other
Asia/Pacific countries, which will require significant management attention and
financial resources, and which may increase costs and impact margins unless and
until corresponding revenue is achieved. Our international sales are currently
denominated predominantly in United States dollars. An increase in the value of
the United States dollar relative to foreign currencies could make our products
more expensive and, therefore, less competitive in foreign markets. We believe
that the increase in the value of the United States dollar relative to foreign
currencies in 1998 did not have a material effect on our operating results. *To
the extent that we increase our international sales, our total revenue may be
affected to a greater extent by seasonal fluctuations resulting from lower sales
levels that typically occur during the summer months in Europe and other parts
of the world. International revenue as a percentage of total revenue increased
from 23% in 1996 to 29% in 1997 and then increased to 45% in 1998. *Due to our
increased emphasis on international sales, especially through Versant Europe, we
expect international revenue to increase in absolute dollar terms but decrease
as a percentage of total revenue; however, international revenue may not grow at
all. Our international operations are subject to corresponding risks; see "Risk
Factors--We depend on our international operations."
COST OF REVENUE AND GROSS PROFIT
<TABLE>
<CAPTION>
1996 % Change 1997 % Change 1998
----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Cost of license revenue $ 1,144,000 26% $ 1,445,000 97% $ 2,846,000
As a percentage of license revenue 9% 7% 20%
Cost of services revenue 2,987,000 68% 5,010,000 38% 6,893,000
As a percentage of services revenue 48% 64% 79%
Gross profit 14,262,000 59% 22,735,000 (41%) 13,494,000
As a percentage of total revenue 78% 78% 58%
</TABLE>
Cost of license revenue consists primarily of reserves for estimated bad
debts, product royalty obligations incurred by us when we sub-license tools
provided by third parties, royalty obligations incurred by us under a porting
services agreement, user manuals/product media, production labor costs, freight,
and packaging. Cost of license revenue during 1997 increased compared to 1996
principally due to additions to bad debt reserves and the recognition of certain
deferred license costs associated with the acquisition of Versant Europe. Cost
of license revenue increased in 1998 due to increased reserves for bad debts,
amortization of certain deferred license costs and increased royalty costs. As
part of the acquisition of Versant Europe, we allocated $1.4 million of the
purchase price to deferred license costs. In 1997 and 1998, we recognized $.4
million and $1.0 million of these deferred license costs as a cost of license
revenue. *Although our cost of license revenue increased in 1998 compared to
1997, both in absolute dollars and as a percentage of license revenue, we expect
1999 cost of license revenue to be lower than it was in 1998 due to our deferred
license cost now being fully amortized and an expectation that royalty payments
to third parties in 1999 will decrease. *For these reasons, we expect cost of
license revenue to decrease significantly in absolute dollar terms, as well as
decrease as a percentage of license revenue in 1999 if expected revenue growth
materializes. However, revenue growth in 1999, and therefore license revenue
margin improvement, are subject to the risks highlighted in the section, "Risk
Factors", below.
Cost of services revenue consists principally of personnel costs associated
with providing consulting, technical support, training and nonrecurring
engineering work paid for by customers. The increase in cost of services revenue
during 1997 compared to 1996 was attributable principally to significant
investments in our services organization infrastructure to support our sales
efforts, including higher compensation and operating costs resulting from
additions in domestic and international services management, and compensation
pressures. The increase in cost of services revenue during 1998 was attributable
to the significant increase in our service organization, before reductions, the
increased costs of providing maintenance support to a growing customer base and
costs associated with employee turnover. Cost of services revenue as a
percentage of services revenue increased in 1998 compared to 1997 due to reduced
service support productivity caused by reduced license revenues and higher
consulting expenses associated with the use of external
21
<PAGE> 24
consultants on specialized customer projects, without an immediate increase in
consulting and training revenue. The delay in 1997 between upgrading our
services organization infrastructure and the recognition of significant
additional services revenue resulted principally from:
(1) customer scheduling conflicts, particularly during the fourth quarter
holiday season, that created delays in beginning or continuing
consulting services
(2) inability to attain sufficient paid attendee levels to generate a
profitable margin on training services and
(3) employee training time required prior to their assignment to billable
consulting engagements and training courses
During 1998, we experienced a full year of relatively fixed costs
associated with our upgraded services infrastructure, compared to approximately
one-half of a year of such costs in 1997. Therefore, our cost of services
revenue increased in absolute dollar terms. In addition, we needed to maintain a
significant services organization due to the lack of third-party service
support, but we experienced difficulty in forecasting billable service demand,
unevenness in demand for services, which have historically been reduced during
holiday periods, and pricing pressure on fees for services encountered in
connection with license sales. We also experienced, increased compensation
pressures as a result of the intense demand for managers and engineers in
Silicon Valley, which we were not able to offset with increases in the fees we
charge for maintenance and training and consulting projects due to competitive
pressures and restrictions in contractual provisions regarding associated
services. *We expect to reduce our cost of service revenue in 1999, both in
absolute dollars as well as a percentage of revenues, through headcount
reductions and increased productivity. Since December 31, 1998 we have
restructured our operations to reduce employee costs and associated expenses.
Worldwide headcount as of February 28, 1999 was 122 compared to the December 31,
1998 total of 173.
MARKETING AND SALES EXPENSES
<TABLE>
<CAPTION>
1996 % Change 1997 % Change 1998
----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Marketing and sales expenses $ 8,327,000 107% $17,265,000 7% $18,511,000
As a percentage of total revenue 45% 59% 80%
</TABLE>
Marketing and sales expenses consist primarily of marketing and sales
personnel costs, including sales commissions, recruiting, travel, advertising,
public relations, seminars, trade shows, lead generation, product descriptive
literature, product management, sales offices, mailings and depreciation
expense. The significant increase during 1997 compared to 1996 resulted from
unusual regional concentrations of sales, which resulted in higher commission
costs, and higher than expected fees associated with the recruiting of new
company personnel, primarily in the sales and marketing area. The increase in
1998 compared to 1997 was due to increased marketing program costs to generate
leads, partially offset by lower commission expenses on reduced revenues. In
addition, in 1997, we continued to expand our direct sales force to new sales
territories, including Hong Kong, mainland China and Malaysia, and in 1997 and
1998 increased marketing spending to expand worldwide awareness of our products
and services, particularly in the Internet-based and financial services markets.
*We expect marketing and sales expenses to decrease in absolute dollar terms and
as a percentage of revenues due to our restructured operations and our efforts
to control commission costs and costs associated with marketing programs. Our
operating results will be adversely affected if our marketing and sales
expenditures are not reduced or if increased revenues do not occur.
RESEARCH AND DEVELOPMENT EXPENSES
<TABLE>
<CAPTION>
1996 % Change 1997 % Change 1998
---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Research and development expenses $3,323,000 57% $5,225,000 48% $7,722,000
As a percentage of total revenue 18% 18% 33%
</TABLE>
Research and development expenses consist primarily of salaries, recruiting
and other personnel-related expenses, the costs of an ISO 9001 quality program,
depreciation or expensing of development equipment, supplies and travel. The
increase during 1997 compared to 1996 resulted from:
(1) higher compensation and other personnel expenses resulting from an
increase in the number of software engineers employed for new product
development and quality assurance programs
22
<PAGE> 25
(2) the expense of completing the ISO 9001 quality certification program
(3) increased depreciation or expensing of engineering computer
workstations, components and related supplies and
(4) the costs of funding ongoing engineering activities in India
The increase in 1998 was due to:
(1) higher compensation and other personnel expenses due to increased
headcount
(2) increased operating expenses due to new opportunities and expanded
projects
(3) costs of funding ongoing engineering activities in India
(4) additional operating expenses associated with Soft Mountain's
engineering activity
We believe that a significant level of research and development
expenditures is required to remain competitive and complete products under
development. *Accordingly, we anticipate that we will continue to devote
substantial resources to research and development to design, produce and
increase the quality, competitiveness and acceptance of our products. *Due to
our restructuring activities, we expect research and development expenses to
decrease in absolute dollar terms and as a percentage of revenues in 1999.
However, if we continue our research and development efforts without
corresponding increases in revenue, our results of operations would be adversely
affected. To date, all research and development expenditures have been expensed
as incurred.
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
1996 % Change 1997 % Change 1998
---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
General and administrative expenses $1,501,000 92% $2,880,000 34% $3,857,000
As a percentage of total revenue 8% 10% 17%
</TABLE>
General and administrative expenses consist primarily of salaries,
recruiting and other personnel-related expenses for our accounting, human
resources, management information systems, legal and general management
functions. In addition, general and administrative expenses include outside
legal, audit and public reporting costs. The significant increase during 1997
compared to 1996 resulted from the inclusion of general and administrative
expenses related to our Versant Europe subsidiary, compensation costs associated
with an increased number of information systems, human resources and accounting
employees, relocation and ongoing facility costs resulting from the occupancy of
a significantly larger facility and increased legal, accounting and investor
relation costs associated with being a public company with significant
international operations. The increase during 1998 compared to 1997 resulted
from:
(1) increased severance costs incurred in connection with changes to our
management team
(2) increased legal and accounting services
(3) expanded travel expense associated with funding projects
(4) increased facility costs
*We anticipate that general and administrative expenses will decrease in
absolute dollar terms and as a percentage of revenues in 1999 due to the reduced
costs associated with our restructuring activities and reduced severance costs
incurred in connection with recent changes to our management team. However, if
we continue to operate with our existing administration infrastructure without
corresponding increases in revenue, our results of operations would be adversely
affected.
AMORTIZATION OF GOODWILL
The acquisition of Versant Europe in March 1997 resulted in our recording
an intangible asset representing the cost in excess of fair value of the net
assets acquired in the amount of $3.3 million, which is being amortized over a
seven-year period. During 1997 and 1998, we amortized $370,000 and $485,000,
respectively, of this amount. Additionally in 1998 we wrote down the Versant
Europe goodwill by $1.6 million due to our revised estimated discounted cash
flow over the next five years. *We will amortize $174,000 of this remaining
goodwill amount in 1999. See note 11 of notes to our consolidated financial
statements.
23
<PAGE> 26
The acquisition of Soft Mountain in September 1998 resulted in our writing
off $528,000 of in-process research and development expenses associated with the
purchased software and recording an intangible asset representing the cost in
excess of fair value of the net assets acquired in the amount of $1.2 million,
which is being amortized over a five-year period. During 1998, we amortized
$61,000 of this amount. *We will amortize $245,000 of this amount in 1999. See
note 12 of notes to our consolidated financial statements.
INTEREST INCOME (EXPENSE) AND OTHER, NET
<TABLE>
<CAPTION>
1996 % Change 1997 % Change 1998
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Interest income (expense) and other, net $ 429,000 64% $ 705,000 (198 %) ($692,000)
As a percentage of total revenue 2% 2% (3%)
</TABLE>
Interest income (expense) and other, net represents income earned on our
cash, cash equivalents and short-term investments, interest expense associated
with our financing activities and other expenses not considered to be of an
operating nature, such as legal expenses associated with defending against our
securities litigation. The increase in interest income (expense) and other, net
from 1996 to 1997 was due to increased interest income from higher cash
balances, partially offset by higher interest expense on our outstanding line of
credit. The decrease in interest income (expense) and other, net from 1997 to
1998 was due to: (1) decreased interest income from lower cash balances (2)
increased interest expense on bank debt and capital equipment leases (3) accrued
interest expense on our convertible secured subordinated promissory note
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
1996 % Change 1997 % Change 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Provision for income taxes $129,000 (69%) $ 40,000 (55%) $ 18,000
As a percentage of income
(loss) before income taxes 8% (2%) (0%)
</TABLE>
We account for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." We incurred net
operating losses in 1997 and 1998, resulting in no federal or state tax
liability based on income. However, we did incur foreign withholding taxes of
$40,000 and $18,000 during 1997 and 1998, which are included within the income
tax provision. We had net income of $1.4 million for 1996 and recorded an income
tax provision of $129,000 for federal and state income taxes of $115,000 not
offset by net operating loss carryforwards and foreign withholding taxes of
$14,000.
At December 31, 1998, we had federal and state net operating loss
carryforwards of $34.0 million and $13.8 million and tax credit carryforwards of
$2.3 million expiring on various dates through 2018. *Due to our history of
operating losses through 1995 and in 1997 and 1998 and other factors, we believe
that there is sufficient uncertainty regarding the realizability of these
carryforwards, and therefore a valuation allowance of approximately $15.2
million has been recorded against our net deferred tax assets of approximately
$15.2 million. We will continue to assess the realizability of the tax benefit
available to us based on actual and forecasted operating results.
Due to the "change in ownership" provisions of the Internal Revenue Code of
1986, the availability of net operating loss and tax credit carryforwards to
offset federal taxable income in future periods is subject to an annual
limitation due to changes in ownership for income tax purposes. Usage of net
operating loss carryforwards is limited to approximately $4.0 million per year
because of past ownership changes.
24
<PAGE> 27
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
1996 % Change 1997 % Change 1998
--------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Basic net income (loss) per share $0.24 n/a $(0.26) (731%) $(2.16)
Shares used in computing basic net
income (loss) per share 5,916,000 51% 8,931,000 3% 9,209,000
Diluted net income (loss) per share $0.18 n/a $(0.26) (731%) $(2.16)
Shares used in computing diluted
net income (loss) per share 7,690,000 16% 8,931,000 3% 9,209,000
</TABLE>
The decrease to basic and diluted net loss per share in 1997 compared to
basic and diluted net income per share in 1996 resulted principally from
operating expenses increasing at a higher rate than revenue. The increase in
basic and diluted net loss per share in 1998 compared to 1997 resulted
principally from:
(1) operating expenses increasing while revenue decreased
(2) writedown of goodwill
(3) accrued interest expense associated with our convertible secured
subordinated promissory note
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting
comprehensive income and our components in a full set of general purpose
financial statements. SFAS No. 130 requires that items be recorded in
comprehensive income, which includes unrealized gains/losses on marketable
securities classified as available-for-sale and cumulative translation
adjustments, be displayed with the same prominence as other financial
statements. SFAS No. 130 was adopted in our financial statements for the year
ending December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
1996 % Change 1997 % Change 1998
------------ -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ 2,889,000 n/a ($ 5,655,000) 88% ($10,628,000)
Year end cash, cash equivalents
and short-term investments $ 19,983,000 (51%) $ 9,831,000 (59%) $ 3,989,000
Year end working capital (deficit) $ 18,927,000 (32%) $ 12,228,000 n/a ($ 3,381,000)
</TABLE>
In 1998, net cash of $10.6 million was used in operating activities
primarily due to the cash component of our net loss for 1998, decreases in
deferred revenue, accrued liabilities and taxes and a decreased provision for
doubtful accounts, which were offset by a significant decrease in accounts
receivable, decreases in prepaid expenses and other current assets, and
increases in accounts payable compared to 1997. The decrease in accounts
receivable was due to improved collection activity, and lower revenues in the
fourth quarter of 1998 compared to the fourth quarter of 1997. Through February
28, 1999, we had collected $3.2 million of our December 31, 1998 accounts
receivable balance, leaving an accounts receivable balance of $3.0 million
related to the December 31, 1998 balance.
We purchased $2.0 million of property and equipment during 1998, primarily
for the acquisition of network and computer equipment, leasehold improvements,
furnishings and fixtures for our headquarters. In addition, in September 1998,
we acquired Soft Mountain and paid the shareholders of Soft Mountain $136,000 in
cash in addition to issuing them 245,586 shares of our common stock. These uses
of cash for investing activities were entirely offset by net sales and
maturities of short-term investments. Financing activities provided $6.5 million
in 1998, primarily due to proceeds from the sale of a convertible secured
subordinated promissory note, the sale of common stock to certain of our largest
shareholders, the sale of common stock to our employees under employee benefit
plans and borrowings under a short-term accounts receivable loan, which were
partially offset by principal payments made under capital lease obligations and
our long term bank note. *We have and will continue to make certain investments
in software applications and systems to ensure that our products are Year 2000
compliant. In particular, our purchase of approximately $9 million of property
and equipment during 1997 and 1998 included substantial investments in
management and information systems designed to be Year 2000 compliant. We are
currently in the process of testing our internal and external systems for
compliance as well as contacting our customers, suppliers and providers of
third-party technology that may be integrated with our products for information
concerning their Year 2000 compliance status. In the event that any of our
significant
25
<PAGE> 28
suppliers or customers, or such third-party technology providers, does not
successfully and timely achieve Year 2000 compliance, our business or operations
could be adversely affected. See "Risk Factors--Our business may be harmed by
Year 2000 problems."
At December 31, 1998, we had $3.6 million in cash and cash equivalents and
negative working capital of approximately $3.3 million. We maintain a revolving
credit line with a bank that expires on May 31, 1999. The maximum amount that
can be borrowed under the revolving credit line is $5.0 million. As of December
31, 1998, $900,000 was allocated to a standby letter of credit to support our
European banking line and $1,661,000 of borrowings were outstanding. Borrowings
and the standby letter of credit under the revolving credit line are limited to
80% of eligible accounts receivable and are secured by a lien on substantially
all of our assets. These borrowings bear interest at the bank's base lending
rate (7.75% at December 31, 1998). The loan agreement contains certain financial
covenants and also prohibits cash dividends and mergers and acquisitions without
the bank's prior approval. We renegotiated these original covenants, effective
June 30, 1998, in order to comply with our projected financial results. As of
December 31, 1998, we were not in compliance with all covenants.
Therefore, this line of credit is currently due on demand.
We entered into an interest only, variable rate note of $2.5 million with a
bank that matured March 1, 1998. On March 19, 1998, this note was converted to a
variable rate, term loan with principal and interest payable over 36 months.
Borrowings under the loan are secured by a lien on all assets acquired using the
proceeds of the loan, which have been used for the acquisition of equipment and
leasehold improvements. The loan bears interest at the bank's base lending rate,
currently at 7.75%, plus 0.5%. The loan contains certain financial covenants and
also prohibits cash dividends and mergers and acquisitions without the bank's
prior approval. We renegotiated these original covenants, effective June 30,
1998, in order to comply with our projected financial results. As of December
31, 1998, we were not in compliance with all covenants. Therefore, this loan is
currently due on demand and has been restated as a current liability in our
financial statements.
Although we seek to negotiate new financial covenants for our existing bank
debt, the bank is not required to amend our existing covenants. Moreover, any
new covenants that we negotiate may contain terms that significantly restrict
our business activities.
*We believe that our current cash, cash equivalents, our lines of credit,
and the net cash provided by operations, if any, may be insufficient to meet our
anticipated cash needs for working capital and capital expenditures for 1999. At
December 31, 1998, our commitments for capital expenditures were not material.
*If cash provided by operations is insufficient to satisfy our liquidity
requirements, we will seek additional debt or equity financing. Such financing
may not be available on terms acceptable to us, if at all. The sale of
additional equity or convertible debt securities could result in dilution to our
shareholders. *A portion of our cash may be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. From time to time, we evaluate potential acquisitions of such
businesses, products and technologies.
To date, we have not achieved business volume sufficient to restore
profitability and a positive cash flow. We operated at a net loss of $19.9
million and $2.3 million in 1998 and 1997 and since December 31, 1998 have
continued to experience operating losses. Our available cash and credit
facilities may not be sufficient to fund our operations and successfully
implement our business plan, part of which consists of pursuing potential
strategic relationships, acquisitions of companies, products and technologies.
As a result, our ability to continue as a going concern is dependent upon future
events, including our ability to obtain additional debt or equity financing.
Additional debt or equity financing, if required, may not be available to us on
commercially reasonable terms, or at all. Even if we were able to obtain
additional debt or equity financing, the terms of this financing may
significantly restrict our business activities. If we are unable to obtain
additional debt or equity financing and do not generate consistent positive cash
flows from operations for the immediate and foreseeable future, we will be
required to cease or substantially reduce operations.
The actual cash resources required to successfully implement our business
plan in year 1999 will depend upon numerous factors, including but not limited
to those described in the following Risk Factors.
26
<PAGE> 29
RISK FACTORS
This Annual Report on Form 10-KSB contains forward-looking statements that
involve risks and uncertainties, including, but not limited to, those set forth
below, that could cause actual results to differ materially from those in the
forward-looking statements. The matters set forth below should be carefully
considered when evaluating our business and prospects.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED WORKING CAPITAL MAY PREVENT US FROM CONTINUING AS A GOING
CONCERN. We incurred a significant reduction in working capital in 1998. To
date, we have not achieved business volume sufficient to restore profitability
and a positive cash flow. We operated at a net loss of $20 million in 1998 and
since December 31, 1998 have continued to experience operating losses. Our
available cash and credit facilities may not be sufficient to fund our
operations and successfully implement our business plan, part of which consists
of pursuing potential strategic relationships, acquisitions of companies,
products and technologies. As a result, our ability to continue as a going
concern is dependent upon future events, including our ability to obtain
additional debt or equity financing. We recently raised $3.6 million through the
sale of a convertible secured subordinated promissory note to Vertex Technology
Fund, and $1.4 million through the sale of equity securities to Special
Situations Fund. We may raise additional funds through the sale of equity
securities or other means in the near future. *However, funds may not be
available on favorable terms, if at all. *If we are unable to raise additional
funds, we will be dependent on cash flow from operations to fund operations and
to repay outstanding bank debt. *Unless we generate consistent positive cash
flows from operations for the immediate and foreseeable future, we will be
required to cease or substantially reduce operations. *The sale of additional
equity or convertible debt securities would result in dilution to our
shareholders.
OUR EXISTING DEBT BURDEN IS SUBSTANTIAL, AND WE MAY DEFAULT ON OUR LOANS.
At December 31, 1998, we had the following outstanding borrowings:
(1) $2.4 million under a bank revolving loan, which expires on May 31,
1999;
(2) $2.3 million under a bank term loan, which expires on March 18, 2001;
and
(3) $3.6 million under our convertible subordinated secured promissory
note, which is due in October 2001.
Because we were not in compliance with the covenants that apply to the bank
revolving loan and the bank term loan at December 31, 1998, the bank has the
ability to declare a default on these loans and demand immediate payment of
approximately $4.1 million in currently outstanding borrowings. Therefore,
unless we are able to renegotiate our covenants and extend or refinance this
debt, we will need to generate a significant amount of cash in the immediate
future, and in any event by the May 31, 1999 expiration date of the bank
revolving loan. As in previous quarters in which we were not in compliance with
our financial covenants, we are currently pursuing discussions with the bank to
amend the terms of our loans, including their repayment schedules and financial
covenants. However, we may not be successful in this endeavor. Even if we are
successful amending the terms of or refinancing our loans, the new terms could
be significantly less attractive than our current financing arrangements and
could significantly restrict our operating activities.
OUR REVENUE LEVELS ARE UNPREDICTABLE. Our revenue has fluctuated
dramatically on a quarterly and annual basis, and we expect this trend to
continue. These dramatic fluctuations result from a number of factors,
including:
(1) the lengthy and highly consultative sales cycle associated with our
products
(2) uncertainty regarding the timing and scope of customer deployment
schedules of applications based on the Versant ODBMS
(3) fluctuations in domestic and foreign demand for our products and
services, particularly in the telecommunications and financial
services markets
(4) the impact of new product introductions by us and our competitors
(5) our unwillingness to significantly lower prices to meet prices set by
our competitors
(6) the effect of publications of opinions about us and our competitors
and their respective products
(7) customer order deferrals in anticipation of product enhancements or
new product offerings by us or our competitors
(8) potential customers unwillingness to invest in our products given our
financial instability
27
<PAGE> 30
A number of other factors make it impossible to predict our operating
results for any period prior to the end of that period. We ship our software to
a customer at receipt of the customer's order, and consequently, we have little
order backlog. As a result, license revenue in any quarter is substantially
dependent on orders booked and shipped in that quarter. Historically, we record
most of our revenue and book most of our orders in the third month of each
quarter, with a concentration of such revenue and orders in the last few days of
the quarter. We expect this trend to continue. Many of these factors are beyond
our control.
WE MAY NOT BE ABLE TO MANAGE COSTS GIVEN THE UNPREDICTABILITY OF OUR
REVENUE. We expended significant resources in 1997 and 1998 to build our
infrastructure and hire personnel, before reductions, particularly in the
services and sales and marketing sectors, in expectation of higher revenue
growth than actually occurred. Although we have restructured our operations to
reduce operating expenses, we continue to plan for revenue growth in 1999
compared to 1998. Consequently, we will continue to incur a relatively high
level of fixed expenses. Although, in January 1999, we reduced significantly our
worldwide headcount and implemented controls on spending in order to achieve
expense reductions, if expense controls are not achieved or planned revenue
growth does not materialize, our business, financial condition and results of
operations will be materially harmed.
WE RELY ON TELECOMMUNICATIONS AND FINANCIAL SERVICES MARKETS CHARACTERIZED
BY COMPLEXITY AND INTENSE COMPETITION. Historically, we have been highly
dependent upon the telecommunications industry and are becoming increasingly
dependent upon the financial services market. Our success in the
telecommunications and financial service markets is dependent, in part, on our
ability to compete with alternative technology providers and on whether our
customers and potential customers believe we have the expertise necessary to
provide effective solutions in these markets. If these conditions, among others,
are not satisfied, we may not be successful in generating additional
opportunities in these markets. The need for and type of applications and
commercial products for the telecommunications and financial services markets is
continuing to develop, is rapidly changing, and is characterized by an
increasing number of new entrants whose products may compete with those of ours.
As a result, we cannot predict the future growth of these markets, and demand
for object-oriented databases in these markets may not develop or be
sustainable. We also may not be successful in attaining a significant share of
these markets. In addition, organizations in these markets generally develop
sophisticated and complex applications that require substantial customization of
our products. Although we seek to generate consulting revenue in connection with
these customization efforts, we have offered, and may, under certain
circumstances continue to offer, free or reduced price consulting. This practice
has impacted, and will continue to impact, our service margins and will require
that we maintain a highly skilled service infrastructure with specific expertise
in these markets.
OUR PRODUCTS HAVE A LENGTHY SALES CYCLE. Our sales cycle, which varies
substantially from customer to customer, often exceeds nine months and can
sometimes extend to a year or more. Due in part to the strategic nature of our
products and associated expenditures, potential customers are typically cautious
in making product acquisition decisions. The decision to license our products
generally requires us to provide a significant level of education to prospective
customers regarding the uses and benefits of our products, and we must
frequently commit no-fee pre-sales support resources, such as assistance in
performing bench marking and application prototype development. Because of the
lengthy sales cycle and the relatively large average dollar size of individual
licenses, a lost or delayed sale could have a significant impact on our
operating results for a particular period. Although we seek to develop
relationships with best-of-class value-added resellers in the telecommunications
and financial services markets in order to strengthen our indirect sales
activity, we have not yet entered into such relationships and may not be
successful in developing such relationships. In addition, our value-added
resellers may be subject to a lengthy sales cycle for our products.
OUR CUSTOMER CONCENTRATION INCREASES THE POTENTIAL VOLATILITY OF OUR
OPERATING RESULTS. Notwithstanding our recent efforts to develop new customers,
typically through the use of relatively small licenses, a significant portion of
our total revenue has been, and we believe will continue to be, derived from a
limited number of orders placed by large organizations. The timing of such
orders and their fulfillment has caused, and is likely to cause in the future,
material fluctuations in our operating results, particularly on a quarterly
basis. In addition, our major customers tend to change from year to year. The
loss of any one or more of our major customers or our inability to replace a
customer that has become less significant in a given year with a different major
customer could have a material adverse effect on our business.
28
<PAGE> 31
WE DEPEND ON OUR INTERNATIONAL OPERATIONS. A significant portion of our
revenue is derived from customers located outside the United States. This
requires that we operate internationally and maintain a significant presence in
international markets. However, our international operations are subject to a
number of risks.
These risks include:
(1) longer receivable collection periods
(2) changes in regulatory requirements (3) dependence on independent
resellers
(4) multiple and conflicting regulations and technology standards
(5) import and export restrictions and tariffs
(6) difficulties and costs of staffing and managing foreign operations
(7) potentially adverse tax consequences
(8) foreign exchange fluctuations (9) the burdens of complying with a
variety of foreign laws
(10) the impact of business cycles and economic instability outside the
United States, including the current economic instability in Asia.
WE MUST DEFEND AGAINST SECURITIES LITIGATION. We and certain of our present
and former officers and directors were named as defendants in four class action
lawsuits filed in the United States District Court for the Northern District of
California, filed on January 26, 1998, February 5, 1998, March 11, 1998 and
March 18, 1998, respectively. On June 19, 1998, a consolidated amended complaint
was filed in this court by the lead plaintiff named by the court. The amended
complaint alleges violations of Sections 10(b) and 20(a) of the Securities
Exchange Act, and Securities and Exchange Commission Rule 10b-5 promulgated
under the Exchange Act, in connection with public statements about our expected
financial performance. The complaint seeks an unspecified amount of damages. We
vigorously deny the plaintiff's claims and have moved to dismiss the
allegations. The plaintiff has filed a response to our motion to dismiss, and we
have filed an opposition to plaintiff's response. The motion to dismiss was
submitted to the court for consideration on November 13, 1998, and the court has
not yet issued a decision. Securities litigation can be expensive to defend,
consume significant amounts of management time and result in adverse judgments
or settlements that could have a material adverse effect on our results of
operations and financial condition.
OUR STOCK PRICE IS VOLATILE. Our revenue, operating results and stock price
have been and may continue to be subject to significant volatility, particularly
on a quarterly basis. We have previously experienced significant shortfalls in
revenue and earnings from levels expected by securities analysts and investors,
which has had an immediate and significant adverse effect on the trading price
of our common stock. This may occur again in the future. Additionally, as a
significant portion of our revenue often occurs late in the quarter, we may not
learn of revenue shortfalls until late in the quarter, which could result in an
even more immediate and adverse effect on the trading price of our common stock.
OUR BUSINESS MAY BE HARMED BY YEAR 2000 PROBLEMS. We and our customers and
suppliers are aware and concerned about the risks associated with Year 2000
computer issues. If our systems do not recognize the correct date when the year
changes to 2000, there could be a material adverse effect on our operations. We
are at risk from both internal and external areas. We have categorized our risk
into the following categories:
(1) internal systems required to operate our business (e.g. operational,
financial, product development, safety and environmental controls);
(2) external supplier systems that are necessary to support our business
requirements (e.g. raw materials, supplies, shipping and delivery
systems, banking, payroll and government systems); and
(3) product warranty exposure with our customer base.
We are currently evaluating our exposure in all these areas. We have been
reviewing our facility, financial and operating systems to identify and assess
the requirements to bring hardware systems and software applications to Year
2000 compliance. We expect to conclude our estimate of exposure to Year 2000
problems, associated costs and required correction plans by the end of July 1999
and to correct any Year 2000 problems by October 31, 1999. We have not
identified any alternative remediation plans in the event Year 2000 issues can
not be adequately corrected. We will define any alternative plans if and when we
discover systems that can not be made Year 2000 compliant. If implementation of
upgrade or replacement systems is delayed or if significant new non-compliance
issues are discovered, our operations could be materially adversely affected.
29
<PAGE> 32
We have and will continue to make certain investments in software
applications and systems to ensure that we are Year 2000 compliant with respect
to our internal systems. In particular, our purchase of $9 million of property
and equipment during 1997 and 1998 included substantial investments in
management and information systems designed to be Year 2000 compliant.
We have contracted with an outside independent consulting firm to provide
internal Year 2000 equipment testing and consulting services to assist us in the
process of defining and implementing a Year 2000 compliance project. This
compliance project includes the following phases:
<TABLE>
<CAPTION>
Expected
completion
Name of phase: Description: Status: date:
- -------------- ------------ ------- -----
<S> <C> <C> <C>
Awareness and Educate the company on the Year 2000 project, the In progress April 1999
Assessment Phase potential problems associated with this date
issue, inventory our systems and products that require
compliance testing.
Testing and Test our systems and products and identify the Begins March 1999 July 1999
Validation Phase non-compliant areas, develop remediation plans, map
the conversion process to correct non-compliant areas
and validate the changes that need to be made to
correct non-compliant areas.
Implementation and Convert non-compliant areas with compliant products Begins August October 1999
Certification Phase (hardware or software), verify that all intended 1999
changes have been made successfully and that all
planned Year 2000 compliance changes have been made.
Maintenance Phase This phase puts processes and procedures in place to Begins December 1999
minimize the likelihood that Year 2000 compliance November 1999
problems will be reintroduced into the compliant
systems and products.
</TABLE>
Status:
Awareness and Assessment Phase: We are in the process of writing an
awareness statement to educate our employees, vendors and customers about
the Year 2000 issues and potential problems associated with the Year 2000
rollover problem and what effect this will have on our company and
customers. We have identified all internal systems (products and software)
that need to be tested for Year 2000 compliance.
Testing and Validation Phase: We have tested the personal computers and
servers used by our employees to complete their daily work assignments. The
results are being analyzed and will be assessed by April 1999. We will be
testing or seeking validation with respect to Year 2000 compliance
regarding external providers for phone service, security service, utility
service, internet service and air conditioning service. We will then
develop remediation plans to correct non-compliant systems.
In addition to the internal testing, evaluation and remediation project, we
will implement a program that will query our suppliers and providers of
third-party technology that may be integrated with our products to determine if
the suppliers operations', products and services are Year 2000 compliant. We
expect these questionnaires to be sent to our third party providers and key
suppliers by the end of April 1999 and conclude our review by the end of June
1999. Where practical, we will take the necessary actions to reduce our exposure
to suppliers that are not Year 2000 compliant by finding alternative suppliers.
However, there may be critical suppliers that cannot be substituted and this
could have a material adverse effect on our operations.
30
<PAGE> 33
We believe our products are Year 2000 compliant. However, not every
customer situation can be anticipated, especially in areas that involve third
party products. Extensive testing has been performed on our products and
additional testing will continue as we become aware of our customer's Year 2000
needs and issues. We may see an increase in customer demands for warranty
service. This may create additional service costs that can not be recovered. In
addition, if our products are not Year 2000 compliant, we could face litigation
regarding Year 2000 compliance issues.
The process to insure our systems and our supplier systems are Year 2000
compliant is expected to be significantly completed by October 31, 1999, with
testing to be done through the remainder of 1999. In addition, we could face
reduced demand for our products through 1999 if customers focus on purchasing
solutions to their Year 2000 problems rather than purchasing our products, which
are not designed to solve Year 2000 problems.
Customer's purchasing plans could be affected by the Year 2000 problem if
they need to expend significant resources to correct their existing systems.
This situation may result in reduced funds available to implement solutions
based upon our products. In addition, some customers may defer the license of
our products until after the Year 2000 while they complete remediation and
testing of their current systems to ensure Year 2000 compliance. A decrease in
demand for our products due to customers' Year 2000 issues would seriously harm
our business and results of operations.
RISKS RELATED TO OUR INDUSTRY
WE FACE INTENSE COMPETITION. The market for our products is intensely
competitive. We believe that the primary competitive factors in our market
include:
(1) database performance, including the speed at which operations can be
executed and the ability to support large amounts of different
information
(2) vendor reputation
(3) the ability to handle abstract data types and complex data
relationships
(4) ease of use
(5) database scalability
(6) the reliability, availability and serviceability of the database
(7) compatibility with customers' existing technology platforms
(8) the ease and speed with which applications can be developed
(9) price and
(10) service and support.
Our current and prospective competitors include companies that offer a
variety of database solutions using various technologies including object
database, object-relational database and relational database technologies.
Competitors offering object and object-relational database management systems
include Oracle Corporation, Computer Associates International, Inc., Object
Design, Inc., Informix and its Illustra Information Technologies, Inc.
subsidiary, Objectivity, Inc., Gemstone Systems, Inc., Poet Software
Corporation, ONTOS, Inc. In addition, our products compete with traditional
relational database management systems, many of which have been or are expected
to be modified to incorporate object-oriented interface and other functionality,
and to leverage Java. The principal competitors in the relational database
market are Oracle, Sybase, Informix, IBM and Microsoft. We expect to face
additional competition from other established and emerging companies as the
object database market continues to develop and expand. In 1997, Oracle released
its Oracle8 product, which, with its object option, provides object-relational
database capabilities, and Computer Associates released their Jasmine ODBMS,
which is a pure object-oriented database. Although we believe that the decision
of relational database vendors to pursue object-relational or object-oriented
approaches validates our belief that object-oriented database solutions will be
increasingly demanded by today's business organizations, we are facing
heightened competition. During the last year we have seen a major shift away
from Smalltalk towards JAVA. In addition Versant is used more and more as a
middle tier persistence layer in multi tier applications This brings us in
direct competition with some of the more established companies in these markets.
These are companies like IBM, SUN and BEA selling Java based tools and
solutions. There is also some movement in the market to buy as much middleware
components as possible from one or just a few suppliers. Because we are offering
just a ODBMS for the time being we may not be able to compete in some of these
situations. This could result and would continue to result in fewer customer
orders, price reductions, reduced transaction size, reduced gross margins and
loss of market share, any of which could have a material adverse effect on our
business, operating results and financial
31
<PAGE> 34
condition and on the market price of our common stock. Due to the introduction
by Oracle and Computer Associates of competing products with lower prices than
the Versant ODBMS, we may not be able to maintain prices for our products at
levels that will enable us to market our products profitably. Any decrease in
per unit prices, as a result of competition or otherwise, could have a material
adverse effect on our business, operating results and financial condition.
In addition our poor financial performance during 1998 may influence
customers to delay orders or cancel projects to wait and see how we are
performing during the next foreseeable future.
We are also indirectly facing competition from developers of middleware
products that allow users to connect object-oriented applications to existing
legacy data and RDBMSs. To the extent that these products gain market
acceptance, they may reduce the market for the Versant ODBMS for less complex
object-oriented applications.
Many of our competitors, and especially Oracle and Computer Associates,
have longer operating histories, significantly greater financial, technical,
marketing, service and other resources, significantly greater name recognition,
broader product offerings and a larger installed base of customers than ours. In
addition, many of our competitors have well-established relationships with
current and potential customers of ours. As a result, our competitors may be
able to devote greater resources to the development, promotion and sale of their
products, may have more direct access to corporate decision-makers based on
previous relationships and may be able to respond more quickly to new or
emerging technologies and changes in customer requirements. We may not be able
to compete successfully against current or future competitors, and competitive
pressures could have a material adverse effect on our business, operating
results and financial condition.
WE DEPEND ON SUCCESSFUL TECHNOLOGY DEVELOPMENT. We believe that significant
research and development expenditures will be necessary to remain competitive.
While we believe our research and development expenditures will improve the
Versant ODBMS and result in successful peripheral product introductions, due to
the uncertainty of software development projects, these expenditures will not
necessarily result in successful product introductions. Uncertainties impacting
the success of software development project introductions include technical
difficulties, market conditions, competitive products and consumer acceptance of
new products and operating systems. In particular, we note that we have not yet
achieved commercial acceptance for our Versant Multimedia Access product.
We also face certain challenges in integrating third-party technology with
our products. These challenges include the technological challenges of
integration, which may result in development delays, and uncertainty regarding
the economic terms of our relationship with the third-party technology provider,
which may result in delays of the commercial release of new products.
We face further technology development challenges associated with our
acquisition of Soft Mountain. The Soft Mountain R'Net product offering is still
under development, and there is uncertainty in both the timing of the release
and the market acceptance of the product. Soft Mountain's geographic location in
France generates additional management and integration challenges, because our
product development to date has been performed in California and India.
Developing and marketing our new Versant Enterprise Container for Java
Beans creates new challenges for us. This product, which has not yet been
commercially introduced, represents our first attempt to provide solutions to
the application server market. Although we have worked with BEA to develop
technology that will allow the Versant Enterprise Container to support the BEA
WebLogic application server family, undiscovered bugs or errors may exist that
prevent us from achieving the functionality we seek with the Versant Enterprise
Container. In addition, because Java Bean containers are specific to each
application server vendor and no standards have been adopted for such
containers, we may not be able to take advantage of our development work with
the BEA application server family when developing solutions for other
application server vendors. We do not currently have any agreements or
relationships regarding the Versant Enterprise Container with other application
server vendors, and when our new product is introduced, customers will only be
able to use it with BEA application servers.
WE MUST PROTECT OUR INTELLECTUAL PROPERTY. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy aspects of our
products, obtain or use information that we regard as proprietary or use or make
copies of our products in violation of license agreements. Policing unauthorized
use of our products is difficult. In addition, the laws of many jurisdictions do
not protect our proprietary rights to as great an extent as do the laws of the
United States. Shrink-wrap licenses may be wholly or partially unenforceable
under the laws of certain jurisdictions,
32
<PAGE> 35
and copyright and trade secret protection for software may be unavailable in
certain foreign countries. Our means of protecting our proprietary rights may
not be adequate, and our competitors may independently develop similar
technology.
To date, we have not been notified that our products infringe the
proprietary rights of third parties, but third parties could claim that our
current or future products infringe such rights. We expect that developers of
object-oriented technology will increasingly be subject to infringement claims
as the number of products, competitors and patents in our industry segment
grows. Any such claim, whether meritorious or not, could be time-consuming,
result in costly litigation, cause product shipment delays or require us to
enter into royalty or licensing agreements. Such royalty or licensing agreements
might not be available on terms acceptable to us or at all, which could have a
material adverse effect upon our business, operating results and financial
condition.
Our future success will depend in part on our ability to integrate our
products with those of vendors providing complementary products. The Versant
ODBMS must be integrated with compilers, development tools, operating systems
and other software and hardware components to produce a complete end-user
solution. We may not receive the support of these third-party vendors, some of
which may compete with us, to integrate our products with the vendors' products.
WE DEPEND ON OUR PERSONNEL FOR WHOM COMPETITION IS INTENSE. Our future
performance depends in significant part upon the continued service of our key
technical, sales and senior management personnel. The loss of the services of
one or more of our key employees could have a material adverse effect on our
business. Our future success also depends on our continuing ability to attract,
train and motivate highly qualified technical, sales and managerial personnel.
Competition for such personnel is intense, especially in Silicon Valley where
our headquarters are located, and we may not be able to attract, train and
motivate such personnel.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to market risk for changes in interest rates relate primarily
to our investment portfolio. Currently, we do not use derivative financial
instruments in our investment portfolio. We invest in high-credit quality
issuers and, by policy, limits the amount of principal exposure to any one
issuer. As stated in our policy, we seek to ensure the safety and preservation
of our invested principal funds by limiting default and market risk.
We seek to mitigate default risk by investing in high-credit quality
securities and by positioning our investment portfolio to respond to a
significant reduction in a credit rating of any investment issuer, guarantor or
depository. We seek to mitigate market risk by limiting the principal and
investment term of funds held with any one issuer and by investing funds in
marketable securities with active secondary or resale markets.
As of December 31, 1998 we had invested all our excess funds in current
money market accounts and had no fixed term investments to report.
ITEM 8. FINANCIAL STATEMENTS
The financial statements and supplementary data required by Item 8 are set
forth below on pages F-1 to F-20 of this report.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
33
<PAGE> 36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.
The information concerning our directors required by this Item is
incorporated by reference to our definitive proxy statement for our 1999 annual
meeting of shareholders, which we will file with the Securities and Exchange
Commission by April 30, 1999, under the heading "Election of Directors." The
information concerning our executive officers required by this item is
incorporated by reference to the proxy statement under the heading "Executive
Officers."
The section entitled "Compliance under Section 16(a) of the Securities
Exchange Act of 1934" that will appear in our proxy statement sets forth the
information concerning compliance by our officers, directors and 10%
shareholders with Section 16 of the Securities Exchange Act and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to our
proxy statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference to our
proxy statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to our
proxy statement under the heading "Certain Relationships and Related
Transactions."
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Exhibit Index, page X-1.
(b) Reports on Form 8-K filed in quarter ending December 31, 1998.
On October 1, 1998, we filed a report on Form 8-K that included an Item 5,
Other Events, disclosure of our September 15, 1998 acquisition of Soft Mountain
and the issuance of shares and payment of cash to the shareholders of Soft
Mountain in connection with the acquisition.
On October 22, 1998, we filed a report on Form 8-K that included an Item 5,
Other Events, disclosure of our issuance of a convertible secured subordinated
promissory note to Vertex in a private placement in which we raised $3.6
million.
With the exception of the information incorporated herein by reference to
our proxy statement in Items 9, 10, 11 and 12 of Part III, the proxy statement
is not deemed to be filed with this Form 10-KSB.
34
<PAGE> 37
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Fremont, State of California, on this 26th day of
March, 1999.
VERSANT CORPORATION
By:/s/ Gary Rhea
--------------------------------------
Gary Rhea
Vice President-Finance
and Administration
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ Nick Ordon President, Chief March 26, 1999
-------------------------------------- Executive Officer and
Nick Ordon Director
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ Gary Rhea Vice President-Finance March 26, 1999
-------------------------------------- and Administration
Gary Rhea
ADDITIONAL DIRECTORS:
/s/ Mark Leslie Director March 27, 1999
--------------------------------------
Mark Leslie
/s/ Stephen J. Gaal Director March 28, 1999
--------------------------------------
Stephen J. Gaal
Director March __, 1999
--------------------------------------
James Simpson
/s/ David Banks Director March 29, 1999
--------------------------------------
David Banks
</TABLE>
35
<PAGE> 38
VERSANT CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Report of Independent Public Accountants........................... F-2
Consolidated Balance Sheets........................................ F-3
Consolidated Statements of Operations.............................. F-4
Consolidated Statements of Shareholders' Equity (Deficit).......... F-5
Consolidated Statements of Cash Flows.............................. F-6
Notes to Consolidated Financial Statements......................... F-7 to
F-20
Schedule II - Valuation and Qualifying Accounts and Reserves....... F-21
</TABLE>
F-1
<PAGE> 39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Versant Corporation:
We have audited the accompanying consolidated balance sheets of Versant
Corporation (a California corporation) and its subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1998. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 Versant Corporation
and its subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
is out of compliance with debt covenants, has a net working capital deficiency
and will require additional funding in 1999 to fund its ongoing operations and
repay its debt obligations. These factors raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule appearing on
page F-21 is presented for purposes of complying with the Securities and
Exchange Commission rules and is not a part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
January 25, 1999
F-2
<PAGE> 40
VERSANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,564 $ 3,717
Short-term investments -- 6,114
Accounts receivable, net of allowance for doubtful
accounts of $335 and $666 in 1998 and 1997, respectively 5,878 9,569
Deferred license cost, net of accumulated amortization
of $1,028 and $372 in 1998 and 1997, respectively -- 1,028
Other current assets 1,318 1,272
-------- --------
Total current assets 10,760 21,700
Property and equipment, net 7,381 7,067
Other assets 433 466
Excess of cost of investment over fair value of
net assets acquired, net of accumulated amortization
of $2,473 and $370 in 1998 and 1997, respectively 2,095 2,973
-------- --------
$ 20,669 $ 32,206
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized lease obligations $ 561 $ 404
Current maturities of long-term debt 2,223 721
Short term debt 2,426 629
Note payable -- 106
Accounts payable 2,331 1,072
Accrued liabilities 3,692 3,278
Deferred revenue 2,830 3,262
-------- --------
Total current liabilities 14,063 9,472
Long-term liabilities, net of current portion:
Capitalized lease obligations 369 546
Long term debt 3,678 1,801
Deferred revenue 704 1,087
Shareholders' equity:
Common stock:
Authorized --30,000 shares
Issued and outstanding--10,150 in 1998 and 8,994 in 1997 45,727 42,980
Accumulated deficit (43,890) (23,955)
Accumulated other comprehensive income 18 275
-------- --------
Total shareholders' equity 1,855 19,300
$ 20,669 $ 32,206
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 41
VERSANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue:
License $ 14,463 $ 21,363 $ 12,202
Services 8,770 7,827 6,191
-------- -------- --------
Total revenue 23,233 29,190 18,393
-------- -------- --------
Cost of revenue:
License 2,846 1,445 1,144
Services 6,893 5,010 2,987
-------- -------- --------
Total cost of revenue 9,739 6,455 4,131
-------- -------- --------
Gross profit 13,494 22,735 14,262
-------- -------- --------
Operating expenses:
Marketing and sales 18,511 17,265 8,327
Research and development 7,722 5,225 3,323
General and administrative 3,857 2,880 1,501
Amortization of goodwill 546 370 --
Write down of assets 1,555 -- --
Acquired in-process R&D cost 528 -- --
-------- -------- --------
Total operating expenses 32,719 25,740 13,151
Income (loss) from operations (19,225) (3,005) 1,111
-------- -------- --------
Other income and expense:
Currency translation gain (loss) (34) 133 --
Interest expense (640) (162) (58)
Interest and other income (expense), net (18) 734 487
-------- -------- --------
Total other income and expense (692) 705 429
Income (loss) before taxes (19,917) (2,300) 1,540
Provision for income taxes 18 40 129
-------- -------- --------
Net income (loss) $(19,935) $ (2,340) $ 1,411
======== ======== ========
Net income (loss) per share:
Basic $ (2.16) $ (0.26) $ 0.24
======== ======== ========
Diluted $ (2.16) $ (0.26) $ 0.18
======== ======== ========
Weighted shares used in per share calculations
Basic 9,209 8,931 5,916
======== ======== ========
Diluted 9,209 8,931 7,690
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 42
VERSANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Other Total
Common Stock Comprehensive Accumulated Shareholders' Comprehensive
Shares Amount Income(Loss) Deficit Equity(Deficit) Income(Loss)
--------- ---------- ------------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 3,138,940 $ 20,488 -- $ (23,026) $ (2,538) --
Conversion of mandatorily
redeemable convertible preferred
stock to common stock 2,367,424 4,429 -- -- 4,429 --
Issuance of common stock in initial
public offering 2,136,842 14,879 -- -- 14,879 --
Exercise of stock options and
warrants 976,001 343 -- -- 343 --
Issuance of common stock to
shareholders of Versant Europe 100,000 750 -- -- 750 --
Net income -- -- -- 1,411 1,411 1,411
Other comprehensive income (loss),
net of tax:
Foreign currency translation adjustments -- -- -- -- -- --
Comprehensive income(loss) -- -- -- -- -- --
Balance at December 31, 1996 8,719,207 40,889 -- (21,615) 19,274 1,411
========== ========== ========== ========== ========== ==========
ESPP and exercises of stock options
and warrants 106,866 946 -- -- 946 --
Issuance of common stock to
shareholders of Versant Europe 167,545 1,145 -- -- 1,145 --
Net loss -- -- -- (2,340) (2,340) (2,340)
Other comprehensive income (loss),
net of tax:
Foreign currency translation -- -- 275 -- 275 275
---------- ---------- ---------- ---------- ---------- ----------
adjustments
Comprehensive income(loss) -- -- 275 -- 275 275
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 8,993,618 $ 42,980 $ 275 $ (23,955) $ 19,300 $ (2,065)
========== ========== ========== ========== ========== ==========
ESPP and exercises of stock options
and warrants 210,934 734 -- -- 734 --
Issuance of common stock to
shareholders of Soft Mountain 245,586 645 -- -- 645 --
Issuance of common stock to
Special Situations Fund 700,000 1,368 -- -- 1,368 --
Net loss -- -- -- (19,935) (19,935) (19,935)
Other comprehensive income (loss),
net of tax:
Foreign currency translation -- -- (257) -- (257) (257)
---------- ---------- ---------- ---------- ---------- ----------
adjustments
Comprehensive income(loss) -- -- (257) -- (257) (257)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 10,150,138 $ 45,727 $ 18 $ (43,890) $ 1,855 $ (20,192)
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 43
VERSANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(19,935) $ (2,340) $ 1,411
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,716 1,262 387
Write-off of acquired in-process R&D 528 -- --
Write down of goodwill 1,555 -- --
Provision for doubtful accounts receivable (857) 208 621
Changes in current assets and liabilities, net of acquisitions:
Accounts receivable 4,548 (5,030) (1,382)
Prepaid expenses and other current assets 982 (2,476) 437
Deposits and other assets 33 (381) (29)
Accounts payable 1,259 597 403
Accrued liabilities and taxes (642) 966 94
Deferred revenue (815) 1,539 947
-------- -------- --------
Net cash provided by (used in) operating activities (10,628) (5,655) 2,889
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,989) (6,679) (72)
Purchases of short-term investments -- (20,632) (18,716)
Proceeds from sale and maturities of short-term investments 6,114 29,462 4,000
Purchase of Versant Europe, net of cash acquired -- (1,987) --
Purchase of Soft Mountain, net of cash acquired (136) -- --
-------- -------- --------
Net cash provided by (used in) investing activities 3,989 164 (14,788)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 2,102 946 15,972
Borrowings under short term note and bank loan 1,797 735 --
Principal payments under capital lease obligations (627) (262) (87)
Principal payments under long term bank note (106) 2,522 --
Proceeds from long-term borrowings 3,320 -- --
-------- -------- --------
Net cash provided by financing activities 6,486 3,941 15,885
-------- -------- --------
Effects of exchange rate changes on cash -- -- --
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (153) (1,550) 3,986
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,717 5,267 1,281
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,564 $ 3,717 $ 5,267
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 378 $ 180 $ 52
Foreign withholding and state income taxes
18 -- 14
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Capital lease obligations incurred for acquisition of equipment $ 607 $ 574 $ 625
Conversion of preferred stock to common stock -- -- $ 4,429
Issuance of common stock to shareholders of Versant Europe -- $ 1,145 --
Issuance of common stock to shareholders of Soft Mountain $ 645 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-6
<PAGE> 44
VERSANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION, OPERATIONS AND LIQUIDITY
Versant Corporation was incorporated in California in August 1988. References to
the "Company" in these Notes to Consolidated Financial Statements refer to
Versant Corporation and its subsidiaries. The Company operates in a single
industry segment and is involved in the design, development, marketing and
support of high performance object database management software systems.
The Company is subject to the risks associated with other companies in a
comparable stage of development. These risks include, but are not limited to,
fluctuations in operating results, seasonality, a lengthy sales cycle,
dependence on the acceptance of object database technology, competition, a
limited customer base, dependence on key individuals, product concentration, and
the ability to adequately finance its ongoing operations.
The Company has suffered recurring losses from operations, is out of compliance
with debt covenants, has a net working capital deficit and will require
additional funding in 1999 to fund its ongoing operations and repay its debt
obligations. These factors raise substantial doubt about its ability to continue
as a going concern. Specifically, the Company has not achieved business volume
sufficient to restore profitability and a positive cash flow. The Company
operated at a net loss of $19.9 million and $2.3 million in 1998 and 1997 and
since December 31, 1998 has continued to experience operating losses. Further,
the Company was not in compliance with its bank line of credit and term loan
covenants as of December 31, 1998, and has been unable to secure a waiver of
such noncompliance. Under the terms of the line and term loan the bank could
demand repayment of the entire outstanding balance at any time. The Company's
line of credit expires on May 31, 1999.
The Company's available cash and credit facilities may not be sufficient to fund
the Company's operations, service its debt facilities and successfully implement
the Company's business plan, part of which consists of pursuing potential
strategic relationships, products and technologies. As a result, the Company's
ability to continue as a going concern is dependent upon future events,
including the Company's ability to obtain additional debt or equity financing.
Additional debt or equity financing, if required, may not be available to the
Company on commercially reasonable terms, or at all. Even if the Company was
able to successfully refinance its outstanding debt and obtain additional debt
or equity financing, the terms of this financing may significantly restrict the
Company's business activities. If the Company was unable to obtain additional
debt or equity financing and does not generate consistent positive cash flows
from operations for the immediate and foreseeable future, the Company will be
required to substantially reduce operations or seek to sell the company. No
adjustments have been made to the accompanying financial statements to reflect
the outcome of this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents and Short-term Investments
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid cash investments with an original maturity of three months or
less to be cash equivalents. Cash equivalents consist of United States
Government obligations. Investments have been accounted for in accordance with
Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"),
"Accounting for Certain Investments in Debt and Equity Securities." As of
December 31, 1997, the Company transferred all investments in marketable
securities classified as held-to-maturity to available-for-sale under SFAS No.
115. The Company elected this classification to provide for greater liquidity in
its investment balances. There were no unrealized gains or losses on these
securities at the date of transfer. The Company's investments in debt securities
matured at various dates through March 1998. The fair value of
available-for-sale securities was determined based on quoted market prices at
the reporting date for the instruments. As of December 31,
F-7
<PAGE> 45
1998, 1997 and 1996, the Company's investments consisted of the following (in
thousands):
<TABLE>
<CAPTION>
MATURITY OF
FAIR MARKET AMORTIZED UNREALIZED SECURITIES
YEAR VALUE COST BASIS GAIN (LOSS) WITHIN ONE YEAR
---- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
United States Government
and Agency Investments 1998 $ 0 $ 0 -- $ 0
United States Government
and Agency Investments 1997 $ 6,114 $ 6,114 -- $ 6,114
United States Government
and Agency Investments 1996 $ 14,716 $ 14,716 -- $ 14,716
</TABLE>
Foreign Currency Translation
The functional currency of each of the Company's subsidiaries is its local
currency. Accordingly, the Company applies the current rate method to translate
the subsidiaries' financial statements into U.S. dollars. Translation
adjustments are included as a separate component of shareholders' equity in the
accompanying consolidated financial statements.
Revenue Recognition
The Company adopted the provisions of Statement of Position 97-2, Software
Revenue Recognition (SOP 97-2), for transactions entered into after January 1,
1998. Revenue consists mainly of revenue earned under software license
agreements, maintenance agreements and consulting and training activities.
Revenue from perpetual software license agreements is recognized as revenue upon
shipment of the software if there is no significant modification of the
software, payments are due within the Company's normal payment terms and
collection of the resulting receivable is probable. If an acceptance period is
required, revenue is recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.
The Company has entered into contracts with certain of its customers that
require the Company to perform development work in return for nonrecurring
engineering fees. Revenue related to such nonrecurring engineering fees is
generally recognized on a percentage of completion basis.
Maintenance revenue is recognized ratably over the term of the maintenance
contract. Consulting and training revenue is recognized when a customer's
purchase order is received and the services are performed.
Cost of license revenue consists principally of product royalty obligations,
product packaging, freight, users manuals, product media, production labor costs
and reserves for estimated bad debts.
Cost of services revenue consists principally of personnel costs associated with
providing training, consulting, technical support and nonrecurring engineering
work paid for by customers.
The Company acted as a sublicensor under an agreement, that expired on December
31, 1996 and was not renewed, on behalf of a certain developer of software tools
products that are used in the development of applications on the Company's
object-oriented database product. The Company also subcontracts a portion of its
consulting work to this developer. The Company incurred product royalty
obligations totaling approximately $33,000 under the terms of the sublicense
agreement in 1996.
Segment Information
In 1998 the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 131 "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 established standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision
F-8
<PAGE> 46
making group is the Executive Management Committee, which is comprised of the
Chief Executive Officer, the Chief Operating Officer and various Executive Vice
Presidents of the Company.
The Company is organized geographically and by line of business. The Company has
three major lines of business operating segments: license, support, and
consulting and training. However, the Company also evaluates certain lines of
business segments by vertical industries as well as by product categories. While
the Executive Management Committee evaluates results in a number of different
ways, the line of business management structure is the primary basis for which
it assesses financial performance and allocates resources.
The license line of business licenses an object orientated database management
software (ODBMS). The ODBMS software can be classified into two broad
categories: systems and development tools, which enables users to create, store,
retrieve, and modify the various types of data stored in a computer system. The
support line of business provides customers with a wide range of support
services that include on-site support, telephone or internet access to support
personnel, as well as software upgrades. The consulting and training line of
business provides customers with a wide range of consulting and training
services to assist the customer in evaluating, installing and customizing the
database as well as training classes on the use and operation of the Company's
products.
The accounting policies of the line of business operating segments are the same
as those described in the summary of significant accounting policies.
The Company does not track assets by operating segments. Consequently, it is not
practicable to show assets by operating segment.
The table below presents a summary of operating segments (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues from Unaffiliated Customers
License $ 14,463 $ 21,361 $ 12,202
Support 4,428 3,804 2,389
Consulting & Training 4,342 4,026 3,802
-------- -------- --------
Total Revenue 23,233 29,190 18,393
Distribution Margin
License 11,617 19,915 11,058
Support 445 264 1,049
Consulting & Training 1,432 2,556 2,155
-------- -------- --------
Total Distribution Margin 13,494 22,735 14,262
Profit Reconciliation:
Other Operating Expenses 32,191 25,740 13,151
Acquired In-Process R&D Cost 528 -- --
Other Income (Expense) (692) 705 429
-------- -------- --------
Income (Loss) Before Provision for Income Taxes $(19,917) $ (2,300) $ 1,540
======== ======== ========
</TABLE>
The table below presents the Company's revenues by legal subsidiary (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Total Revenues Attributable To:
United States $13,280 $22,149 $18,393
Germany 3,663 4,627 --
France 2,659 1,356 --
United Kingdom 2,411 354 --
Australia 1,220 704 --
------- ------- -------
Total $23,233 $29,190 $18,393
======= ======= =======
</TABLE>
F-9
<PAGE> 47
Property and Equipment
Property and equipment, at cost, consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Computer equipment $ 8,574 $ 7,678
Furniture and fixtures 2,110 1,222
Software 1,138 626
Other 1,782 1,652
-------- --------
13,604 11,178
Less--Accumulated depreciation and amortization (6,223) (4,111)
-------- --------
$ 7,381 $ 7,067
======== ========
</TABLE>
Depreciation and Amortization
Property and equipment are depreciated on a straight-line basis over the
estimated useful lives of the assets of three to ten years. Leased assets are
amortized over the shorter of the estimated useful life or the lease term.
Amortization of Excess Cost of Assets Acquired
Amortization of excess of cost of investment over fair value of assets acquired
related to the Company's acquisitions. The goodwill associated with the
acquisition of Versant Europe (see Note 11) in 1997 was being recognized on a
straight-line basis over seven years, but this estimate was changed in 1998 to a
five year period. The goodwill associated with the acquisition of Soft Mountain
(see Note 12) will be recognized over five years.
Software Development Costs
Under the criteria set forth in Statement of Financial Accounting Standards No.
86 ("SFAS No. 86"), "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," capitalization of software development costs
begins upon the establishment of technological feasibility. The Company has
defined the establishment of technological feasibility as the completion of a
working model. Amounts capitalizable to date under the provisions of SFAS No. 86
have not been material.
Deferred Revenue
Deferred revenue represents amounts received from customers under certain
license, maintenance and nonrecurring engineering agreements for which the
revenue earnings process has not been completed.
Deferred revenue consisted of the following components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------ ------
<S> <C> <C>
Maintenance $3,160 $3,560
Development work 39 398
Training and consulting 336 391
------ ------
$3,535 $4,349
====== ======
</TABLE>
Accrued Liabilities
Accrued liabilities consisted of the following components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------ ------
<S> <C> <C>
Payroll and related $1,869 $1,985
Taxes payable 851 509
Other 972 784
------ ------
$3,692 $3,278
====== ======
</TABLE>
F-10
<PAGE> 48
Major Customers
The Company had sales to major customers as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
---- ------ ------
<S> <C> <C> <C>
Customer A * * $5,117
Customer B * $5,776 $2,067
Customer C * * $1,868
Customer D * $3,105 *
</TABLE>
* less than 10%
International Sales
International sales, consisting of sales to customers in foreign countries, were
$10.5 million, $8.5 million and $4.2 million of total revenue in 1998, 1997 and
1996, respectively.
International sales by country or region were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Europe $ 8,733 $ 6,337 $ 1,871
Canada 286 1,163 702
Australia 825 603 1,237
Japan 226 361 101
Other 417 106 303
------- ------- -------
$10,487 $ 8,570 $ 4,214
======= ======= =======
</TABLE>
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of
credit risk principally consist of accounts receivable and short-term
investments. Credit is extended based on an evaluation of the customer's
financial condition, and generally collateral is not required. As of December
31, 1998, approximately 21% of accounts receivable were concentrated with three
customers. Also 62%, 39% and 42% of our total revenue in 1996, 1997 and 1998,
respectively, were attributable to sales of products to telecommunications
companies. The Company generally does not require collateral on accounts
receivable because the majority of the Company's customers are large, well
established companies. The Company provides reserves for estimated credit losses
in accordance with management's ongoing evaluation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net Income (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128"), effective December 15, 1997. This
standard revised certain methodology for computing net income (loss) per share
and requires the reporting of two net income (loss) per share figures: basic net
income (loss) per share and diluted net income (loss) per share. Basic net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares outstanding. Diluted net income (loss) per
share is computed by dividing net income (loss) by the sum of the weighted
average number of shares outstanding plus the dilutive effect of shares issuable
through the exercise of stock options. The dilutive effect of stock options is
computed using the treasury stock method, and the dilutive effect of convertible
preferred stock is computed using the if converted method. Dilutive securities
are excluded from the diluted net income (loss) per share computation if their
effect is antidilutive.
F-11
<PAGE> 49
The reconciliation of the numerators and denominators of the basic and diluted
net income (loss) per share computations are as follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
FOR THE YEAR 1996:
Basic net income per share:
Income available to holders of common stock $ 1,411 5,916 $ 0.24
======== ======== =========
Shares issuable upon exercise of stock options using
treasury stock method 490
Shares outstanding based on assumed conversion of
common stock equivalents 1,284
--------
Diluted net income per share:
Income available to holders of common stock plus
assumed conversions $ 1,411 7,690 $ 0.18
======== ======== =========
FOR THE YEAR 1997:
Basic and diluted net loss per share:
Losses available to holders of common stock $ (2,340) 8,931 $ (0.26)
======== ======== =========
FOR THE YEAR 1998:
Basic and diluted net loss per share:
Losses available to holders of common stock $(19,935) 9,209 $ (2.16)
======== ======== =========
</TABLE>
Basic net income (loss) per share was computed using the weighted average number
of shares outstanding. Diluted net income per share for the year ended December
31, 1996 was computed using the weighted average number of shares outstanding
plus the weighted average number of common stock equivalents using the treasury
stock method. Common stock equivalents have been excluded in loss years as their
effect would be antidilutive. The number of weighted average common stock
equivalents not included in diluted loss per share for the year ended December
31, 1998 and 1997, because they were antidilutive, and may be dilutive in future
periods, were 35,844 and 518,276, respectively. The change in the way the
Company previously reported net income (loss) per share for financial reporting
purposes is due in part to the adoption of SFAS No. 128 and subsequently, Staff
Accounting Bulletin No. 98 on "Computations of Earnings per Share," which became
effective in February 1997.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to amounts in prior years to conform to
the 1998 presentation.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2"), which
was adopted by the Company in 1998. SOP 97-2 clarifies and amends certain
provisions of Statement of Position 91-1, "Software Revenue Recognition."
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"), which was adopted by the Company in 1998. The Company is required to
disclose, in financial statement format, all non-owner changes in equity. Such
changes include, for example, cumulative foreign currency translation
adjustments, certain minimum pension liabilities and unrealized gains and losses
on available-for-sale securities.
F-12
<PAGE> 50
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which establishes
standards for reporting information about operating segments in annual financial
statements and interim financial reports. It also establishes standards for
related disclosure about products and services, geographic areas and major
customers. As defined in SFAS No. 131, operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operation decision-maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The Company adopted SFAS No. 131 in 1998.
In December 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9") which addresses
software revenue recognition as it applies to certain multiple-element
arrangements. SOP 98-9 also amends, Statement of Position 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2," (SOP 98-4) to extend the deferral of
application of certain passages of SOP 97-2 through years beginning on or before
March 15, 1999. All other provisions of SOP 98-9 are effective for transactions
entered into in years beginning after March 15, 1999. The Company will adopt SOP
98-9 in 1999. The Company is currently evaluating the impact of the SOP on its
financial statements and related disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which establishes accounting and
reporting standards for derivative instruments and hedging activities. The
pronouncement is effective for years beginning after June 15, 1999. The
statement must be applied to derivative instruments that were issued, acquired,
or substantively modified after December 31, 1997. The Company does not
currently hedge in currency exposure. The adoption of SFAS No. 133 is not
expected to impact the Company's consolidated financial position or results of
operations.
4. LEASE OBLIGATIONS
In November 1996, the Company entered into an agreement to lease its new
corporate headquarters facility under a ten-year operating lease agreement
commencing on June 1, 1997 and expiring on May 31, 2007. The terms of the lease
provide for certain increases in rental payments during the lease term. Rental
expense under this agreement is recognized on a straight-line basis. As of March
31, 1998, the Company had outstanding $106,000 in the form of a note payable
issued as a security deposit to the lessor of its corporate headquarters
facility. The note bears interest at zero percent and matured on June 1, 1998,
at which time the Company paid the note in full. The Company also leases field
office space generally under one-year operating lease agreements. Consolidated
rent expense for 1998, 1997 and 1996 was approximately $2,043,000, $1,358,000
and $427,000, respectively. The future annual minimum lease payments at December
31, 1998 under noncancellable operating leases were as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- -------
<S> <C>
1999 1,448
2000 1,384
2001 1,434
2002 1,467
2003 1,500
Thereafter 5,672
-------
$12,905
=======
</TABLE>
The Company has entered into capital lease agreements for equipment with an
original cost of $1,856,000 $1,199,000 and $625,000 at December 31, 1998, 1997
and 1996, respectively. Accumulated depreciation of leased equipment was
$926,000, $249,000 and zero at December 31, 1998, 1997 and 1996, respectively.
The future
F-13
<PAGE> 51
minimum lease payments required under these capital leases at December 31, 1998
were as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999 $ 620
2000 286
2001 72
2002 42
2003 --
------
Minimum lease payments 1,020
Less--amount representing interest (7 1/2%-14.7%) 90
------
Present value of net minimum lease payments 930
Current maturities 561
------
Long term maturities $ 369
======
</TABLE>
5. LINE OF CREDIT
The Company maintains a revolving credit line with a bank that expires on May
31, 1999. The maximum amount that can be borrowed under the revolving credit
line is $5.0 million. As of December 31, 1998, $900,000 was allocated to a
standby letter of credit to support the Company's European banking line and
$1,661,000 of borrowings were outstanding. Borrowings and the standby letter of
credit under the revolving credit line are limited to 80% of eligible accounts
receivable and are secured by a lien on substantially all of the Company's
assets. These borrowings bear interest at the bank's base lending rate (7.75% at
December 31, 1998). The loan agreement contains certain financial covenants and
also prohibits cash dividends and mergers and acquisitions without the bank's
prior approval. The Company renegotiated these original covenants, effective
June 30, 1998, in order to comply with the Company's projected financial
results. As of December 31, 1998 we were not in compliance with all covenants
and were not able to obtain a waiver from the bank. This line of credit is
currently due on demand.
On March 19, 1998, the Company converted an interest only, variable rate
note to a variable rate, term loan with principal and interest payable over 36
months. Borrowings under the loan are secured by a lien on all assets acquired
using the proceeds of the loan, which have been used for the acquisition of
equipment and leasehold improvements. The loan bears interest at the bank's base
lending rate, currently at 7.75%, plus 0.5%. The loan contains certain financial
covenants and also prohibits cash dividends and mergers and acquisitions without
the bank's prior approval. The Company renegotiated the original covenants
effective June 30, 1998 in order to comply with the Company's projected
financial results. As of December 31, 1998 we were not in compliance with all
covenants and were not able to obtain a waiver from the bank. This loan is
currently due on demand and has been restated as a current liability in our
financial statements.
The Company's subsidiary, Versant Europe, has a credit facility which bears
interest at 8.25% as of December 31, 1998. The total amount available under this
credit facility is $900,000 and is secured by a letter of credit issued by the
Company. The outstanding balance at December 31, 1998 is $703,000 and is payable
on demand.
6. COMMON STOCK
During 1995, the Company sold shares of Common Stock to employees at $1.00 per
share, which represented fair market value on April 22, 1995. These share
issuances were made pursuant to the 1989 Stock Option Plan and such amounts are
included in the option grant and option exercise table in Note 8.
In July and August of 1996, the Company completed its initial public offering of
2,380,500 shares of Common Stock (including an over-allotment option of 310,500
shares) at $8.00 per share, resulting in net proceeds to the Company of $14.9
million after offering costs. In May 1996, the Company sold 100,000 shares of
Common Stock to the owners of Versant Europe, which at the time was an
independent distributor of the Company's products, at a price of $7.50 per share
for total proceeds to the Company of $750,000.
In September 1998 in connection with the Company's acquisition of Soft Mountain,
the Company agreed to register the 245,586 shares issued in such transaction
with the SEC on Form S-3 by December 31, 1998. As the shares were not registered
by such date the Company may become obligated to repurchase such shares for
6,190,000 French Francs (approximately $1.1 million).
F-14
<PAGE> 52
In December 1998 in connection with the sale of shares of common stock to
Special Situations Fund, the Company agreed to register 700,000 shares of Common
Stock issued plus warrants to purchase an additional 350,000 shares, in such
transaction, with the SEC on Form S-3 by April 9, 1999.
7. STOCK OPTION AND STOCK PURCHASE PLANS
1996 Equity Incentive Plan
In May 1996, the Board adopted the 1996 Equity Incentive Plan (the "1996 Equity
Plan") and the Company's shareholders approved the 1996 Equity Plan in June
1996. The 1996 Equity Plan serves as the successor equity incentive program to
the Company's 1989 Stock Option Plan. The 1996 Equity Plan provides for the
grant of stock options and stock bonuses and the issuance of restricted stock by
the Company to its employees, officers, directors, consultants, independent
contractors and advisors. Options granted under the 1989 Stock Option Plan
before its termination remain outstanding in accordance with their terms, but no
further options have been granted under the 1989 Stock Option Plan since the
Company's initial public offering. Any authorized shares that are not issued or
subject to outstanding grants under the 1989 Stock Option Plan will be available
for grant and issuance in connection with future awards under the 1996 Equity
Plan. As of December 31, 1998, the Company has authorized 1,650,000 shares of
Common Stock, plus any shares previously issuable under the 1989 Option Plan and
now issuable under the 1996 Equity Plan, for issuance under the 1996 Equity
Plan. As of December 31, 1998, options to purchase 1,751,894 shares were
outstanding under the 1996 Equity Plan, options to purchase 8,125 shares had
been exercised under the 1996 Equity Plan, and 270,351 shares were available for
grant under the 1996 Equity Plan, including shares previously available for
grant under the 1989 Stock Option Plan. At December 31, 1998, options to
purchase 358,173 shares were exercisable under the 1996 Equity Plan.
1996 Directors Stock Option Plan
In May 1996, the Board adopted the 1996 Directors Stock Option Plan (the
"Directors Plan") and the Company's shareholders approved the Directors Plan in
June 1996. The Directors Plan provides for the grant of nonqualified stock
options to nonemployee directors of the Company, including automatic grants of
options to purchase 10,000 shares of Common Stock to nonemployee directors that
were granted concurrently with the initial public offering, an option to new
nonemployee directors to purchase 10,000 shares of Common Stock on the date on
which the new director joins the Board and an additional option to purchase
5,000 shares of Common Stock to each eligible director on each anniversary date
of such director's initial option grant under the Directors Plan if such
director has served continuously as a member of the Board since the date such
director was first granted an option under the Directors Plan. The exercise
price of all options granted under the Directors Plan will be the fair market
value of the Common Stock on the date of grant. All options issued under the
Directors Plan will vest as to 50% of the shares on each of the first two
anniversaries following the date of grant, provided the optionee continues as a
member of the Board or as a consultant to the Company. As of December 31, 1998,
the Company has authorized 125,000 shares of Common Stock for issuance under the
Directors Plan. At December 31, 1998, options for an aggregate of 75,000 shares
were outstanding, and options to purchase 42,500 shares were exercisable.
1989 Stock Option Plan
The 1989 Stock Option Plan was succeeded by the 1996 Equity Plan during 1996.
Under the provisions of the 1989 Stock Option Plan, the Board of Directors
granted either incentive or non-statutory stock options to employees,
consultants, directors and officers to purchase Common Stock at an exercise
price of not less than 100% of the fair value (as determined by the Board of
Directors) of the shares on the date of grant, except that non-statutory options
were granted at 85% of such fair value. Options expire no later than ten years
from the date of grant and generally vest over a period of 5 years. As of
December 31, 1998, options to purchase 212,155 shares were outstanding under the
1989 Stock Option Plan, options to purchase 1,217,812 shares had been exercised
under the 1989 Stock Option Plan, and no shares were available for grant under
the 1989 Stock Option Plan. As of December 31, 1998, options to purchase 131,527
shares were exercisable under the 1989 Stock Option Plan.
F-15
<PAGE> 53
Reserved for Future Issuance
As of December 31, 1998, the Company had reserved shares of Common Stock for the
following purposes:
<TABLE>
<S> <C>
Employee stock purchase plan 24,337
Stock options available for grant 320,351
Exercise of stock options outstanding 2,039,049
---------
2,383,737
=========
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its option plans. Accordingly, no compensation cost has been recognized for
its option plans. Had compensation cost for the Company's option plans been
determined based on the fair value at the grant dates for the awards calculated
in accordance with the method prescribed by FASB Statement No. 123, the
Company's net income (loss) and net income (loss) per share would have been
reduced to the pro forma amounts indicated below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- -------
<S> <C> <C> <C> <C>
Net income (loss) As Reported $ (19,935) $ (2,340) $ 1,411
Pro forma $ (21,987) $ (3,750) $ 989
Basic net income (loss) per share As Reported $ (2.16) $ (0.26) $ 0.24
Pro forma $ (2.39) $ (0.42) $ 0.17
Diluted net income (loss) per share As Reported $ (2.16) $ (0.26) $ 0.18
Pro forma $ (2.39) $ (0.42) $ 0.13
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for 1998,
1997 and 1996, respectively: zero dividend yield for all years; volatility of
80%, 60% and 90%, respectively; risk-free interest rates of 5.1%, 6.1% and 7.0%
respectively; and expected life of 3 years, 3 years and 5.75 years,
respectively. The weighted average fair value of options granted during 1998,
1997 and 1996 was $2.69, $4.99 and $5.55 per share, respectively.
Option activity under all of the Company's option plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------
WEIGHTED
OPTIONS NUMBER OF AVERAGE
AVAILABLE SHARES EXERCISE PRICE
---------- ---------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995 202,929 1,161,144 0.59
Authorized 1,075,000 -- --
Granted (608,365) 608,365 7.31
Exercised -- (929,505) 0.59
Canceled 74,476 (74,476) 4.92
---------- ---------- ------
Balance at December 31, 1996 744,040 765,528 $ 5.48
========== ========== ======
Authorized 850,000 -- --
Granted (1,194,215) 1,194,215 11.71
Exercised -- (69,424) 2.28
Repurchased 89,480 -- 0.90
Canceled 555,268 (555,268) 13.20
---------- ---------- ------
Balance at December 31, 1997 1,044,573 1,335,051 $ 8.01
========== ========== ======
Authorized -- -- --
Granted (1,112,700) 1,112,700 4.84
Exercised -- (27,257) 1.42
Repurchased 7,033 -- 1.23
Canceled 381,445 (381,445) 7.59
---------- ---------- ------
Balance at December 31, 1998 320,351 2,039,049 $ 6.45
========== ========== ======
</TABLE>
F-16
<PAGE> 54
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------------------
NUMBER WEIGHTED WEIGHTED NUMBER
OUTSTANDING AVERAGE AVERAGE EXERCISABLE AT WEIGHTED
AT DECEMBER 31, REMAINING EXERCISE DECEMBER 31, AVERAGE
EXERCISE PRICES 1998 CONTRACTUAL LIFE PRICE 1998 EXERCISE PRICE
--------------- --------------- ---------------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C>
From $ .25 to $ 2.00 489,655 8.56 $ 1.66 114,719 $ 1.05
From $ 4.75 to $ 6.88 905,491 9.04 5.87 102,306 5.62
From $ 7.25 to $ 8.88 490,330 7.99 8.12 258,477 8.08
From $18.00 to $18.75 153,573 8.53 18.07 56,698 18.09
--------- ---- --------- ------- ------
From $ .25 to $18.75 2,039,049 8.63 $ 6.32 532,200 $ 7.16
========= ==== ========= ======= =========
</TABLE>
1996 Employee Stock Purchase Plan
In May 1996, the Board adopted the 1996 Employee Stock Purchase Plan (the
"Purchase Plan"), and the Company's shareholders approved the Purchase Plan in
June 1996. The Company has reserved 400,000 shares of Common Stock for issuance
under the Purchase Plan. The Purchase Plan will enable eligible employees to
purchase common stock at 85% of the lower of the fair market value of the
Company's Common Stock on the first or the last day of each offering period. As
of December 31, 1998, 300,663 shares had been issued.
8. INCOME TAXES
The Company accounts for income taxes pursuant to the provisions of SFAS No.
109, "Accounting for Income Taxes," which requires an asset and liability
approach to accounting for income taxes. The Company incurred net operating
losses in 1998 and 1997 and consequently paid no federal or state taxes based on
income. The Company did pay foreign withholding taxes during those periods.
The provision for income taxes consisted of the following components (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ 75
State -- -- 40
Foreign withholding 18 40 14
---- ---- ----
Total current 18 40 129
Deferred:
Federal -- -- --
State -- -- --
---- ---- ----
Total deferred -- -- --
Total provision for income taxes $ 18 $ 40 $129
==== ==== ====
</TABLE>
The provision for income taxes differs from the amount estimated by applying the
statutory federal income tax rate to income (loss) before income taxes as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Provision (benefit) computed at federal statutory rate $(5,134) $ (805) $ 534
State income taxes, net of federal benefit -- -- 92
Change in valuation allowance 5,134 805 (750)
Other 18 40 253
------- ------- -------
Provisions for income taxes $ 18 $ 40 $ 129
------- ------- -------
Effective tax rate -- -- 7.5%
</TABLE>
F-17
<PAGE> 55
The components of the net deferred tax asset were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Deferred tax asset:
Net operating loss carryforwards $ 12,782 $ 7,954 $ 7,073
Tax credit carryforwards 2,259 1,556 1,282
Other 126 523 873
-------- -------- --------
15,167 10,033 9,228
Valuation allowance (15,167) (10,033) (9,228)
-------- -------- --------
Net deferred tax asset $ -- $ -- $ --
======== ======== ========
</TABLE>
At December 31, 1998, the Company had federal and state net operating loss
carryforwards of $34.0 million and $13.8 million, respectively, and tax credit
carryforwards of $2.3 million, expiring on various dates through 2018. Due to
the Company's history of operating losses through 1995, and in 1997 and 1998 and
other factors, the Company believes that there is sufficient uncertainty
regarding the realizability of these carryforwards, and therefore a valuation
allowance of approximately $15.2 million has been recorded against the Company's
net deferred tax assets of approximately $15.2 million. Management will continue
to assess the realizability of the tax benefits available to the Company based
on actual and forecasted operating results.
9. RELATED PARTIES
The Company has an agreement with a shareholder, under which a) the Company
licenses for resale certain of the shareholder's products and remits a royalty
to the shareholder and b) the shareholder performed certain porting of the
Company's products in exchange for a royalty payment related to ongoing sales of
these products. Royalties due under these agreements were zero, zero and $41,000
at December 31, 1998, 1997 and 1996, respectively. In 1992, the Company also
entered into a distribution agreement with this shareholder, under which revenue
to date has not been material.
10. ACQUISITION OF VERSANT EUROPE
On March 26, 1997, the Company acquired Versant Europe, an independently owned
distributor of the Company's products in Europe. The Company paid $3.6 million
to the shareholder of Versant Europe consisting of $2.0 million in cash and
167,545 shares of Common Stock valued at $9.75 per share. The acquisition was
accounted for using the purchase method of accounting. Accordingly, the results
of operations of Versant Europe are reflected in the consolidated financial
statements commencing on the date of the acquisition.
The acquisition of Versant Europe resulted in the Company recording an
intangible asset representing the cost in excess of fair value of the net assets
acquired in the amount of $3.3 million, which is being amortized over a
five-year period. The Company also acquired approximately $1.4 million of
prepaid sublicense credits which are being amortized and included in cost of
license revenue in conjunction with associated license revenue transactions
realized by Versant Europe (fully amortized at December 31, 1998). In the fourth
quarter of 1998, the Company determined that the value of its intangible asset
had been impaired due to weaker than anticipated operating results in Europe.
Therefore, the Company recorded a "write-down of asset" charge of $1,555,000
during 1998. This charge represents the shortfall between projected future cash
flows for Europe (as discounted) and the net book value of the intangible. As of
December 31, 1998, the Company also changed its estimate of the future life of
the acquired intangible asset from seven to five years.
F-18
<PAGE> 56
The table below presents the pro forma results (in thousands, except per share
data) for the years ended December 31, 1997 and 1996 had the Company's
acquisition of Versant Europe occurred at the beginning of 1996.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Total revenue $ 29,579 $ 18,039
Net loss (2,457) (2,057)
Pro forma basic and diluted net loss per share $ (0.27) $ (0.34)
Shares used in computing pro forma net (loss) per
share 9,088 5,916
</TABLE>
11. ACQUISITION OF SOFT MOUNTAIN
On September 15, 1998, the Company acquired 100% of the outstanding equity (the
"Acquisition") of Soft Mountain S.A. ("Soft Mountain"), a French company. Soft
Mountain develops event-driven middleware software solutions that combine object
orientation and deterministic event processing in a distributed business system.
The Acquisition was effected pursuant to a Share Purchase Agreement, dated as of
July 30, 1998 (the "Agreement"), by and between Versant and the shareholders of
Soft Mountain.
Pursuant to the terms of the Agreement, the Company acquired the equity of Soft
Mountain in return for approximately $136,000 in cash and 245,586 shares of
Versant Common Stock, valued at $2.625 and incurred approximately $300,000 in
acquisition expenses. The cash portion of the purchase price was funded by
working capital.
Pursuant to the Agreement, the Company was obligated to use reasonable efforts
to file, before September 30, 1998, a registration statement on Form S-3 (or
other appropriate form) with the Securities and Exchange Commission with respect
to the resale of the shares of Versant Common Stock issued to the shareholders
of Soft Mountain. The Company has not yet filed such registration statement.
The acquisition of Soft Mountain was accounted for using the purchase method and
resulted in the Company recording an intangible asset representing the cost in
excess of fair market value of the net assets acquired (goodwill) in the amount
of $1.2 million, which is being amortized over a five year period. The Company
wrote off approximately $528,000 of in-process research and development (IPR&D)
costs associated with the purchased software, as the software had not yet
reached technological feasibility and had no alternative future use. The amount
allocated to IPR&D was estimated based upon the stage of completion of the
project, the costs to complete the project, the expected future cash flow, the
life cycle of the product ultimately developed and the associated risks. If the
product is not successfully developed the revenue and profitability of the
Company may be adversely affected in future periods. Consolidated operations for
the year ending December 31, 1998 include total revenue and operating expenses
from Soft Mountain of approximately $119,000 and $290,000, respectively, for the
period from date of acquisition to December 31, 1998.
The following table presents the unaudited pro forma results assuming that the
Company had acquired Soft Mountain at the beginning of 1997. Net loss per share
has been adjusted to exclude the write-off of acquired in-process research and
development of $528,000 in the twelve month period ended December 31, 1998.
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended
12/31/97 (unaudited) 12/31/98 (unaudited)
-------------------- --------------------
<S> <C> <C>
Revenue 30,108 23,460
Net Loss (2,701) (20,113)
Basic and Diluted Loss Per Share ($0.29) ($2.18)
</TABLE>
12. VERTEX FUNDING
On October 16, 1998, the Company raised $3.6 million through the private
placement of a Convertible Secured Subordinated Promissory Note. The funding was
provided by Vertex Technology Fund Pte. ("Vertex"), a fund managed by Vertex
Management.
F-19
<PAGE> 57
The Note issued to Vertex is convertible at Vertex's option into common stock of
the Company at a price of $1.925 per share. The fair market value of the
Company's common stock on October 16, 1998 was $2.375. As this is a favorable
conversion the resulting discount increases the effective interest rate and is
therefore reflected as interest expense over the period from the issue date
through the date at which the security is first convertible. The Company
recognized approximately $128,000 in interest expense during fiscal year 1998.
As of February 26, 1999, Versant has 10,124,746 shares of common stock
outstanding. The Note initially will not bear interest, however, in the event
the Note has not been converted prior to the maturity date, simple interest will
be deemed to have accrued from the date of issuance, at an interest rate of
9.25%. The Note is secured by the assets of the Company, is subordinated to the
Company's existing lines of credit and is due in October 2001, but may mature or
be automatically converted sooner under certain circumstances. Vertex may not
sell its interest in the Note or underlying common stock until April 16, 1999.
To date neither the Note nor the shares issuable upon conversion of the Note
have been registered under the Securities Act of 1933, as amended (the
"Securities Act").
13. SPECIAL SITUATIONS FUNDING
On December 30, 1998, the Company raised $1.4 million through the private
placement of 700,000 shares of Common Stock plus Warrants to purchase an
additional 350,000 shares of Common Stock. The funding was provided by funds
affiliated with Special Situations Fund, a current stockholder in the Company.
The Common Stock was sold at $2.00 per share and the warrants, which permit the
purchase of an additional 350,000 shares at a price of $2.25, were sold for an
additional $43,750. The Warrants expire upon the earlier of :
(i) December 28, 2001
(ii) an acquisition of the Company, or
(iii) the Company's stock has closed with a closing bid price above $4.00
for ten consective days
Neither the Common Stock or Warrants, nor the shares issuable upon the exercise
of the Warrants, have been registered under the Securities Act of 1933, as
amended. Versant has agreed to file a registration statement for the resale of
the shares of Common Stock issued or issuable in connection with this
transaction.
14. LEGAL PROCEEDINGS
The Company and certain of its present and former officers and directors were
named as defendants in four class action lawsuits filed in the United States
District Court for the Northern District of California, filed on January 26,
1998, February 5, 1998, March 11, 1998 and March 18, 1998, respectively. On June
19, 1998, a Consolidated Amended Complaint was filed in the above mentioned
court, by the lead Plaintiff named by the court. The amended complaint alleges
violations of Sections 10(b) and 20(a) of the Securities Exchange Act, and
Securities and Exchange Commission Rule 10b-5 promulgated under the Securities
Exchange Act, in connection with public statements about the Company's expected
financial performance. The complaint seeks an unspecified amount of damages. The
Company vigorously denies the plaintiffs' claims and has moved to dismiss the
allegations. The Plaintiff has filed a response to the Company's motion to
dismiss and the Company has filed an opposition to Plaintiff's response. The
motion to dismiss was submitted to the court for consideration on November 13,
1998 and the court has not yet issued a decision. Securities litigation can be
expensive to defend, consume significant amounts of management time and result
in adverse judgments or settlements that could have a material adverse effect on
the Company's results of operations and financial condition.
F-20
<PAGE> 58
VERSANT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
OF YEAR INCOME DEDUCTIONS END OF YEAR
---------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND
CUSTOMER RETURNS:
Year ended December 31, 1996 $ 81 621 99 $ 603
Year ended December 31, 1997 $ 603 208 145 $ 666
Year ended December 31, 1998 $ 666 857 1,188 $ 335
</TABLE>
F-21
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<S> <C>
2.01 -- Acquisition Agreement dated as of March 26, 1997 by and between
registrant and ISAR-Vermogensverwaltung Gbr mbH ("ISAR")(1)
3.01 -- Registrant's Amended and Restated Articles of Incorporation, as
amended(2)
3.02 -- Registrant's Certificate of Amendment of Articles of Incorporation filed
prior to the closing of registrant's initial public offering(2)
3.03 -- Registrant's Amended and Restated Articles of Incorporation filed
following the closing of registrant's initial public offering(2)
3.04 -- Registrant's Bylaws(2)
3.05 -- Registrant's Amended and Restated Bylaws adopted prior to the closing of
registrant's initial public offering(2)
3.06 -- Certificate of Amendment of Amended and Restated Articles of Versant
Object Technology Corporation(7)
4.01 -- [intentionally omitted]
4.02 -- Preferred Stock Purchase Agreement, dated as of April 27, 1994, as
amended(2)
10.01 -- Registrant's 1989 Stock Option Plan, as amended, and related
documents(2)**
10.02 -- Registrant's 1996 Equity Incentive Plan, as amended, and related
documents(3)**
10.03 -- Registrant's 1996 Directors Stock Option Plan, as amended, and related
documents(4)**
10.04 -- Registrant's 1996 Employee Stock Purchase Plan, as amended, and related
documents(5)**
10.05 -- Registrant's 401(k) Plan and addendum thereto(2)
10.06 -- Lease Agreement dated March 22, 1993 between Lincoln Property Company
N.C., Inc. and Registrant, as amended(2)
10.07 -- Master Lease Agreement dated January 26, 1996 between LINC Capital
Management, a division of Scientific Leasing Inc., and Registrant(2)
10.08 -- Amended and Restated Loan and Security Agreement dated as of June 14,
1996 between Registrant and Silicon Valley Bank(2)
10.09 -- Joint Venture Agreement dated as of July 26, 1995 between Registrant
and ISAR-Vermogensverwaltung Gbr mbH(2)*
10.10 -- Form of Indemnity Agreement entered into by Registrant with each of its
directors and executive officers(2)
10.11 -- 1996 Executive Compensation Plan -- Rich Kadet (2)*/**
</TABLE>
X-1
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<S> <C>
10.12 -- 1996 Executive Compensation Plan -- George Franzen (2)*/**
10.13 -- 1996 Executive Compensation Plan -- Jim Lochry (2)*/**
10.14 -- Form of Amendment to Versant Corporation Stock Option Agreement(2)**
10.15 -- Lease Agreement dated November 25, 1996 between John Arrillaga, Trustee
et. al. and Versant Corporation(6)
10.16 -- Form of Letter Agreement dated October 22, 1997 between registrant and
its executive officers(9)**
10.17 -- Severance Agreement and Release of Claims dated January 7, 1997 between
registrant and David Banks(9)**
10.18 -- Letter Agreement dated November 26, 1997 between registrant and Nick
Ordon(9)**
10.19 -- Revolving Credit Loan and Security Agreement dated May 15, 1997(7)
10.20 -- Consulting Agreement between Company and David Banks dated January 7,
1998(7)
10.21 -- Variable Rate-Installment Note dated March 19, 1998(7)
10.22 -- Equipment Rider dated March 19, 1998(7)
10.23 -- Corporate Resolution and Incumbency Certification dated March 30,
1998(7)
10.24 -- Modification to Loan and Security Agreement dated May 6, 1998(7)
10.25 -- Waiver to Loan and Security Agreement Covenants Dated August 10,
1998(8)
10.26 -- Waiver to Loan and Security Agreement Dated August 11, 1998(8)
10.27 -- Loan and Security Agreement Consent and Amendment Dated October 16,
1998(10)
10.28 -- Vertex Note Purchase Agreement Dated October 16, 1998(10)
10.29 -- Vertex Convertible Secured Subordinated Promissory Note Dated October
16, 1998(10)
10.30 -- Vertex Security Agreement Dated October 16, 1998(10)
10.31 -- Vertex Registration Rights Agreement Dated October 16, 1998(10)
10.32 -- Vertex Subordination Agreement Dated October 16, 1998(10)
10.33 -- Special Situations Fund Common Stock and Warrant Purchase Agreement
Dated December 28, 1998(10)
10.34 -- Special Situations Fund Stock Warrant Dated December 28, 1998(10)
10.35 -- Special Situations Fund Registration Rights Agreement Dated December
28, 1998(10)
21.01 -- Subsidiaries of the registrant(10)
23.01 -- Consent of Arthur Andersen LLP, Independent Public Accountants(10)
</TABLE>
X-2
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<S> <C>
27.01 -- Financial Data Schedule(10)
</TABLE>
- --------
(1) Incorporated by reference to the registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission on April 10, 1997
(2) Incorporated by reference to the registrant's Registration Statement on
Form SB-2 (file number 333-4910-LA) filed with and declared effective by
the Securities and Exchange Commission on July 17, 1996.
(3) Incorporated by reference to Exhibit 4.05 to the registrant's Registration
Statement on Form S-8 (file number (333-29947) filed with the Securities
and Exchange Commission on June 24, 1997.
(4) Incorporated by reference to Exhibit 4.06 to the registrant's Registration
Statement on Form S-8 (file number (333-29947) filed with the Securities
and Exchange Commission on June 24, 1997.
(5) Incorporated by reference to Exhibit 4.07 to the registrant's Registration
Statement on Form S-8 (file number (333-29947) filed with the Securities
and Exchange Commission on June 24, 1997.
(6) Incorporated by reference to the registrant's Form 10-KSB for the year
ended December 31, 1996, filed with the Securities and Exchange Commission
on March 31, 1997.
(7) Incorporated by reference to the registrant's Form 10-QSB for the quarter
ended June 30, 1998, filed with the Securities and Exchange Commission on
August 14, 1998.
(8) Incorporated by reference to the registrant's Form 10-QSB for the quarter
ended September 30, 1998, filed with the Securities and Exchange Commission
on November 13, 1998.
(9) Incorporated by reference to the registrant's Form 10-KSB for the quarter
ended December 31, 1997, filed with the Securities and Exchange Commission
on April 3, 1998.
(10) Filed herewith.
* Confidential treatment has been granted with respect to certain portions of
this agreement. Such portions have been omitted from the filing and have
been filed separately with the Securities and Exchange Commission.
** Management contract or compensatory plan.
X-3
<PAGE> 1
EXHIBIT 10.27
LOAN & SECURITY AGREEMENT CONSENT AND AMENDMENT
THIS LOAN & SECURITY AGREEMENT CONSENT AND AMENDMENT (this "Consent and
Amendment") is entered into as of October 16, 1998 between VERSANT CORPORATION
("Borrower") and COMERICA BANK-CALIFORNIA ("Bank") with reference to the
following facts:
A. Borrower has previously entered into a Revolving Loan & Security
Agreement (Accounts & Inventory) (the "Agreement") with Bank dated May 15, 1997
and modified May 6, 1998.
B. In connection with Borrower's acquisition of Soft Mountain S.A.
("Soft Mountain"), Borrower's proposed sale of its Convertible Secured
Subordinated Promissory Notes ("Notes") to one or more investors and certain
other matters, Borrower seeks (i) Bank's consent to certain transactions entered
into or proposed to be entered into by Borrower and (ii) the waiver of certain
covenants contained in the Agreement.
THE PARTIES AGREE AS FOLLOWS:
1. Consent to Acquisition. Bank hereby consents to Borrower's
acquisition of Soft Mountain on September 15, 1998 through the purchase of all
the outstanding equity of Soft Mountain from the shareholders of Soft Mountain
in return for 245,586 shares of Borrower's Common Stock and 810,000 French
Francs in cash. In connection with the acquisition of Soft Mountain, Bank hereby
waives the requirement in the Agreement that Bank give its prior written consent
to such acquisition.
2. Consent to Sale of Notes. Bank hereby consents to the sale of up to
$3,619,000 principal amount of Notes pursuant to the Note Purchase Agreement
substantially in the form attached hereto as Exhibit A, and agrees that such
transaction does not constitute a breach or default under the Agreement. Without
limiting the foregoing, Bank consents to Borrower's incurring indebtedness in
connection with the sale of the Notes and to the creation of a security interest
in the Collateral (as defined in the Agreement) in connection with the sale of
the Notes.
3. Consent to Name Change. Bank hereby consents to the name change of
Borrower from Versant Object Technology Corporation to Versant Corporation,
effective July 14, 1998. In connection with Borrower's name change, Bank hereby
waives the requirement in the Agreement that Bank give its prior written consent
to such name change.
4. Consent to Change in Place of Business. Bank hereby consents to the
change in Borrower's place of business from 1380 Willow Road, Menlo Park, CA
94025 to 6539 Dumbarton Circle, Fremont, CA 94555 and hereby waives the
requirement in the Agreement that Bank give its prior written consent to such
change in Borrower's place of business.
<PAGE> 2
5. Notification of Certain Litigation. Borrower hereby notifies Bank
that Borrower is the defendant in four class action lawsuits filed in the United
States District Court for the Northern District of California, filed on January
26, 1998, February 5, 1998, March 11, 1998 and March 18, 1998, respectively. On
June 19, 1998, a Consolidated Amended Complaint was filed in the above mentioned
court, by the lead Plaintiff named by the court. The amended complaint alleges
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and Securities and Exchange Commission Rule
10b-5 promulgated under the Exchange Act, in connection with public statements
about Borrower's expected financial performance. The complaint seeks an
unspecified amount of damages.
6. Waiver of Certain Covenants. Bank agrees to waive compliance by
Borrower of the following covenants contained in the Agreement through December
31, 1998: paragraphs 6.17b, d, e, i and m.
7. Modification of Agreement. The first sentence of Section 6.5 of the
Agreement is hereby amended to read in its entirety as follows:
"Borrower shall keep the Inventory only at the following
locations: 6539 Dumbarton Circle, Fremont, CA 94555, and the
owner of the locations is John Arrillaga, Trustee and Richard T.
Peery, Trustee."
Section 6.17k of the Agreement is hereby amended to read in its entirety as
follows:
"Borrower is to raise a minimum of $3,000,000.00 in capital
(which shall include convertible subordinated debt) by December
31, 1998."
8. General Provisions. Except as specifically set forth in this Consent
and Amendment, all of the terms and conditions of the Agreement remain in full
force and effect. This is an integrated Consent and Amendment and supersedes all
prior negotiations and agreements regarding the subject matter hereof. All
amendments hereto must be in writing and signed by the parties.
IN WITNESS WHEREOF, the parties have agreed as of the date first set
forth above.
BORROWER: BANK:
VERSANT CORPORATION COMERICA BANK-CALIFORNIA
By _____________________________ By ____________________________
Title __________________________ Title _________________________
2
<PAGE> 1
EXHIBIT 10.28
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into
as of October __, 1998 by and among Versant Corporation, a California
corporation (the "COMPANY"), and the party listed on the Schedule of Investors
attached to this Agreement as Exhibit A (the "INVESTOR").
R E C I T A L S
A. The Company is currently in need of funds for working capital
purposes.
B. The Investor is willing to lend money to the Company in exchange for
the issuance to it of certain convertible secured subordinated promissory notes,
as provided in this Agreement.
NOW THEREFORE, the parties hereby agree as follows:
1. PURCHASE AND SALE OF NOTES. The Investor agrees to purchase from the
Company a Convertible Secured Subordinated Promissory Note in the form attached
to this Agreement as Exhibit B (the "NOTE") in the principal face amount set
forth opposite such Investor's name on Exhibit A to this Agreement and the
Company agrees to sell to the Investor the Note on the terms set forth herein.
2. CLOSING. The purchase and sale of the Note will take place at the
offices of Fenwick & West LLP, Two Palo Alto Square, Suite 800, Palo Alto,
California, at 11:00 a.m. Pacific Time, on October __, 1998 or at such other
time and place as the Company and the Investor mutually agree upon, either
orally or in writing (which time and place are referred to in this Agreement as
the "CLOSING"). At the Closing, the Company will deliver to the Investor the
Note for the principal amount that such Investor has agreed to purchase
hereunder as shown on Exhibit A against delivery to the Company by such Investor
of the full purchase price of such Note, paid by a check payable to the
Company's order or wire transfer of funds to the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that, except as set forth in the
Schedule of Exceptions (the "SCHEDULE OF EXCEPTIONS") attached to this Agreement
as Exhibit C (which Schedule of Exceptions shall be deemed to be representations
and warranties to the Investor by the Company under this Section 3), the
statements in the following paragraphs of this Section 3 are all true and
complete:
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to own its properties and assets and
<PAGE> 2
to carry on its business as now conducted and as presently proposed to be
conducted. The Company is qualified to do business as a foreign corporation in
each jurisdiction where failure to be so qualified would have a material adverse
effect on its financial condition, business, prospects or operations.
3.2 Due Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of, and the performance of all obligations
of the Company under, this Agreement, the Note, the Security Agreement (as
defined in Section 5.8 below) and the Registration Rights Agreement (as defined
in Section 5.9 below) and the authorization, issuance, reservation for issuance
and delivery of all of the Common Stock that is issuable under conversion of the
Note (the "CONVERSION SHARES") has been taken or will be taken prior to the
execution of this Agreement, and this Agreement, the Note, the Security
Agreement and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms, except as may be limited by: (i) applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting the enforcement of creditor's rights generally; and (ii) the effect of
rules of law governing the availability of equitable remedies.
3.3 Corporate Power. The Company has all requisite legal and
corporate power to execute and deliver this Agreement, the Note, the Security
Agreement and the Registration Rights Agreement, to issue the Conversion Shares,
and to carry out and perform all its obligations under this Agreement, the Note,
the Security Agreement and the Registration Rights Agreement.
3.4 Proceedings. There is no pending action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), prosecution, hearing, or investigation,
commenced, brought, conducted or heard by or before, any governmental body or
any arbitrator or arbitration panel ("PROCEEDING"), and to the Company's
knowledge, no person or entity has threatened to commence any Proceeding, that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, the transactions contemplated by this Agreement,
the Note, the Security Agreement or the Registration Rights Agreement.
3.5 Non-Contravention; Consents. Neither the execution and delivery
of this Agreement, the Note, the Security Agreement or the Registration Rights
Agreement, nor the consummation or performance of any of the transactions
contemplated by this Agreement, the Note, the Security Agreement or the
Registration Rights Agreement to be performed at the Closing, will directly or
indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the Company's Articles of Incorporation or Bylaws, or (ii)
any resolution adopted by the Company's shareholders, the Company's Board of
Directors or any committee of the Company's Board of Directors;
-2-
<PAGE> 3
(b) to the Company's knowledge, contravene, conflict with or
result in a violation of, or give any governmental body or other person the
right to challenge any of the transactions contemplated by this Agreement, the
Note, the Security Agreement or the Registration Rights Agreement or to exercise
any remedy or obtain any relief under, any federal, state, local, municipal,
foreign or other law, statute, legislation, ordinance, rule, regulation or
ruling that is or has been issued, enacted, adopted, passed, approved,
promulgated, made, implemented or otherwise put into effect by or under the
authority of any governmental body, or any order to which the Company, or any of
the assets owned or used by the Company, is subject; or
(c) contravene, conflict with or result in a material violation
or breach of, or result in a material default under, any of the Company's
material agreements.
With the exception of any necessary filings pursuant to federal and state
securities laws, and except as disclosed on the Schedule of Exceptions, the
Company will not be required to make any filing with or give any notice to, or
to obtain any consent from, any person in connection with the execution and
delivery of this Agreement, the Note, the Security Agreement and the
Registration Rights Agreement or the consummation or performance at the Closing
of any of the transactions contemplated by this Agreement, the Note, the
Security Agreement and the Registration Rights Agreement.
3.6 Brokers. The Company has not agreed or become obligated to pay,
and has not taken any action that likely would result in any person claiming to
be entitled to receive, any brokerage commission, finder's fee or similar
commission or fee in connection with any of the transactions contemplated by
this Agreement.
3.7 Full Disclosure; SEC Reports; SEC Matters.
(a) This Agreement (including all exhibits hereto) does not
contain any untrue statement of material fact and does not omit to state any
fact necessary to make any of the representations, warranties or statements
contained herein on behalf of the Company not misleading with respect to the
Company.
(b) As of the date of this Agreement, the Company has provided
the Investor or its counsel with full and complete access to all of the
Company's records and other documents and data requested by them.
(c) The Company has filed all reports required to be filed with
the Securities and Exchange Commission ("SEC") pursuant to the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") (all such reports and
amendments thereto, collectively, the "COMPANY SEC REPORTS"). None of such
Company SEC Reports, as of their respective dates (as amended through the date
hereof), contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
-3-
<PAGE> 4
(d) The Company has filed all material contracts required to be
filed with the SEC pursuant to the Item 601 of Regulation S-K under the
Securities Act of 1933, as amended (the "1933 ACT") and the Exchange Act.
(e) The Company is eligible to file Form S-3 registration
statements under the 1933 Act with the SEC in connection with offerings of
outstanding Company securities to be offered for the account of any person other
than the Company, so long as such person is not a registered broker-dealer.
3.8 Valid Issuance. The Note and the Conversion Shares, when issued
in compliance with the terms of this Agreement and the Note, will be validly
issued, fully paid and nonassessable and will be free of any liens or
encumbrances.
3.9 Intellectual Property. Set forth on the Schedule of Exceptions is
a true and complete list of all the material patents, trademarks, service marks,
trade names and copyrights, as well as all applications therefor ("INTELLECTUAL
PROPERTY") owned by the Company.
(a) The Company is the sole owner of, or possesses sufficient
legal rights on commercially reasonable terms to, all Intellectual Property
necessary for its business as now conducted and as proposed to be conducted
without any known conflict with or infringement of the rights of any other
person or entity. The Company has not received any communications alleging that
the Company has violated or is otherwise acting adversely to, or by conducting
its business as proposed, would violate or act adversely to, any Intellectual
Property owned or claimed to be owned by any other person or entity, and, to the
Company's knowledge, there is no basis for such claim.
(b) The Company is not aware of any violation by a third party of
any of the Company's Intellectual Property.
(c) The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or communications of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with their duties to
the Company or that would conflict with the Company's business as proposed to be
conducted.
(d) The Company has obtained and will obtain from all individuals
who participated in any respect in the invention or authorship of any material
Intellectual Property owned by the Company (as employees of the Company,
consultants, employees of consultants or otherwise) effective waivers of any and
all ownership rights of such individuals in such owned Intellectual Property,
and assignments to the Company of all rights with respect thereto, other than
from such individuals whose copyrightable works the Company hereby represents to
be "works for hire" within the meaning of Section 101 of the Copyright Act of
1976.
-4-
<PAGE> 5
(e) The Company has no knowledge of any facts or claims that
would cause any of its patents or patents issuable with respect to any of patent
applications to be invalid or to infringe any patent or other Intellectual
Property of any third party.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTOR. The
Investor hereby represents and warrants to, and agrees with, the Company that:
4.1 Authorization. This Agreement, the Security Agreement and the
Registration Rights Agreement constitute such Investor's valid and legally
binding obligation, enforceable in accordance with their respective terms except
as may be limited by: (i) applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the enforcement of
creditors' rights generally, and (ii) the effect of rules of law governing the
availability of equitable remedies. The Investor represents that such Investor
has full power and authority to enter into this Agreement, the Security
Agreement and the Registration Rights Agreement.
4.2 Purchase for Own Account. The Note to be purchased by such
Investor hereunder and the Conversion Shares will be acquired for investment for
such Investor's own account, not as a nominee or agent, and not with a view to
the public resale or distribution thereof within the meaning of the 1933 Act,
and such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same.
4.3 Disclosure of Information. The Investor believes it has received
or has had full access to all the information it considers necessary or
appropriate to make an informed investment decision with respect to the Note to
be purchased by such Investor under this Agreement. Such Investor further has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Note and Conversion
Shares and to obtain additional information (to the extent the Company possessed
such information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to such Investor or to which such
Investor had access. The foregoing, however, does not in any way limit or modify
the representations and warranties made by the Company in Section 3.
4.4 Investment Experience. The Investor is an "accredited investor"
within the meaning of Regulation D promulgated under the 1933 Act.
4.5 Restricted Securities. The Investor understands that the Note and
Conversion Shares are characterized as "restricted securities" under the 1933
Act and Rule 144 promulgated thereunder inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and that under the
1933 Act and applicable regulations thereunder such securities may be resold
without registration under the 1933 Act only in certain limited circumstances.
-5-
<PAGE> 6
4.6 No Solicitation. At no time was the Investor presented with or
solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Note or Conversion Shares.
4.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, such Investor further agrees not to make
any disposition of all or any portion of the Note or Conversion Shares unless
and until:
(a) there is then in effect a registration statement under the
1933 Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition, and (ii) such Investor
shall have furnished the Company, at the expense of such Investor or its
transferee, with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of such securities under the
1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer of any Note or Conversion Shares in compliance with SEC Rule 144; (ii)
for any transfer of any Note or Conversion Shares by an Investor to any
affiliate (as that term is defined in Rule 405 promulgated under the 1933 Act)
of such Investor; or (iii) for any transfer of any Note or Conversion Shares by
an Investor that is a partnership or a corporation to (A) a partner of such
partnership or a shareholder of such corporation or (B) the estate of any such
partner or shareholder; or (iv) for the transfer by gift, will or intestate
succession by any Investor to his or her spouse or lineal descendants or
ancestors or any trust for any of the foregoing; provided that in each of the
foregoing cases the transferee agrees in writing to be subject to the terms of
this Section 4 to the same extent as if the transferee were an original Investor
hereunder.
4.8 Legends. It is understood that the certificates evidencing the
Note and Conversion Shares will bear the legend set forth below:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THESE SECURITIES UNDER THE
ACT OR APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS. INVESTORS SHOULD BE AWARE THAT THEY
MAY BE
-6-
<PAGE> 7
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
the Investor under Section 2 of this Agreement are subject to the fulfillment or
waiver, on or before the Closing, of each of the following conditions, which
conditions may be waived by written, oral or telephone communication to the
Company, its counsel or to counsel to the Investor:
5.1 Representations and Warranties True. Each of the representations
and warranties of the Company contained in Section 3 shall be true and correct
on and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
5.2 Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3 Compliance Certificate. The Company shall have delivered to the
Investor at the Closing a certificate signed on its behalf by its Chief
Executive Officer or Chief Financial Officer certifying that the conditions
specified in Sections 5.1 and 5.2 have been fulfilled and stating that there
shall have been no material adverse change in the business, affairs, prospects,
operations, properties, assets or condition of the Company not previously
disclosed to the Investor.
5.4 Securities Exemptions. The offer and sale of the Note and
Conversion Shares to the Investor pursuant to this Agreement shall be exempt
from the registration requirements of the 1933 Act and the registration and/or
qualification requirements of all applicable state securities laws.
5.5 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investor and to the Investor's counsel, and they shall each have received all
such counterpart originals and certified or other copies of such documents as
they may reasonably request.
5.6 No Material Change. There shall have been no material adverse
change in the business, affairs, prospects, operations, properties, assets or
condition of the Company.
5.7 Opinion of Company Counsel. The Investor shall have received an
opinion from Fenwick & West LLP, counsel for the Company, dated as of the date
of the Closing, in the form attached hereto as Exhibit D.
-7-
<PAGE> 8
5.8 Security Agreement. The Company shall have executed and delivered
to the Investor a Security Agreement substantially in the form attached hereto
as Exhibit E (the "SECURITY AGREEMENT").
5.9 Registration Rights Agreement. The Company shall have executed
and delivered a Registration Rights Agreement substantially in the form attached
hereto as Exhibit F (the "REGISTRATION RIGHTS AGREEMENT").
5.10 UCC-1. The Company shall have executed and delivered to Investor
counsel a UCC-1 in the form attached hereto as Exhibit G.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to the Investor under this Agreement are subject to
the fulfillment or waiver on or before the Closing of each of the following
conditions by the Investor:
6.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 4 shall be true and correct on
the date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. The Investor shall have delivered to
the Company the purchase price specified for such Investor on Exhibit A in
accordance with the provisions of Section 2.
6.3 Securities Exemptions. The offer and sale of the Note and
Conversion Shares to the Investor pursuant to this Agreement shall be exempt
from the registration requirements of the 1933 Act and the registration and/or
qualification requirements of all applicable state securities laws.
6.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Company and to the Company's legal counsel, and the Company shall have received
all such counterpart originals and certified or other copies of such documents
as it may reasonably request.
6.5 Subordination Agreement. The Investor and Comerica Bank -
California ("COMERICA") shall have entered into a Subordination Agreement in
form acceptable to Comerica.
7. COVENANTS OF THE COMPANY
7.1 Costs, Expenses. The Company shall pay in connection with the
preparation, execution and delivery of this Agreement and the issuance of the
Note, the fees and out-of-pocket expenses of Wilson Sonsini Goodrich & Rosati,
special counsel to the Investor, such fees and expenses not to exceed $10,000.
-8-
<PAGE> 9
7.2 Singapore Office. The Company agrees to establish a regional
office in Singapore as soon as practicable after the Closing if business and
financial conditions warrant.
7.3 Investor's Securities Filings. The Company agrees to assist the
Investor in making any required filings under applicable U.S. securities laws in
connection with this Agreement and the transactions contemplated hereby.
7.4 Security Interest Filings. The Company agrees to assist the
Investor in filing the applicable financing statements, deeds of trust or other
documents with the U.S. Patent and Trademark Office and the U.S. Register of
Copyrights in connection with the perfection of Investor's security interests in
the Collateral (as defined in the Security Agreement) within 10 days after the
Closing.
8. COVENANTS OF INVESTOR.
8.1 Lock-up. The Investor agrees that it will not sell or otherwise
transfer or dispose of or reduce its economic interest in the Note or Conversion
Shares for a period of six months from the Closing.
8.2 Standstill. The Investor agrees that, from the Closing until such
time as the Note is no longer outstanding, it will not acquire more than 100,000
shares of the Company's Common Stock (other than any Conversion Shares issued to
Investor) in any two week period without the prior written consent of the
Company. The Company will respond to any Investor request to acquire more than
100,000 shares of such stock within two business days of the Company's receipt
of such request. If the Company does not respond within such two business day
period, the Company shall be deemed to have waived the requirement of such
consent as to the referenced transaction. The Company agrees not to unreasonably
withhold its consent.
8.3 Right of First Offer. Commencing on the Closing, in the event
Investor and its "affiliates" or "associates" (as those terms are defined in
Rule 405 promulgated under the 1933 Act) (collectively, the "INVESTOR GROUP")
seek to sell, transfer the voting rights in, or otherwise transfer for value 5%
or more of the then outstanding shares of the Company's Common Stock (assuming
for this purpose conversion of any Notes) to any person or group of persons in
one or more related transactions (a "SIGNIFICANT TRANSACTION"), the Investor
Group will provide the Company, in writing, with a notice reflecting its desire
to enter into such Significant Transaction and setting forth the terms and
conditions of the proposed Significant Transaction (such notice, a "ROFO
NOTICE"). Each ROFO Notice shall constitute an offer by the Investor Group to
sell the securities covered by such ROFO Notice (the "ROFO SECURITIES") to the
Company on the terms and conditions set forth in the ROFO Notice. If the Company
desires to accept the offer set forth in the ROFO Notice as to any part of the
ROFO Securities, the Company shall, within ten business days of receipt of such
ROFO Notice, notify the Investor Group of its agreement to acquire some or all
of the ROFO Securities (the "ROFO ACCEPTANCE"). The closing of any sale of ROFO
Securities by the Investor Group to the Company shall occur within three
business days of the Investor Group's receipt of the ROFO Acceptance, at which
time the Company will deliver the purchase price for the ROFO Securities
-9-
<PAGE> 10
it is purchasing in return for such securities. In the event (i) the Company
does not provide the Investor Group with a ROFO Acceptance within ten business
days of receipt of a ROFO Notice or (ii) the Investor Group receives a ROFO
Acceptance with respect to less than all of the ROFO Securities, then the
Investor Group may sell, transfer the voting rights in, or otherwise transfer
for value all or the remaining ROFO Securities, as the case may be, to any third
party or parties on terms and conditions no less favorable in the aggregate to
such third parties than those set forth in the ROFO Notice; provided, however,
that if such sale, transfer of voting rights, or transfer of value does not
occur within 60 days of the Company's initial receipt of a ROFO Notice, the
Investor Group will be required to resubmit a ROFO Notice to the Company and
follow the procedures outlined in this section before consummating such sale,
transfer of voting rights or transfer for value. This Right of First Offer (i)
will not apply to any transfer in connection with a transaction approved by the
Company's Board of Directors, (ii) will not continue to apply to any shares
transferred pursuant to this Section, and (iii) will terminate three years from
the date hereof.
9. MISCELLANEOUS.
9.1 Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, without reference to principles of conflict of laws or choice of
laws.
9.2 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.3 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with a recognized international courier service, fees prepaid and
addressed to the party to be notified at the address indicated for such party on
Exhibit A or, in the case of the Company, at 6539 Dumbarton Circle, Fremont,
California 94555, or at such other address as such party may designate by ten
(10) days advance written notice to all other parties.
9.4 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
principal amount of the Notes then outstanding. Any amendment or waiver effected
in accordance with this Section shall be binding upon each holder of any Note or
Conversion Stock at the time outstanding, each future holder of such securities,
and the Company.
9.5 Entire Agreement. This Agreement, together with all exhibits and
schedules hereto, constitutes the entire understanding and agreement of the
parties with respect to
-10-
<PAGE> 11
the subject matter hereof and supersedes all prior understandings and agreements
with respect to such matters.
9.6 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
9.7 Headings. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs and exhibits shall, unless otherwise provided, refer to sections and
paragraphs hereof and exhibits attached hereto, all of which exhibits are
incorporated herein by this reference.
9.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s) shall be
enforced to the maximum extent possible consistent with applicable law and the
balance of the Agreement shall remain in full force and effect.
9.9 Further Assurances. From and after the date of this Agreement,
upon the request of the Investor or the Company, the Company and the Investor
shall execute and deliver such instruments, documents or other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
9.10 Waiver of Conflict of Interest. The Investor and the Company are
aware that Fenwick & West LLP ("F&W"), counsel to the Company, has previously
performed and may continue to perform certain legal services for the Investor in
matters unrelated to F&W's representation of the Company. In connection with its
Investor representation, F&W may have obtained confidential information of such
Investor that could be material to F&W's representation of the Company in
connection with negotiation, execution and performance of this Agreement. By
signing this Agreement, the Investor and the Company each waives any potential
conflict of interest arising out of such representation or such possession of
confidential information and acknowledges that F&W is solely representing the
Company in connection with this transaction. The Investor and the Company
further represents that it has had the opportunity to be, or has been,
represented by independent counsel in giving the waivers contained in this
Section 9.10. The Investor and the Company agrees that F&W may represent the
Company in any dispute that may arise between the Company and the Investor or
any Investor Group related to this Agreement or the transactions contemplated
hereby.
-11-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
VERSANT CORPORATION VERTEX TECHNOLOGY FUND PTE. LTD.
By: ___________________________ By: ____________________________
Name:__________________________ Name: __________________________
Title:_________________________ Title: _________________________
The Company expressly acknowledges The Investor expressly
the conflict of interest waiver acknowledges the conflict
set forth in Section 9.10. of interest waiver set
forth in Section 9.10.
[SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT.]
-12-
<PAGE> 13
EXHIBIT A
<TABLE>
<CAPTION>
INVESTOR NAME PRINCIPAL AMOUNT
AND ADDRESS OF NOTE
- ------------- ----------------
<S> <C>
Vertex Technology Fund Pte. Ltd $3,619,000
c/o Vertex Management, Inc.
3 Lagoon Drive
Suite 220
Redwood City, CA 94065
</TABLE>
-13-
<PAGE> 14
EXHIBIT C
SCHEDULE OF EXCEPTIONS
<TABLE>
<CAPTION>
SECTION COMMENT
- ------- -------
<S> <C>
3.5 The Company needs to obtain, and will obtain prior to
the Closing, the consent of Comerica Bank to this
transaction.
Various filings will need to be made with government
agencies to perfect the security interest granted
pursuant to the Security Agreement.
3.6 Cowen & Co. may be entitled to a fee of $72,380 in
connection with this transaction, which fee will be the
sole responsibility of and paid by the Company.
3.9 The Company's Intellectual Property consists of the
following:
PATENT
------
PATENT NO. ISSUE DATE
---------- ----------
5822759 10/13/98
COPYRIGHTS
----------
Versant 3.0.9 TX3-924-043
Versant 4.0 TX3-674-115
Versant ODBMS 5.0.7 TX4-627-009
TRADEMARKS
REGISTRATIONS
-------------
DESCRIPTION REGISTRATION NO. REGISTRATION DATE
----------- ---------------- -----------------
Versant 1,649,354 7/2/91
Versant Object Technology 1,658,074 9/24/91
</TABLE>
-14-
<PAGE> 15
<TABLE>
APPLICATIONS
------------
<S> <C> <C>
Making Objects Do Business 75/182,424 10/16/96
75/182,423 10/16/96
Versant Time Series 75/471,701 4/21/98
Versant Transport 75/471,704 4/21/98
Versantace 75/432,704 2/11/98
</TABLE>
-15-
<PAGE> 1
EXHIBIT 10.29
EXHIBIT B
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
ANY STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THESE SECURITIES UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
CONVERTIBLE SECURED SUBORDINATED PROMISSORY NOTE
OF
VERSANT CORPORATION
$3,619,000.00 October 16, 1998
For value received, Versant Corporation, a California corporation (the
"COMPANY"), with principal offices at 6539 Dumbarton Circle, Fremont, CA 94555,
hereby promises to pay to Vertex Technology Fund Pte. Ltd the sum of Three
Million Six Hundred Nineteen Thousand Dollars ($3,619,000.00). The Note
initially will not bear interest; however, in the event the Note has not been
converted pursuant to Section 2 hereof prior to the Maturity Date (as defined
below), or in case of an Event of Default, simple interest will be deemed to
have accrued on the Note from the date of issuance, at an interest rate equal to
9.25%. The principal amount of this Note, and any interest accrued thereon,
shall be due and payable in full on the Maturity Date at the principal offices
of the Company in lawful money of the United States, unless this Note shall have
been previously converted pursuant to Section 2 hereof. Any payments made
hereunder by the Company shall be net of any applicable U.S.
withholding taxes.
This Note is issued pursuant to that certain Note Purchase Agreement
dated as of October 16, 1998 (the "PURCHASE AGREEMENT"), by and among the
Company and the original holder of this Note.
1. DEFINITIONS. The following definitions shall apply for all purposes
of this Note:
1.1 "COMPANY" means the "COMPANY" as defined above and includes any
corporation which shall succeed to or assume the obligations of the Company
under this Note.
<PAGE> 2
1.2 "CONVERSION PRICE" means $1.925 per share of Common Stock. The
Conversion Price is subject to adjustment as provided herein.
1.3 "CONVERSION STOCK" means the shares of the Company's Common Stock
("COMMON STOCK"), issuable upon conversion of the Note. The number and character
of shares of Conversion Stock are subject to adjustment as provided herein, and
the term "CONVERSION STOCK" shall include stock and other securities and
property at any time receivable or issuable upon conversion of this Note in
accordance with its terms.
1.4 "EVENT OF DEFAULT" shall have the meaning provided in the
Security Agreement.
1.5 "HOLDER" means any person who shall at the time be the registered
holder of this Note.
1.6 "MATURITY DATE" means the earlier of (i) October 15, 2001 and
(ii) the closing of (A) a merger, consolidation or similar transaction, or
series of related transactions, in which the Company's shareholders prior to the
transaction own less than a majority of the surviving corporation after the
transaction or (B) the sale of all or substantially all of the Company's assets
(each, an "ACQUISITION"). Notwithstanding the foregoing, the Company shall give
the Holder at least 20 days advance written notice of an Acquisition, and at any
time up to the closing of the Acquisition, the Holder may elect to convert this
Note pursuant to Section 2.1.
1.7 "NOTE" means this Convertible Secured Subordinated Promissory
Note.
1.8 "REGISTRATION RIGHTS AGREEMENT" means that certain Registration
Rights Agreement dated as of October 16, 1998 by and among the Company and the
Holder of this Note, attached as Exhibit F to the Purchase Agreement.
1.9 "SECURITY AGREEMENT" means that certain Security Agreement dated
October 16, 1998 by and between the Company and the Holder of this Note,
attached as Exhibit E to the Purchase Agreement.
2. CONVERSION.
2.1 Voluntary Conversion. This Note may be converted at any time this
Note remains outstanding, in the sole discretion of the Holder, into shares of
Conversion Stock at the Conversion Price.
2.2 Mandatory Conversion. In the event the Company's Common Stock, as
quoted on the Nasdaq National Market or any successor or other market on which
such stock may subsequently trade, closes at a price that is greater than $10
per share for 30 consecutive trading days (the "PRICE TEST"), then, provided the
Company is in compliance with the Registration Rights Agreement, this Note shall
automatically convert into shares of Conversion Stock at the Conversion Price,
without the need for further action on the part of the Holder;
-2-
<PAGE> 3
provided, however, that the Holder shall not be entitled to receive the stock
certificate representing the shares of Conversion Stock to be issued upon
conversion of this Note until the original of this Note is surrendered to the
Company.
3. ISSUANCE OF CONVERSION STOCK. As soon as practicable after conversion
of this Note, the Company at its expense will cause to be issued in the name of
and delivered to the Holder, a certificate or certificates for the number of
shares of Conversion Stock to which the Holder shall be entitled upon such
conversion (bearing such legends as may be required by applicable state and
federal securities laws in the opinion of legal counsel of the Company),
together with any other securities and property to which the Holder is entitled
upon such conversion under the terms of this Note. Such conversion shall be
deemed to have been made, (a) if made under Section 2.1 above, on the date the
Holder delivers to the Company the original of the Note together with a written
request for conversion, and (b) if made under Section 2.2 above, on the date the
Price Test is satisfied. No fractional shares will be issued upon conversion of
this Note. If upon any conversion of this Note a fraction of a share would
otherwise result, then in lieu of such fractional share the Company will pay the
cash value of that fractional share, calculated on the basis of the applicable
Conversion Price.
4. ADJUSTMENT PROVISIONS. The number and character of shares of
Conversion Stock issuable upon conversion of this Note (or any shares of stock
or other securities or property at the time receivable or issuable upon
conversion of this Note) and the Conversion Price therefor, are subject to
adjustment upon occurrence of the following events between the date this Note is
issued and the date it is converted:
4.1 Adjustment for Stock Splits and Stock Dividends. The Conversion
Price of this Note and the number of shares of Conversion Stock issuable upon
conversion of this Note (or any shares of stock or other securities at the time
issuable upon conversion of this Note) shall each be proportionally adjusted to
reflect any stock dividend, stock split or reverse stock split affecting the
number of outstanding shares of Conversion Stock (or such other stock or
securities).
4.2 Adjustment for Other Dividends and Distributions. In case the
Company shall make or issue, or shall fix a record date for the determination of
eligible holders entitled to receive, a dividend or other distribution payable
respect to the Conversion Stock that is payable in (a) securities of the Company
(other than issuances with respect to which adjustment is made under Section
4.1), or (b) assets (other than cash dividends paid or payable solely out of
retained earnings), then, and in each such case, the Holder, upon conversion of
this Note at any time after the consummation, effective date or record date of
such event, shall receive, in addition to the shares of Conversion Stock
issuable upon such conversion, the securities or such other assets of the
Company to which the Holder would have been entitled upon such date if the
Holder had converted this Note immediately prior thereto (all subject to further
adjustment as provided in this Note).
4.3 Adjustment for Merger, Consolidation, Etc. other than
Acquisition. In the event of any merger, consolidation or similar transaction
that is not an Acquisition, then the
-3-
<PAGE> 4
Holder, upon the conversion of this Note at any time after the consummation of
such transaction, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the conversion of this Note prior to
such consummation, the stock or other securities or property to which the Holder
would have been entitled upon the consummation of such transaction if the Holder
had converted this Note immediately prior thereto, all subject to further
adjustment as provided in this Note, and the successor or purchasing corporation
in such transaction (if other than the Company) shall duly execute and deliver
to the Holder a supplement hereto acknowledging such corporation's obligations
under this Note; and in each such case, the terms of the Note shall be
applicable to the shares of stock or other securities or property receivable
upon the conversion of this Note after the consummation of such transaction.
4.4 Conversion of Stock. In case all the authorized Conversion Stock
of the Company is converted, pursuant to the Company's Articles of
Incorporation, into other securities or property, or the Conversion Stock
otherwise ceases to exist, then, in such case, the Holder, upon conversion of
this Note at any time after the date on which the Conversion Stock is so
converted or ceases to exist (the "TERMINATION DATE"), shall receive, in lieu of
the number of shares of Conversion Stock that would have been issuable upon such
exercise immediately prior to the Termination Date, the stock and other
securities and property to which the Holder would have been entitled to receive
upon the Termination Date if the Holder had converted this Note immediately
prior to the Termination Date (all subject to further adjustment as provided in
this Note).
4.5 Notice of Adjustments. The Company shall promptly give written
notice of each adjustment or readjustment of the Conversion Price or the number
of shares of Conversion Stock or other securities issuable upon conversion of
this Note. The notice shall describe the adjustment or readjustment and show in
reasonable detail the facts on which the adjustment or readjustment is based.
4.6 No Change Necessary. The form of this Note need not be changed
because of any adjustment in the Conversion Price or in the number of shares of
Conversion Stock issuable upon its conversion.
4.7 Reservation of Stock. If at any time the number of shares of
Conversion Stock or other securities issuable upon conversion of this Note shall
not be sufficient to effect the conversion of this Note, the Company will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Conversion Stock or other
securities issuable upon conversion of this Note as shall be sufficient for such
purpose.
5. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. This Note does not by itself
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. In the absence of conversion of this Note, no provisions of this Note,
and no enumeration herein of the rights or privileges of the Holder, shall cause
the Holder to be a shareholder of the Company for any purpose.
-4-
<PAGE> 5
6. NO IMPAIRMENT. The Company will not, by amendment of its Articles of
Incorporation or Bylaws, or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, willfully avoid or seek to avoid the observance or performance of any of
the terms of this Note, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder under this
Note against wrongful impairment.
7. SUBORDINATION. The indebtedness represented by this Note is
subordinated to the Company's indebtedness to Comerica Bank - California
("COMERICA") on the terms set forth in a separate Subordination Agreement
entered into between the original holder of this Note and Comerica. Holder
agrees that the Company is not obligated to make any payment to Holder to the
extent prohibited by such Subordination Agreement.
8. SECURITY AGREEMENT. This Note is secured by a security interest in
certain assets of the Company, which security interest was granted by the
Company to the original holder of this Note pursuant to the terms of the
Security Agreement. The Security Agreement provides for the acceleration of the
amounts due under this Note under certain circumstances.
9. PREPAYMENT. The Company may not prepay in whole or in part the unpaid
principal sum of this Note, except with the prior written consent of the Holder.
10. WAIVERS. The Company hereby waives notice, presentment, protest and
notice of dishonor.
11. ATTORNEYS' FEES. In the event the Holder engages the services of
attorneys for the purpose of enforcing this Note, or any provision thereof, the
prevailing party shall be entitled to recover its reasonable expenses and costs,
including attorneys' fees.
12. TRANSFER. Neither this Note nor any rights hereunder may be
assigned, conveyed or transferred, in whole or in part, without the Company's
prior written consent, provided, however, that this Note may be assigned,
conveyed or transferred without the prior written consent of the Company to any
person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with the Holder. The
rights and obligations of the Company and the Holder under this Note shall be
binding upon and benefit their respective permitted successors, assigns, heirs,
administrators and transferees.
13. GOVERNING LAW. This Note shall be governed by and construed under
the internal laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California, without reference to principles of conflict of laws or choice of
laws.
14. HEADINGS. The headings and captions used in this Note are used for
convenience only and are not to be considered in construing or interpreting this
Note.
-5-
<PAGE> 6
15. NOTICES. Unless otherwise provided, any notice required or permitted
under this Note shall be given in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or upon deposit with a
recognized international courier, fees prepaid and addressed to the Holder at
the last address furnished to the Company by the Holder in writing or, in the
case of the Company, at the principal offices of the Company, or at such other
address as any party or the Company may designate by giving ten (10) days'
advance written notice to all other parties.
16. AMENDMENTS AND WAIVERS. Any term of this Note may be amended, and
the observance of any term of this Note may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Company and the holder(s) of a majority of the
outstanding principal amount of the Note(s). Any amendment or waiver effected in
accordance with this Section shall be binding upon the Holder of this Note, each
future holder of such securities and the Company.
17. SEVERABILITY. If one or more provisions of this Note are held to be
unenforceable under applicable law, such provision(s) shall be enforced to the
maximum extent permitted by applicable law, and the balance of the Note shall
remain in full force and effect.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name as of the date first above written.
VERSANT CORPORATION:
By: _____________________________________
Name: ___________________________________
Title: __________________________________
[SIGNATURE PAGE TO CONVERTIBLE SECURED
SUBORDINATED PROMISSORY NOTE]
-7-
<PAGE> 1
EXHIBIT 10.30
EXHIBIT E
SECURITY AGREEMENT
This Security Agreement (this "AGREEMENT") is made as of October __,
1998 by and between Versant Corporation, a California corporation (the
"COMPANY"), and the party listed on the Schedule of Secured Parties attached to
this Agreement as Exhibit A (the "SECURED PARTY").
RECITALS
A. The Secured Party has loaned funds to the Company in exchange for the
issuance to the Secured Party of a convertible secured subordinated promissory
note evidencing the Company's obligation to repay the Secured Party's loans.
B. The parties have agreed that Company's obligations under such
convertible secured subordinated promissory note will be secured by the
Company's grant to the Secured Party of a security interest in and to certain
collateral, pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. SECURITY.
1.1 GRANT OF SECURITY INTEREST. As security for payment of all
Indebtedness (as defined below) of the Company to the Secured Party when and as
due, the Company hereby grants to the Secured Party a security interest in the
Collateral (as defined below). For purposes of this Agreement, "INDEBTEDNESS"
means all obligations and liabilities of the Company to the Secured Party under
that certain convertible secured subordinated promissory note issued to the
Secured Party on or about the date hereof (the "NOTE"). Reference to the
"SECURED PARTIES" in the remainder of this Agreement shall include the
subsequent holders of the Note.
1.2 COLLATERAL DEFINED. As used in this Agreement, the term
"COLLATERAL" means, collectively, any and all of the "accounts," "chattel
paper," "documents," "equipment," "fixtures," "general intangibles" (including
copyrights, moral rights, trademarks, service marks, trade secrets, patents,
patent applications and similar intellectual property rights), "instruments" and
"inventory" (as such terms are defined in Division 9 of the California Uniform
Commercial Code in effect on the date of this Agreement), whether now owned by
the Company or hereafter acquired, and all proceeds thereof.
1.3 FINANCING STATEMENTS. So long as the Company is indebted to the
Secured Parties under the Note, the Company will promptly execute and deliver to
the Secured Parties such assignments, notices, financing statements or other
documents and papers (including, but not limited to, such documents as may be
filed with the U.S. Register of Copyrights and the U.S. Patent and Trademark
Office in order to perfect Secured Parties' rights in Company's patents,
registered trademarks, registered copyrights and applications therefor) as any
Secured Party may
<PAGE> 2
reasonably require in order to perfect and maintain the security interest in the
Collateral granted to the Secured Parties hereby and to give any third party
notice of the Secured Parties' interest in the Collateral. Upon the full and
final discharge of all of the Indebtedness, the Secured Parties will execute and
deliver such documents as may be reasonably necessary and requested by the
Company to release the Collateral from the security interested granted to the
Secured Parties in this Agreement.
1.4 PRIORITY AMONG INVESTORS. As between the Secured Parties, the
rights granted hereunder will be held by each of the Secured Parties pro rata in
accordance with the then-current amount of unpaid principal and accrued interest
under all the Notes held by each of the Secured Parties, and on a pari passu
basis of equal seniority and priority. In the event that any Secured Party is
identified alone as the creditor or the secured party in any financing statement
or similar document intended to perfect a security interest granted under this
Agreement, such Secured Party will hold and exercise any rights arising
therefrom in trust for the benefit of all Secured Parties on a pro rata, pari
passu basis as described above. The Secured Parties hereby agree that rights
granted under this Agreement will be exercised only in the manner decided by the
vote of the Secured Parties holding at least fifty percent (50%) of the
aggregate then-outstanding and unpaid principal amount of indebtedness under all
of the then-outstanding Notes.
1.5. TERMINATION. When all the Indebtedness has been paid in full and
discharged (including conversion of the Indebtedness into stock of the Company),
this Agreement and the security interest granted to the Secured Parties under
this Agreement will terminate.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Secured Parties that:
2.1 TITLE; NO LIENS OR CLAIMS IN COLLATERAL. The Company owns all
right, title and interest in and to the Collateral. All of the Collateral is
(and until the Note has been paid in full and all the Indebtedness is fully
satisfied will be) free and clear of all liens, security interests, mortgages,
claims, rights, encumbrances and restrictions of any kind except for (i)
statutory tax liens, (ii) the security interest granted to the Secured Parties
under this Agreement and (iii) the liens set forth on Exhibit B attached hereto.
2.2 NO BANKRUPTCY. The Company is not subject to any bankruptcy case
or insolvency proceedings before any court in any jurisdiction. In the ninety
(90) days preceding the date of this Agreement, the Company has not received any
threat from any third party to subject the Company to any involuntary bankruptcy
or insolvency proceeding.
3. COVENANTS OF THE COMPANY. So long as the Company is indebted to the
Secured Parties under the Note, the Company covenants and agrees with the
Secured Parties that:
3.1 CONDITION OF COLLATERAL. The Company will maintain the Collateral
in good condition and repair and will protect and maintain the validity and
enforceability of the Company's material patents and copyrights. The Company
will use its reasonable best efforts to detect infringement of its material
intellectual property and will promptly advise the Secured Representative of any
such detected infringement.
2
<PAGE> 3
3.2 SALE OF COLLATERAL. The Company will not, without the prior
written consent of the holders of a majority of the outstanding principal under
the Note(s), which will not be unreasonably withheld, sell, lease, assign,
transfer, encumber or otherwise dispose of the Collateral, any part thereof or
any interest therein, or any of the Company's rights therein, to any person,
entity or party other than the Secured Parties, except in the ordinary course of
the Company's business. Notwithstanding the foregoing, the Company shall not be
required to obtain such consent in connection with (i) the sale of all or
substantially all of the Company's assets or (ii) a merger, consolidation or
other reorganization of the Company.
3.3 OTHER LIENS. The Company will keep the Collateral free and clear
of all liens, security interests, mortgages, claims, rights, encumbrances and
restrictions of any kind except for statutory tax liens, the liens set forth on
Exhibit B attached hereto and those consented to in writing by the holders of a
majority of the outstanding principal under the Note(s), which consent will not
be unreasonably withheld.
3.4 FURTHER INDEBTEDNESS. The Company will not incur any indebtedness
other than in the ordinary course of business, including any increase in the
amount of the credit lines that the Company has with Comerica Bank-California,
without the prior written consent of the holders of a majority of the
outstanding principal under the Note(s), such consent not to be unreasonably
withheld.
3.5 CONFLICTING AGREEMENTS. The Company will not enter into any
agreement that is likely to impair or conflict with the Company's obligations
under this Agreement, without the consent of the holders of a majority of the
outstanding principal under the Note(s), such consent not to be unreasonably
withheld.
4. EVENTS OF DEFAULT. As used herein, as "EVENT OF DEFAULT" shall mean
any of the following:
(a) The failure of the Company to pay any amount due hereunder or
under the Note, within ten days of written notice of such failure;
(b) The failure of the Company to perform any covenant or agreement
with a third party if such failure would have a material adverse effect on the
Company's assets, operations or financial condition;
(c) If the Company shall (i) petition or apply to any tribunal for,
or consent to the appointment of, a receiver, trustee or liquidator of the
Company or, of all or any substantial portion of its property or assets, (ii)
confirm in writing its inability to pay its debts as they mature, (iii) make a
general assignment for the benefit of its creditors, or (iv) voluntarily file
any petition in bankruptcy, or a petition or answer seeking reorganization or
arrangement with creditors or to take advantage of any bankruptcy,
reorganization, insolvency or similar law or statute, or having any of the
foregoing filed against it and not dismissed within 60 days of such filing;
(d) The creation of any lien on the Collateral, other than liens
permitted hereunder, if such lien is not removed within 30 days of written
notice of such lien to the Company;
3
<PAGE> 4
(e) Entry of any judgment or order against the Company in excess of
$1.0 million;
(f) Material breach of any representation, warranty or agreement made
by the Company to the Secured Parties which breach is not cured within ten days
of notice to the Company; provided, however, that if such breach cannot
reasonably be cured within ten days then the Company shall have such longer
period of time as is reasonably required, not to exceed 30 days, so long as such
extension of time does not materially prejudice the Secured Parties;
(g) The Company loses its eligibility to use a Form S-3 Registration
Statement under the Securities Act of 1933, as amended, for secondary offerings,
and the Company does not regain such eligibility within 15 days.
5. RIGHTS AND REMEDIES UPON EVENT OF DEFAULT.
5.1 GENERAL REMEDIES. In the event of an occurrence of any Event of
Default, and at any time so long as such event shall be continuing, the Secured
Parties may, by notice to the Company, declare all outstanding principal and
accrued interest on the Note to be immediately due and payable, whereupon all
such outstanding principal and accrued interest on the Note shall become and be
immediately due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Company. In
addition to the foregoing, and any other rights the Secured Parties may have
under the Note, at law or in equity, or pursuant to the provisions of the
California Commercial Code, the Secured Parties may, at their option, and
without demand first made, exercise any one or all of the following rights and
remedies: (i) collect the Collateral and its proceeds; (ii) take possession of
the Collateral wherever it may be found, using all reasonable means to do so, or
require the Company to assemble the Collateral and make it available to the
Secured Parties at a place designated by the Secured Parties that is reasonably
convenient to the Company; (iii) proceed with the foreclosure of the security
interest in the Collateral granted herein and the sale or endorsement and
collection of the proceeds of the Collateral in any manner permitted by law or
provided for herein; (iv) sell, lease or otherwise dispose of the Collateral at
public or private sale, with or without having the Collateral at the place of
sale; (v) institute a suit or other action against the Company for recovery on
the Notes; (vi) exercise any rights and remedies of a secured party under the
California Commercial Code; and/or (vii) offset, against any payment due from
the Company to the Secured Parties, the whole or any part of any indebtedness of
the Secured Parties to the Company.
5.2 NO ELECTION OF REMEDIES. The election by the Secured Parties of
any right or remedy will not prevent the Secured Parties from exercising any
other right or remedy against the Company.
5.3 PROCEEDS. If an Event of Default occurs, all proceeds and
payments with respect to the Collateral will be retained by the Secured Parties
(or if received by the Company will be held in trust and will be forthwith
delivered by the Company to the Secured Parties in the original form received,
endorsed in blank) and held by the Secured Parties as part of the Collateral or
applied by the Secured Parties to the payment of the Indebtedness.
5.4 SALES OF COLLATERAL. If an Event of Default occurs, any item of
Collateral may be sold for cash or other value at public or private sale or
other disposition and the proceeds thereof collected by or for the Secured
Parties. The Company agrees to promptly execute and
4
<PAGE> 5
deliver, or promptly cause to be executed and delivered, such instruments,
documents, assignments, waivers, certificates and affidavits and supply or cause
to be supplied such further information and take such further action as the
Secured Parties may require in connection with any such sale or disposition. The
Secured Parties will have the right upon any such public sale or sales, and, to
the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Company, which right or equity is hereby waived or released.
If any notice of a proposed sale, lease, license or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least ten (10) days before such sale, lease, license or other
disposition. The Secured Parties agree to give the Company ten (10) days' prior
written notice of any sale, lease, license or other disposition of Collateral
(or any part thereof) by the Secured Parties.
5.5 APPLICATION OF PROCEEDS. The proceeds of all sales and
collections in respect of the Collateral, the application of which is not
otherwise specifically herein provided for, will be applied as follows: (i)
first, to the payment of the costs and expenses of such sale or sales and
collections and the attorneys' fees and out-of-pocket expenses incurred by the
Secured Parties relating to costs of collection; (ii) second, any surplus then
remaining will be applied first, to the payment of all unpaid interest accrued
under the Note, and then to the payment of unpaid principal under the Note; and
(iii) third, any surplus then remaining will be paid to the Company.
6. GENERAL PROVISIONS.
6.1 SURVIVAL OF WARRANTIES. The representations, warranties and
covenants of the Company and the Secured Parties contained in or made pursuant
to this Agreement shall survive the execution and delivery of this Agreement and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of any of the Secured Parties or the Company, as the case
may be.
6.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
6.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the internal laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, without reference to principles of conflict of laws or choice of
laws.
6.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.5 HEADINGS. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with a recognized international courier, fees prepaid and addressed to
the party to be notified at the last address furnished to the Company by the
Secured Parties in writing or, in the case of the Company, at the principal
offices of the
5
<PAGE> 6
Company, or at such other address as any party or the Company may designate by
giving ten (10) days' advance written notice to all other parties.
6.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
outstanding principal under the Note(s). Any amendment or waiver effected in
accordance with this Section 5.7 shall be binding upon each of the Secured
Parties and the Company.
6.8 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s) shall be
enforced to the maximum extent permitted by applicable law and the balance of
the Agreement shall remain in full force and effect and shall be enforceable in
accordance with its terms.
6.9 FURTHER ASSURANCES. From and after the date of this Agreement,
upon the request of Secured Parties or the Company, the Company and the Secured
Parties shall execute and deliver such instruments, documents or other writings
as may be reasonably necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
VERSANT CORPORATION: VERTEX TECHNOLOGY FUND PTE. LTD:
By: ________________________________ By: __________________________________
Name: ______________________________ Name: ________________________________
Title: _____________________________ Title: _______________________________
Address: ___________________________ Address: _____________________________
____________________________________ ______________________________________
Fax No.: ___________________________ Fax No.: _____________________________
[SIGNATURE PAGE TO SECURITY AGREEMENT]
7
<PAGE> 8
EXHIBIT A
Secured Party
Name and Address
- ----------------
Vertex Technology Fund Pte. Ltd
c/o Vertex Management, Inc.
3 Lagoon Drive
Suite 220
Redwood City, CA 94065
<PAGE> 9
EXHIBIT B
SCHEDULE OF LIENS
<PAGE> 1
EXHIBIT 10.31
VERSANT CORPORATION
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made this 16th
day of October, 1998, by and between Versant Corporation, a California
corporation (the "Company"), and the purchaser (the "Purchaser") of the
Company's Convertible Secured Subordinated Promissory Note (the "Note") pursuant
to that certain Note Purchase Agreement dated of even date herewith (the
"Purchase Agreement").
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
1.1 "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
1.2 "Common Stock" shall mean the shares of the Company's Common
Stock, no par value.
1.3 "Form S-3" shall mean Form S-3 promulgated by the Commission or
any substantially similar form then in effect.
1.4 "Holder" shall mean any holder of record of Registrable
Securities or any transferee or assignee of record of such Registrable
Securities.
1.5 "Purchasers" shall mean collectively, the Purchaser, its
assignees and transferees, and individually, a Purchaser and any transferee or
assignee of such Purchaser.
1.6 The terms "Register," "Registered" and "Registration" refer to a
registration effected by preparing and filing a registration statement
("Registration Statement") in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such Registration Statement.
1.7 "Registrable Securities" shall mean the Common Stock issuable
upon conversion of the Note, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which the rights hereunder are
not assigned in accordance with this Agreement, or any Registrable Securities
sold to the public or sold pursuant to Rule 144 promulgated under the Securities
Act.
1.8 "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 2 and 3 hereof, including without limitation,
all federal and state registration, qualification and filing fees, printing
expenses, fees and disbursements of counsel
<PAGE> 2
for the Company, blue sky fees and expenses and the expense of any special
audits incident to or required by any such Registration.
1.9 "Registration Termination Date" shall mean, with respect to any
Registrable Securities, the earliest of (i) October 15, 2001, (ii) the date that
such Registrable Securities shall have been Registered and sold or otherwise
disposed of in accordance with the intended method of distribution by the seller
or sellers thereof set forth in the registration statement covering such
Securities or transferred in compliance with Rule 144, and (iii) the date as of
which the Company shall have notified the Holder, in writing, that it has
determined that such Registrable Securities may be sold pursuant to paragraph
(k) of Rule 144 (or any successor provision).
1.10 "Rule 144" shall mean Rule 144 promulgated by the Commission
pursuant to the Securities Act.
1.11 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.12 "Shares" shall mean Common Stock.
1.13 "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities pursuant to
this Agreement, together with the fees of any counsel to the selling
shareholders.
2. S-3 Registration.
2.1 Registration. The Company covenants and agrees with each of the
Purchasers that the Company will prepare and file with the Commission a
Registration Statement on Form S-3 covering the Registrable Securities, and use
its best efforts to have the Registration Statement declared effective as
promptly as practicable and in any event within 90 days of the Closing. Such
Registration Statement also may include other shares of the Company's Common
Stock, in the Company's discretion.
2.2 Blue Sky. The Company will use its best efforts to Register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders for the distribution of such securities;
provided, however, that the Company shall not be required to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
2.3 Expenses of Registration. All Registration Expenses incurred in
connection with the Registration pursuant to Section 2 shall be borne by the
Company. All Selling Expenses shall be borne by the persons who sell the Shares
generating said Selling Expenses.
-2-
<PAGE> 3
2.4 S-3 Registration Procedures.
2.4.1 Advice By Company. The Company will keep each Holder
advised as to the initiation and completion of the Registration. At its expense
the Company will (a) use its best efforts to keep any Registration pursuant to
Section 2 effective until the Registration Termination Date and (b) furnish
promptly to each Holder such number of copies of prospectuses (including
preliminary prospectuses), and all amendments and supplements thereto, in
conformity with the requirements of the Securities Act, and such other documents
as any such Holder from time to time may reasonably request.
2.4.2 Notice of Sale and Sale under the Registration Statement.
Any Holder intending to sell Shares under the Registration Statement filed
pursuant to Section 2 shall give at least three (3) business days' prior written
notice (a "Sale Notice") to the Company of any proposed sale of Shares under the
Registration Statement effective pursuant to this Section 2 and shall not make
such sale (i) unless such three (3) days lapse without response from the
Company, or (ii) in the event the Company responds by stating that a prospectus
supplement or post-effective amendment will be filed pursuant to Section 2.4.3,
until the Company has notified such Holder pursuant to Section 2.4.3 that any
such post-effective amendment has become effective or prospectus supplement has
been filed. A Sale Notice shall be effective for 30 days after it is given.
2.4.3 Amendments. The Company will prepare and file with the
Commission such amendments and prospectus supplements, including post-effective
amendments, to the Registration Statement filed pursuant to Section 2 as the
Company determines may be necessary or appropriate, and use its best efforts to
have such post-effective amendments declared effective as promptly as
practicable; cause the related prospectus to be supplemented by any prospectus
supplement, and as so supplemented, to be filed with the Commission; and notify
the Holders and the underwriter thereof, if any, promptly when a prospectus, any
prospectus supplement or post-effective amendment must be filed or has been
filed and, with respect to any post-effective amendment, when the same has
become effective.
2.4.4 Blackout Period. Notwithstanding any other provision
hereof, the Company may delay the Holders' ability to resell Registrable
Securities pursuant to the Registration Statement if the Company delivers a
certificate in writing to the Holders to the effect that a delay in such sale is
necessary because, in the good faith and reasonable judgment of the Company's
Board of Directors, a sale pursuant to the Registration Statement would require
the public disclosure of information that could have a significant adverse
effect on the Company, or could constitute a violation of the federal securities
laws. In such an event, the Company shall notify the Holders promptly after it
is determined that such circumstances no longer exist. The Company shall not be
entitled to delay the Holders' ability to resell Registrable Securities more
than 45 days in any calendar year.
3. Piggyback Registrations.
3.1 Registration. The Company shall notify all Holders of Registrable
Securities in writing at least fifteen (15) days prior to filing any
registration statement under the
-3-
<PAGE> 4
Securities Act for purposes of effecting a public offering of securities of the
Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to any registration under Section 2 of this Agreement or to
any employee benefit plan or a corporate reorganization pursuant to Rule 145
promulgated under the Securities Act) and will afford each such Holder an
opportunity to include in such registration statement all or any part of the
Registrable Securities then held by such Holder. Each Holder desiring to include
in any such registration statement all or any part of the Registrable Securities
held by such Holder shall, within ten (10) days after receipt of the
above-described notice from the Company, so notify the Company in writing, and
in such notice shall inform the Company of the number of Registrable Securities
such Holder wishes to include in such registration statement. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
3.2 Underwriting. If a registration statement under which the Company
gives notice under this Section 3 is for an underwritten offering, then the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
Company, and second, to each of the Holders requesting inclusion of their
Registrable Securities in such registration statement on a pro rata basis based
on the total number of Registrable Securities then held by each such Holder. If
any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder which is a partnership or corporation, the
partners, retired partners and shareholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "Holder",
and any pro rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder", as defined in this sentence.
3.3 Expenses of Registration. All Registration Expenses incurred in
connection with the Registration pursuant to Section 3 shall be borne by the
Company. All Selling Expenses shall be borne by the persons who sell the Shares
generating said Selling Expenses.
-4-
<PAGE> 5
3.4 Registration Procedures.
3.4.1 Advice By Company. The Company will keep each Holder
advised as to the initiation and completion of the Registration. At its expense
the Company will furnish promptly to each Holder such number of copies of
prospectuses (including preliminary prospectuses), and all amendments and
supplements thereto, in conformity with the requirements of the Securities Act,
and such other documents as any such Holder from time to time may reasonably
request.
3.4.2 Amendments. The Company will prepare and file with the
Commission such amendments and prospectus supplements, including post-effective
amendments, to the Registration Statement filed pursuant to Section 3 as the
Company determines may be necessary or appropriate, and use its appropriate
efforts to have such post-effective amendments declared effective; cause the
related prospectus to be supplemented by any prospectus supplement, and as so
supplemented, to be filed with the Commission; and notify the Holders and the
underwriter thereof, if any, promptly when a prospectus, any prospectus
supplement or post-effective amendment must be filed or has been filed and, with
respect to any post-effective amendment, when the same has become effective.
3.4.3 Blue Sky. The Company will use its best efforts to Register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or Blue Sky laws of such United States jurisdictions
as shall be reasonably requested by the Holders for the distribution of such
securities; provided, however, that the Company shall not be required to qualify
to do business or to file a general consent to service of process in any such
states or jurisdictions.
4. Information Furnished by Holder. It shall be a condition precedent to
the Company's obligations under this Agreement as to any Holder that (i) such
Holder furnish to the Company in writing such information regarding such Holder
and the distribution proposed by such Holder as the Company may reasonably
request; and (ii) such Holder is not a securities market professional, i.e., a
market maker, specialist, ordinary broker dealer, member of the National
Association of Securities Dealers, Inc. or a registered representative thereof,
or an affiliate of any of the foregoing.
5. Indemnification.
5.1 Company's Indemnification of Holders. The Company will indemnify
each Holder, each of its officers, directors and constituent partners, and each
person controlling such Holder, with respect to which Registration of
Registrable Securities has been effected pursuant to this Agreement, and each
underwriter thereof, if any, and each of its officers, directors, constituent
partners, and each person who controls such underwriter, against all claims,
losses, damages or liabilities (or actions in respect thereof) suffered or
incurred by any of them, to the extent such claims, losses, damages or
liabilities arise out of or are based upon any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus or any related
Registration Statement incident to any such Registration, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the
-5-
<PAGE> 6
statements therein not misleading, or any violation by the Company of any rule
or regulation promulgated under the Securities Act applicable to the Company and
relating to actions or inaction required of the Company in connection with any
such Registration; and the Company will reimburse each such Holder, each such
underwriter and each person who controls any such Holder or underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that the indemnity contained in this Section 5.1 shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if settlement is effected without the consent of the Company (which
consent shall not unreasonably be withheld); and provided, further, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based upon any untrue
statement or omission based upon written information furnished to the Company by
such Holder, underwriter, controlling person or other indemnified person and
stated to be for use in connection with the offering of securities of the
Company. Notwithstanding the above, the foregoing indemnity agreement is subject
to the condition that, insofar as it relates to any such untrue statement,
alleged untrue statement, omission or alleged omission made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
Commission at the time the Registration Statement becomes effective or a
prospectus is filed with the Commission pursuant to Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was furnished to such person and was
not furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act.
5.2 Holder's Indemnification of Company. Each Holder will indemnify
the Company, each of its directors and officers, each underwriter, if any, of
the Company's Shares covered by a Registration Statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act, and each other Holder, each of its officers, directors, and constituent
partners and each person controlling such other Holder, against all claims,
losses, damages and liabilities (or actions in respect thereof) suffered or
incurred by any of them and arising out of or based upon any untrue statement
(or alleged untrue statement) of a material fact contained in such Registration
Statement or related prospectus, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by such Holder of any rule
or regulation promulgated under the Securities Act applicable to such Holder and
relating to action or inaction required of such Holder in connection with the
Registration of Securities pursuant to such Registration Statement; and will
reimburse the Company, such other Holders, such directors, officers, partners,
persons, underwriters and controlling persons for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such Registration Statement or
prospectus in reliance upon and in conformity with written information furnished
to the Company by such Holder and stated to be specifically for use in
connection with the offering of Securities of the Company; provided, however,
that each Holder's liability under this Section 5.2 shall not exceed such
Holder's proceeds from the offering of Shares made in connection with such
Registration.
-6-
<PAGE> 7
5.3 Indemnification Procedure. Promptly after receipt by an
indemnified party under this Section 5 of notice of the commencement of any
action which may give rise to a claim for indemnification hereunder, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 5, notify the indemnifying party in
writing of the commencement thereof and generally summarize such action. The
indemnifying party shall have the right to participate in and to assume the
defense of such claim, and shall be entitled to select counsel for the defense
of such claim with the approval of any parties entitled to indemnification,
which approval shall not be unreasonably withheld. Notwithstanding the
foregoing, the parties entitled to indemnification shall have the right to
employ separate counsel (reasonably satisfactory to the indemnifying party) to
participate in the defense thereof, but the fees and expenses of such counsel
shall be the expense of such indemnified parties unless the named parties to
such action or proceedings include both the indemnifying party and the
indemnified parties and the indemnifying party or such indemnified parties shall
have been advised by counsel that there are one or more legal defenses available
to the indemnified parties which are different from or additional to those
available to the indemnifying party (in which case, if the indemnified parties
notify the indemnifying party in writing that they elect to employ separate
counsel at the reasonable expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action or
proceeding on behalf of the indemnified parties, it being understood, however,
that the indemnifying party shall not be liable for the reasonable fees and
expenses of more than one separate counsel at any time for all indemnified
parties, which counsel shall be designated in writing by the Holders of a
majority of the Shares).
5.4 Contribution. If the indemnification provided for in this Section
5 from an indemnifying party is unavailable to an indemnified party hereunder in
respect to any losses, claims, damages, liabilities or expenses referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified party in connection with the statements or omissions which
result in such losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such indemnifying party or indemnified party and the parties'
relative intent, knowledge, access to information supplied by such indemnifying
party or indemnified party and opportunity to correct or prevent such statement
or omission. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with the investigating or defending any action, suit, proceeding or
claim.
6. Covenants of the Company. The Company agrees to:
6.1 Notice of Defect. Notify the Holders at any time when a
prospectus relating to Registrable Securities covered by the Registration
Statement is required to be delivered under the Securities Act, of the happening
of any event as a result of which the
-7-
<PAGE> 8
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing. The Company shall
promptly amend or supplement the Registration Statement to correct any such
untrue statement or omission.
6.2 Notice of Stop Order. Notify the Holders of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose. The Company
will make every reasonable effort to prevent the issuance of any stop order and,
if any stop order is issued, to obtain the lifting thereof at the earliest
possible time.
6.3 Inspection. Make available for inspection by the Holders, and the
counsel, accountants or other agents retained by the Holders, all pertinent
financial and other records, corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by the Holders in connection with the
Registration, subject to appropriate confidentiality obligations.
6.4 Listing. If the Common Stock is then listed on a national
securities exchange or national market system, use its best efforts to cause the
Registrable Securities to be listed on such exchange or market system.
6.5. Assistance. Take all other reasonable actions necessary to
expedite and facilitate disposition by the Holders of the Registrable Securities
pursuant to the Registration Statement.
6.6 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the Commission that may at
any time permit the Holders to sell securities of the Company to the public
without registration, the Company agrees to:
6.6.1 for at least three years from the date hereof, make and
keep public information available, as those terms are understood and defined in
Rule 144;
6.6.2 for at least three years from the date hereof, file with
the Commission in a timely manner all reports and other documents required of
the Company under the Securities Act and the Securities and Exchange Act of 1934
(the "1934 Act"); and
6.6.3 furnish to each Holder, so long as such Holder owns any
Registrable Securities, forthwith upon written request (a) a written statement
by the Company whether it has complied with the reporting requirements of Rule
144, the Securities Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), (b) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (c) such other information as may be reasonably requested in
availing the Holders of any rule or regulation of the Commission which permits
the selling of any such securities without registration.
-8-
<PAGE> 9
7. Miscellaneous.
7.1 Notice. Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered or sent by internationally recognized express courier, addressed (i)
if to the Company, at Versant Corporation, 6539 Dumbarton Circle, Fremont,
California 94555; Attention: Chief Executive Officer and (ii) if to a Purchaser,
at the address set forth in the Purchase Agreement questionnaire, or at such
other address as each such party furnishes by notice given in accordance with
this Section 7.1.
7.2 Amendment and Waiver. Any term of this Agreement may be amended,
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only with
the written consent of the Company and Holders representing at least a majority
of the Registrable Securities then outstanding. Any amendment or waiver effected
in accordance with this Section 7.2 will be binding upon each Holder of
Registrable Securities then outstanding, each future Holder of such securities
and the Company.
7.3 Governing Law; Severability. This Agreement shall be enforced,
governed and construed in all respects in accordance with the laws of the State
of California, as such laws are applied by California courts to agreements
entered into and to be performed in California by and between residents of
California. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.
7.4 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the date first written above.
VERSANT CORPORATION PURCHASERS
By: ___________________________ By: __________________________
Its: __________________________ Its: __________________________
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
-10-
<PAGE> 11
EXHIBIT A
LIST OF PURCHASERS
Vertex Technology Fund Pte. Ltd.
c/o Vertex Management, Inc.
3 Lagoon Drive
Suite 220
Redwood City, CA 94065
<PAGE> 1
EXHIBIT 10.32
SUBORDINATION AGREEMENT
(All Indebtedness and Liens)
Versant Corporation ("Borrower") is indebted to the undersigned
("Creditor") in the principal sum of ______ Dollars ( $3,619,000 ) evidenced by
___an open account [X] promissory note ___ other (describe) ____ which
indebtedness is ___ unsecured [X] secured by Borrower's Assets , and Creditor is
or may become financially interested in borrower and desires to aid Borrower in
obtaining or having continued financial accommodations, whether by way of loan,
commitment to loan, discounting of instruments, extensions of credit or the
obtaining of any other financial aid from Comerica Bank-California ("Bank").
In order to induce the Bank to extend or to continue to extend financial
accommodations to Borrower from time to time, whether by way of a loan,
commitment to loan, discounting of instruments, extension of credit or otherwise
and in consideration of any of these financial accommodations, Creditor agrees
as follows:
1. Any and all obligations and liabilities of Borrower to Creditor, including,
without limit, principal and interest, whether direct or indirect, absolute or
contingent, joint or several, secured or unsecured, due or to become due, now
existing or later arising and whatever the amount and however evidenced (the
"Subordinated Indebtedness"), are subordinated in right of payment to any and
all obligations and liabilities of Borrower. to the Bank, including, without
limit, principal and interest payments whether direct or indirect, absolute or
contingent, joint or several, secured or unsecured, due or to become due, now
existing or later arising and however evidenced, together with all other sums
due thereon and all costs of collecting the same (including, without limit,
reasonable attorney fees) for which Borrower is liable (the "Senior
Indebtedness").
2. Except for the conversion of the Subordinated Indebtedness into equity
securities of Borrower (upon which Creditor shall terminate its security
interest in any of Borrower's property) Creditor will not ask for, demand, sue
for, take or receive (by way of voluntary payment, acceleration, set-off or
counterclaim, foreclosure or other realization on security, dividends in
bankruptcy or otherwise), or offer to make any discharge or release of, any of
the Subordinated Indebtedness, and Creditor waives any such rights with respect
to the Subordinated Indebtedness nor shall Creditor exercise any rights of
subrogation or other similar rights with respect to the Senior Indebtedness.
3. Creditor will not exercise any of Creditor's rights in any collateral now or
later securing the Subordinated Indebtedness. All rights of Creditor in any
collateral now or later securing the Subordinated Indebtedness are subordinated
to all rights of the Bank now or later existing in any of the same collateral
securing the Senior Indebtedness.
4. Should any payment, distribution or security or proceeds from these be
received by Creditor upon or with respect to the Subordinated Indebtedness prior
to the satisfaction in full of the
1
<PAGE> 2
Senior Indebtedness, Creditor shall immediately deliver same to the Bank in the
form received (except for endorsement or assignment by Creditor where required
by the Bank), for application on the Senior Indebtedness (whether or not then
due and in such order of maturity as Bank elects) and, until so delivered, the
same shall be held in trust by Creditor as the property of the Bank.
5. Creditor represents and warrants that it has not made or permitted to be made
and shall not make or permit any assignment, transfer, pledge, or disposition
for collateral purposes or otherwise, of all or any part of the Subordinated
Indebtedness or any collateral or other security for the Subordinated
Indebtedness so long as this Agreement remains in effect. Creditor shall
immediately affix a legend to the instruments evidencing the Subordinated Debt
stating that the instruments are subject to the terms of this Agreement. No
amendment of the documents evidencing or relating to the Subordinated Debt shall
directly of indirectly modify the provisions of this Agreement in any manner
which might terminate or impair the subordination of the Subordinated Debt or
the subordination of the security interest or lien that Creditor may have in any
property of Borrower. By way of example, such instruments shall not be amended
to (i) increase the rate of interest with respect to the Subordinated Debt, or
(ii) accelerate the payment of the principal or interest or any other portion of
the Subordinated Debt.
6. This Agreement constitutes a continuing agreement of subordination, even
though at times Borrower is not indebted to the Bank. The Bank may continue, in
reliance on this Agreement, without notice to Creditor, to lend monies, extend
credit, modify, renew or make other financial accommodations, to or for the
account of Borrower until the fifth (5th) day ("effective date") following
written acknowledgment by an officer of the Bank that the Bank received written
notice of revocation of this Agreement from Creditor. Any such notice of
revocation shall not be effective as to any Senior Indebtedness existing at the
effective date of revocation or any Senior Indebtedness created after that
pursuant to any commitment or agreement of the Bank or pursuant to any Borrower
loan (whether advances or readvances by the Bank after the effective date of
revocation are optional or obligatory) existing at the effective date of
revocation or any modifications or renewals of any Senior Indebtedness, whether
in whole or in part. Possession by the Bank of any note or other evidence of
indebtedness made, endorsed or guaranteed by Borrower shall be conclusive
evidence (but not the only means of establishing) that Borrower is indebted to
the Bank.
7. Creditor shall indemnify the Bank against all claims, damages, costs, and
expenses, including, without limit, reasonable attorneys' fees, incurred by the
Bank in connection with any suit, claim or action against the Bank arising out
of any modification or termination of a Borrower loan or any refusal by the Bank
to extend additional credit relating to the revocation of this Agreement.
8. Creditor delivers this Agreement based solely on Creditor's independent
investigation of (or decision not to investigate) the financial condition of the
Borrower and is not relying on any information furnished by the Bank. Creditor
assumes full responsibility for obtaining any further information concerning the
Borrower's financial condition, the status of the Senior Indebtedness or any
other matter which Creditor may deem necessary or appropriate now or later.
Creditor waives any duty on the part of the Bank, and agrees that Creditor is
not relying upon nor expecting the Bank to disclose to Creditor any fact now of
later known by the Bank, whether
2
<PAGE> 3
relating to the operations or condition of the Borrower, the existence,
liabilities or financial condition of any guarantor of the Senior Indebtedness,
the occurrence of any default with respect to the Senior Indebtedness, or
otherwise, notwithstanding any effect such fact may have upon Creditor's risk or
Creditor's rights against the Borrower. Creditor knowingly accepts the full
range of risk encompassed in this Agreement, which risk includes, without limit,
the possibility that the Borrower may incur Senior Indebtedness to the Bank
after the financial condition of the Borrower, or its ability to pay Borrower's
debts as they mature, has deteriorated. Creditor acknowledges and agrees that
the Bank's rights under this Agreement are not conditioned upon pursuit by the
Bank of any remedy the Bank may have against the Borrower or any other person or
any other security. The absence of Borrower's signature at the end of this
Agreement shall in no way impair or affect the validity of this Agreement.
9. The Bank, in its sole discretion, without notice to Creditor, may release,
exchange, enforce and otherwise deal with any security now or later held by the
Bank for payment of the Senior Indebtedness or release any party now or later
liable for payment of the Senior Indebtedness without affecting in any manner
the Bank's rights under this Agreement. Creditor acknowledges and agrees that
the Bank has no obligation to acquire or perfect any lien on or security
interest in any asset(s), whether realty or personalty, to secure payment of the
Senior Indebtedness, and Creditor is not relying upon assets in which the Bank
has or may have a lien or security interest for payment of the Senior
Indebtedness.
10. Notwithstanding any prior revocation, termination, surrender, or discharge
of this Agreement in whole or in part, the effectiveness of this Agreement shall
automatically continue or be reinstated in the event that any payment received
or credit given by the Bank in respect of the Senior Indebtedness is returned,
disgorged, or rescinded under any applicable state or federal law, including,
without limitation, laws pertaining to bankruptcy or insolvency, in which case
this Agreement, shall be enforceable against the Creditor as if the returned,
disgorged, or rescinded payment or credit had not been received or given by the
Bank, and whether or not the Bank relied upon this payment or credit or changed
its position as a consequence of it. In the event of continuation or
reinstatement of this Agreement, the Creditor agrees upon demand by the Bank to
execute and deliver to the Bank those documents which the Bank determines are
appropriate to further evidence (in the public records or otherwise) this
continuation or reinstatement, although the failure of the Creditor to do so
shall not affect in any way the reinstatement or continuation.
11. Creditor waives any right to require the Bank to: (a) proceed against any
person or property; (b) give notice of the terms, time and place of any public
or private sale of personal property security held from the Borrower or any
other person, or otherwise comply with the provisions of Section 9-504 of any
applicable Uniform Commercial Code; or (c) pursue any other remedy in the Bank's
power. Creditor waives notice of acceptance of this Agreement and presentment,
demand, protest, notice of protest, dishonor, notice of dishonor, notice of
default, notice of intent to accelerate or demand payment of any Senior
Indebtedness, any and all other notices to which the undersigned might otherwise
be entitled, and diligence in collecting any Senior Indebtedness, and agrees
that the Bank may, once or any number of times, modify the terms of any Senior
Indebtedness, compromise, extend, increase, accelerate, renew or forbear to
enforce payment of any or all Senior Indebtedness, or permit the Borrower to
incur additional Senior Indebtedness,
3
<PAGE> 4
all without notice to Creditor and without affecting in any manner the
unconditional obligations of Creditor under this Agreement.
12. Creditor acknowledges that the Bank has the right to sell, assign, transfer,
negotiate or grant participations or any interest in, any or all of the Senior
Indebtedness and any related obligations, including without limit this
Agreement. In connection with the above, but without limiting its ability to
make other disclosures to the full extent allowable, the Bank may disclose all
documents and information which the Bank now or later has or acquires relating
to Creditor and this Agreement, however obtained. Creditor further agrees that
the Bank may disclose such documents and information to the Borrower. Creditor
agrees that the Bank may provide information relating to this Subordination
Agreement or to the undersigned to the Bank's parent, affiliates, subsidiaries
and service providers.
13. No waiver or modification of any of its rights under this Agreement shall be
effective unless the waiver or modification shall be in writing and signed by an
authorized officer on behalf of the Bank, and each waiver or modification shall
be a waiver or modification only with respect to the specific matter to which
the waiver or modification relates and shall in no way impair the rights of the
Bank or the obligations of Creditor to the Bank in any other respect.
14. This Agreement shall bind and be for the benefit of Creditor and the Bank
and their respective successors and assigns, and shall be construed according to
the laws of the State of California without regard to conflict of laws
principles. If this Agreement is executed by two or more persons, it shall bind
each of them individually as well as jointly. Creditor further agrees, upon
Bank's request to enter into a new subordination agreement with any person
refinancing the Senior Indebtedness or assuming Bank's rights and obligations
with respect to the Senior Indebtedness (plus an additional principal amount of
not more than $4,000,000), which agreement will contain substantially the terms
and condition of this Agreement.
15. The term "Borrower", as used in this Agreement, includes any person,
corporation, partnership or business entity which succeeds to the interests or
business of the Borrower named above, and the terms "Senior Indebtedness" and
"Subordinated Indebtedness" include indebtedness of any successor Borrower to
the Bank and Creditor.
16. Creditor agrees to reimburse the Bank for any and all costs and expenses
(including, without limit, court costs, legal fees, and reasonable attorney fees
whether inside or outside counsel is used, whether or not suit is instituted
and, if instituted, whether at the trial or appellate level, in a bankruptcy,
probate or administrative proceeding, or otherwise) incurred in enforcing any of
the duties and obligations of Creditor under this Agreement.
17. Creditor waives any defense against the enforceability of this Agreement
based upon or arising by reason of the application by the Borrower of the
proceeds of any Indebtedness for purposes other than the purposes represented by
the Borrower to the Bank or intended or understood by the Bank or Creditor.
Creditor waives all rights to require the Bank to marshall the Collateral or any
other property the Bank may at any time have as security for the Indebtedness
and waives all right to require the Bank to first proceed against any guarantor
or other person before proceeding against the Collateral.
4
<PAGE> 5
18. The relative priorities of the Bank and Creditor in the Collateral as set
forth in this Agreement control irrespective of the time, method or order of
attachment or perfection of the liens and security interests acquired by the
parties in the Collateral and irrespective of the priorities as would otherwise
be determined by reference to the Uniform Commercial Code or other applicable
laws. Creditor shall not contest the validity, priority or perfection of the
Bank's security interest in the Collateral (regardless of whether the Bank's
security interest in the Collateral is valid or perfected). The priorities of
any liens or security interests of the parties in any property of the Borrower
other than the Collateral are not affected by this Agreement and shall be
determined by reference to applicable law. The Bank's rights under this
Agreement are in addition to, and not in substitution of, its rights under any
other subordination agreement with Creditor.
19. Special Provisions: * None if left blank.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTION ALONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS AGREEMENT.
IN WITNESS WHEREOF, Creditor has caused this Agreement to be executed as of
October 16, 1998 (date)
Vertex Technology Fund Pte. Ltd. CREDITOR'S ADDRESS
CREDITOR
BY:___________________________ _____________________________
SIGNATURE OF STREET ADDRESS
ITS:___________________________ _____________________________
TITLE (if applicable) CITY STATE ZIP
BY:___________________________
SIGNATURE OF
ITS:___________________________
TITLE (if applicable)
5
<PAGE> 6
Versant Corporation
("Borrower"), accepts notice of subordination created by this Agreement and
agrees that it will take no action inconsistent with this Agreement and that,
except with the prior written approval of Bank, no payment or distribution shall
be made by Borrower on or with respect to the Subordinated Indebtedness, so long
as this Agreement remains in effect. Borrower agrees that the Bank may, at its
option, without notice and without limiting Bank's other rights, upon any breach
by Creditor of, or purported termination by the Creditor of, this Agreement,
declare all Senior Indebtedness to be immediately due and payable and/or
terminate any commitments of Bank to Borrower.
Versant Corporation BORROWER'S ADDRESS
BORROWER
BY:___________________________ _____________________________
SIGNATURE OF STREET ADDRESS
ITS:___________________________ _____________________________
TITLE (if applicable) CITY STATE ZIP
BY:___________________________
SIGNATURE OF
ITS:___________________________
TITLE (if applicable)
BY:___________________________
SIGNATURE OF
ITS:___________________________
TITLE (if applicable)
BY:___________________________
SIGNATURE OF
ITS:___________________________
TITLE (if applicable)
6
<PAGE> 1
EXHIBIT 10.33
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
This COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this "AGREEMENT") is
made and entered into as of December 28, 1998 by and among Versant Corporation,
a California corporation (the "COMPANY"), and the parties listed on the Schedule
of Investors attached to this Agreement as Exhibit A (each hereinafter
individually referred to as an "INVESTOR" and collectively referred to as the
"INVESTORS").
R E C I T A L S
A. The Company is currently in need of funds for working capital
purposes.
B. The Investors are willing to purchase shares of the Company's Common
Stock, and warrants to purchase Common Stock, as provided in this Agreement.
NOW THEREFORE, the parties hereby agree as follows:
1. PURCHASE AND SALE. Each Investor agrees, severally and not jointly,
to purchase from the Company the number of shares of the Company's Common Stock
(the "SHARES"), no par value, set forth beside such Investor's name on Exhibit A
at a price of $2.00 per share, together with a warrant to purchase from the
Company the number of shares of the Company's Common Stock set forth beside such
Investor's name on Exhibit A (each, a "WARRANT" and collectively, the
"WARRANTS"), at an exercise price of $2.25 per share, for the warrant purchase
price associated with such Warrant, in substantially the form attached hereto as
Exhibit B and the Company agrees to sell to each Investor the Shares and a
Warrant on the terms set forth herein.
2. CLOSING. The purchase and sale of the Shares and Warrants will take
place at the offices of Fenwick & West LLP, Two Palo Alto Square, Suite 800,
Palo Alto, California, at 11:00 a.m. Pacific Time, on December 28, 1998 or at
such other time and place as the Company and Investors who have agreed to
purchase a majority of the Shares listed on Exhibit A mutually agree upon,
either orally or in writing (which time and place are referred to in this
Agreement as the "CLOSING"). At the Closing, the Company will deliver to each
Investor a certificate for the Shares and a Warrant against delivery to the
Company by such Investor of the full purchase price of such Shares and Warrant,
paid by a check payable to the Company's order or wire transfer of funds to the
Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Investor that, except as set forth in the
Schedule of Exceptions (the "SCHEDULE OF EXCEPTIONS") attached to this Agreement
as Exhibit C (which Schedule of Exceptions shall be deemed to be representations
and warranties to the
<PAGE> 2
Investors by the Company under this Section 3), the statements in the following
paragraphs of this Section 3 are all true and complete:
3.1 Organization, Good Standing and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to own its properties and assets and to carry on its business as now
conducted and as presently proposed to be conducted. Each of the Company's
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own its properties and assets and to
carry on its business as now conducted and as presently proposed to be
conducted. Each of the Company and its subsidiaries is qualified to do business
as a foreign corporation in each jurisdiction where failure to be so qualified
would have a material adverse effect on its financial condition, business,
prospects or operations.
3.2 Due Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders, necessary for the
authorization, execution and delivery of, and the performance of all obligations
of the Company under, this Agreement, the Warrants and the Registration Rights
Agreement (as defined in Section 5.7 below) and the authorization, issuance,
reservation for issuance and delivery of all the Shares and the Common Stock
that is issuable under exercise of the Warrants (the "EXERCISE SHARES") has been
taken or will be taken prior to the execution of this Agreement, and this
Agreement, the Warrants and the Registration Rights Agreement constitute valid
and legally binding obligations of the Company, enforceable in accordance with
their respective terms, except as may be limited by: (i) applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting the enforcement of creditor's rights generally; and (ii) the effect of
rules of law governing the availability of equitable remedies.
3.3 Corporate Power. The Company has all requisite legal and
corporate power to execute and deliver this Agreement, the Warrants and the
Registration Rights Agreement, to issue the Shares and the Exercise Shares, and
to carry out and perform all its obligations under this Agreement, the Warrants
and the Registration Rights Agreement.
3.4 Proceedings. There is no pending action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), prosecution, hearing, or investigation,
commenced, brought, conducted or heard by or before, any governmental body or
any arbitrator or arbitration panel ("PROCEEDING"), and to the Company's
knowledge, no person or entity has threatened to commence any Proceeding, (i)
that challenges, or that may have the effect of preventing, delaying, making
illegal or otherwise interfering with, the transactions contemplated by this
Agreement, the Warrants or the Registration Rights Agreement or (ii) that might
result, either individually or in the aggregate, in any material adverse change
in the business, assets, financial condition, results of operations or prospects
of the Company. The Company is not party or subject to the provisions of any
order, writ, injunction, judgment, stipulation or decree of any court,
administrative agency, commission, regulatory authority or other governmental
agency or instrumentality that are likely
-2-
<PAGE> 3
to have a material adverse effect on the business, assets, financial condition,
results of operations or prospects of the Company.
3.5 Non-Contravention; Consents; No Liens. Neither the execution
and delivery of this Agreement, the Warrants or the Registration Rights
Agreement, nor the consummation or performance of any of the transactions
contemplated by this Agreement, the Warrants or the Registration Rights
Agreement, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of
(i) any of the provisions of the Company's Articles of Incorporation or Bylaws,
or (ii) any resolution adopted by the Company's shareholders, the Company's
Board of Directors or any committee of the Company's Board of Directors;
(b) contravene, conflict with or result in a violation of,
or give any governmental body or other person the right to challenge any of the
transactions contemplated by this Agreement, the Warrants or the Registration
Rights Agreement or to exercise any remedy or obtain any relief under, any
federal, state, local, municipal, foreign or other law, statute, legislation,
ordinance, rule, regulation or ruling that is or has been issued, enacted,
adopted, passed, approved, promulgated, made, implemented or otherwise put into
effect by or under the authority of any governmental body, or any order to which
the Company, or any of the assets owned or used by the Company, is subject;
(c) contravene, conflict with or result in a material
violation or breach of, or result in a material default under, any of the
Company's material agreements; or
(d) result in the creation of any lien, charge or
encumbrance upon any asset of the Company.
With the exception of any necessary filings pursuant to federal and state
securities laws, and except as disclosed on the Schedule of Exceptions, the
Company will not be required to make any filing with or give any notice to, or
to obtain any consent from, any person in connection with the execution and
delivery of this Agreement, the Warrants and the Registration Rights Agreement
or the consummation or performance of any of the transactions contemplated by
this Agreement, the Warrants and the Registration Rights Agreement.
3.6 Brokers. The Company has not agreed or become obligated to
pay, and has not taken any action that likely would result in any person
claiming to be entitled to receive, any brokerage commission, finder's fee or
similar commission or fee in connection with any of the transactions
contemplated by this Agreement.
3.7 Full Disclosure; SEC Reports; SEC Matters.
(a) This Agreement (including all exhibits hereto) does
not contain any untrue statement of material fact and does not omit to state any
fact necessary to make any of
-3-
<PAGE> 4
the representations, warranties or statements contained herein on behalf of the
Company not misleading with respect to the Company.
(b) As of the date of this Agreement, the Company has
provided the Investors or their counsel with full and complete access to all of
the Company's records and other documents and data requested by them.
(c) The Company has filed all reports required to be filed
with the Securities and Exchange Commission ("SEC") pursuant to the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") (all such reports and
amendments thereto, collectively, the "COMPANY SEC REPORTS"). None of such
Company SEC Reports, as of their respective dates (as amended through the date
hereof), contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(d) The Company has filed all material contracts required
to be filed with the SEC pursuant to the Item 601 of Regulation S-K under the
Securities Act of 1933, as amended (the "1933 ACT") and the Exchange Act.
(e) The Company is eligible to file Form S-3 registration
statements under the 1933 Act with the SEC in connection with offerings of
outstanding Company securities to be offered for the account of any person other
than the Company, so long as such person is not a registered broker-dealer.
3.8 Valid Issuance. The Shares and the Exercise Shares, when
issued in compliance with the terms of this Agreement and the Warrants, will be
validly issued, fully paid and nonassessable and will be free of any liens or
encumbrances.
3.9 Capitalization. As of the date of this Agreement, the
capitalization of the Company consists of the following:
(a) Preferred Stock. A total of 3,000,000 authorized
shares of preferred stock, no par value per share, none of which is issued and
outstanding.
(b) Common Stock. A total of 30,000,000 authorized shares
of common stock, no par value per share (the "Common Stock"), of which 9,449,305
shares are issued and outstanding.
(c) Options, Warrants, Reserved Shares. Except for: (i)
the 216,988 shares of Common Stock reserved for issuance upon the exercise of
outstanding options under the Company's 1989 Stock Option Plan; (ii) the
1,863,485 shares of Common Stock reserved for issuance under the Company's 1996
Equity Incentive Plan under which options to purchase 1,796,634 shares are
outstanding; (iii) the 99,337 shares of Common Stock available for issuance
under the Company's 1996 Employee Stock Purchase Plan; (iv) the 125,000 shares
of Common Stock reserved for issuance under the Company's 1996 Directors Stock
Option Plan under which
-4-
<PAGE> 5
options to purchase 75,000 shares are outstanding; and (v) the 1,880,000 shares
of Common Stock reserved for issuance upon the conversion of an outstanding
Convertible Subordinated Secured Promissory Note of the Company, there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock or any securities convertible into or ultimately
exchangeable or exercisable for any shares of the Company's capital stock.
3.10 No Material Adverse Change. Since September 30, 1998, the
business of the Company has been operated in the ordinary course and
substantially consistent with past practice, and, except as disclosed in the
Company SEC Reports, there has not been any material adverse change in the
business, assets, financial condition, results of operations or prospects of the
Company.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTORS. Each
Investor hereby represents and warrants to, and agrees with, the Company that:
4.1 Authorization. This Agreement, the Warrant to be purchased by
such Investor and the Registration Rights Agreement constitute such Investor's
valid and legally binding obligation, enforceable in accordance with their
respective terms except as may be limited by: (i) applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting the enforcement of creditors' rights generally, and (ii) the effect of
rules of law governing the availability of equitable remedies. The Investor
represents that such Investor has full power and authority to enter into this
Agreement, the Warrant to be purchased by such Investor and the Registration
Rights Agreement.
4.2 Purchase for Own Account. The Shares and Warrant to be
purchased by such Investor hereunder and the Exercise Shares will be acquired
for investment for such Investor's own account, not as a nominee or agent, and
not with a view to the public resale or distribution thereof within the meaning
of the 1933 Act, and such Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same.
4.3 Disclosure of Information. Such Investor believes it has
received or has had full access to all the information it considers necessary or
appropriate to make an informed investment decision with respect to the Shares
and Warrant to be purchased by such Investor under this Agreement. Such Investor
further has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Shares and
Warrant and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to such Investor or to
which such Investor had access. The foregoing, however, does not in any way
limit or modify the representations and warranties made by the Company in
Section 3.
4.4 Investment Experience. Such Investor is an "accredited
investor" within the meaning of Regulation D promulgated under the 1933 Act.
-5-
<PAGE> 6
4.5 Restricted Securities. Such Investor understands that the
Shares, Warrants and Exercise Shares are characterized as "restricted
securities" under the 1933 Act and Rule 144 promulgated thereunder inasmuch as
they are being acquired from the Company in a transaction not involving a public
offering and that under the 1933 Act and applicable regulations thereunder such
securities may be resold without registration under the 1933 Act only in certain
limited circumstances.
4.6 No Solicitation. At no time was such Investor presented with
or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares, Warrants or Exercise Shares.
4.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Shares, Warrants or
Exercise Shares unless and until:
(a) there is then in effect a registration statement under
the 1933 Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) such Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a statement
of the circumstances surrounding the proposed disposition, and (ii) such
Investor shall have furnished the Company, at the expense of such Investor or
its transferee, with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such securities
under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer of any Shares, Warrants or Exercise Shares in compliance with SEC Rule
144; (ii) for any transfer of any Shares, Warrants or Exercise Shares by an
Investor to any affiliate (as that term is defined in Rule 405 promulgated under
the 1933 Act) of such Investor; (iii) for any transfer of any Shares, Warrants
or Exercise Shares by an Investor that is a partnership or a corporation to (A)
a partner of such partnership or a shareholder of such corporation or (B) the
estate of any such partner or shareholder; or (iv) for the transfer by gift,
will or intestate succession by any Investor to his or her spouse or lineal
descendants or ancestors or any trust for any of the foregoing; provided that in
each of the foregoing cases the transferee agrees in writing to be subject to
the terms of this Section 4 to the same extent as if the transferee were an
original Investor hereunder.
4.8 Legends. It is understood that the certificates evidencing
the Shares, Warrants or Exercise Shares will bear the legend set forth below:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE
-6-
<PAGE> 7
SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THESE SECURITIES UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING. The obligations of
each Investor under Section 2 of this Agreement are subject to the fulfillment
or waiver, on or before the Closing, of each of the following conditions, which
conditions may be waived by written, oral or telephone communication to the
Company, its counsel or to counsel to the Investors:
5.1 Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
5.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3 Compliance Certificate. The Company shall have delivered to
the Investors at the Closing a certificate signed on its behalf by its Chief
Executive Officer or Chief Financial Officer certifying that the conditions
specified in Sections 5.1 and 5.2 have been fulfilled and stating that there
shall have been no material adverse change in the business, affairs, prospects,
operations, properties, assets or condition of the Company not previously
disclosed to the Investors.
5.4 Securities Exemptions. The offer and sale of the Shares,
Warrants and Exercise Shares to the Investors pursuant to this Agreement shall
be exempt from the registration requirements of the 1933 Act and the
registration and/or qualification requirements of all applicable state
securities laws.
5.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to each Investor and to the Investors' counsel, and they shall each
have received all such counterpart originals and certified or other copies of
such documents as they may reasonably request.
-7-
<PAGE> 8
5.6 No Material Change. There shall have been no material adverse
change in the business, affairs, prospects, operations, properties, assets or
condition of the Company since September 30, 1998.
5.7 Registration Rights Agreement. The Company shall have
executed and delivered a Registration Rights Agreement substantially in the form
attached hereto as Exhibit D (the "REGISTRATION RIGHTS AGREEMENT").
5.8 Delivery of Shares and Warrants. The Company shall have
delivered to such Investor a certificate for the Shares and the Warrant to be
purchased by such Investor pursuant to this Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment or waiver on or before the Closing of each of the following
conditions by such Investor:
6.1 Representations and Warranties. The representations and
warranties of such Investor contained in Section 4 shall be true and correct on
the date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. Such Investor shall have delivered
to the Company the purchase price in accordance with the provisions of Section
2.
6.3 Securities Exemptions. The offer and sale of the Shares,
Warrants and Exercise Shares to the Investors pursuant to this Agreement shall
be exempt from the registration requirements of the 1933 Act and the
registration and/or qualification requirements of all applicable state
securities laws.
6.4 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Company and to the Company's legal counsel, and the Company
shall have received all such counterpart originals and certified or other copies
of such documents as it may reasonably request.
7. MISCELLANEOUS.
7.1 Governing Law. This Agreement shall be governed by and
construed under the internal laws of the State of New York as applied to
agreements among New York residents entered into and to be performed entirely
within New York, without reference to principles of conflict of laws or choice
of laws.
-8-
<PAGE> 9
7.2 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.3 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with a recognized national courier service, fees prepaid and addressed
to the party to be notified, in the case of the Company, at 6539 Dumbarton
Circle, Fremont, California 94555, and in the case of an Investor at the address
indicated for such party on Exhibit A, or at such other address as such party
may designate by ten (10) days advance written notice to all other parties.
7.4 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and holders of at
least a majority of the aggregate of the Shares and the Exercise Shares then
issued or issuable. Any amendment or waiver effected in accordance with this
Section shall be binding upon each holder of any Shares, Warrants or Exercise
Shares at the time outstanding, each future holder of such securities, and the
Company.
7.5 Entire Agreement. This Agreement, together with all exhibits
and schedules hereto, constitutes the entire understanding and agreement of the
parties with respect to the subject matter hereof and supersedes all prior
understandings and agreements with respect to such matters.
7.6 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
7.7 Headings. The headings and captions used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs and exhibits shall, unless otherwise provided, refer to sections and
paragraphs hereof and exhibits attached hereto, all of which exhibits are
incorporated herein by this reference.
7.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s) shall be
enforced to the maximum extent possible consistent with applicable law and the
balance of the Agreement shall remain in full force and effect.
7.9 Further Assurances. From and after the date of this
Agreement, upon the request of the Investor or the Company, the Company and the
Investor shall execute and deliver such instruments, documents or other writings
as may be reasonably necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
VERSANT CORPORATION SPECIAL SITUATIONS FUND III LP
By:_______________________________ By::_______________________________
Name:_____________________________ Name::_____________________________
Title:____________________________ Title::____________________________
SPECIAL SITUATIONS CAYMAN LP SPECIAL SITUATIONS TECHNOLOGY
FUND LP
By:_______________________________ By::_______________________________
Name:_____________________________ Name::_____________________________
Title:____________________________ Title::____________________________
[SIGNATURE PAGE TO COMMON STOCK AND WARRANT PURCHASE AGREEMENT.]
-10-
<PAGE> 11
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Shares of
Shares of Stock Common Stock Warrant Total
Common Stock Purchase Subject to Purchase Purchase
Investor Purchased Price Warrant Price Price
- -------- ------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Special Situations Fund III LP 472,500 $ 945,000 236,250 $29,531.25 $ 974,531.25
153 East 53rd Street
51st Floor
New York, NY 10022
Special Situations Cayman LP 157,500 $ 315,000 78,750 $ 9,843.75 $ 324,843.75
153 East 53rd Street
51st Floor
New York, NY 10022
Special Situations 70,000 $ 140,000 35,000 $ 4,375.00 $ 144,375.00
Technology Fund LP
153 East 53rd Street
51st Floor
New York, NY 10022
---------- ---------- ---------- ---------- -------------
Total 700,000 $1,400,000 350,000 $43,750.00 $1,443,750.00
</TABLE>
<PAGE> 12
EXHIBIT C
SCHEDULE OF EXCEPTIONS
Versant issued 245,586 shares of its Common Stock in connection with its
purchase of Soft Mountain S.A. Pursuant to the terms of the Soft Mountain
agreement, Versant was obligated to register such shares with the SEC. The Soft
Mountain agreement provides that if Versant does not register the shares by
December 31, 1998, then Versant is obligated to pay the holders of such shares
6,190,000 French Francs in cash, by January 31, 1999, in return for such shares.
Versant does not expect to be able to comply with its obligation to register the
shares by December 31, 1998. Versant believes that it will be able to obtain the
consent of the Soft Mountain registration rights holders to postpone Versant's
obligation to file a registration statement to such shares until April 9, 1999,
in exchange for the payment to such persons of up to $60,000 in cash and up to
50,000 shares of Versant Common Stock.
Versant sold a convertible secure subordinated promissory note to Vertex
Technology Fund Pte Ltd in the principal amount of $3,619,000. The note is
convertible into Common Stock at the price of $1.925 per share. Versant is
obligated to register the shares issuable upon conversion of the promissory note
within 90 days of the closing of the sale of the note (October 16, 1998).
Versant does not expect to be able to comply with such obligation, and believes
that Vertex will agree to postpone Versant's obligation to file the registration
statement until April 9, 1999.
Versant is a defendant in various securities litigations, as described
in Versant's filings with the SEC.
-12-
<PAGE> 1
EXHIBIT 10.34
SPECIAL SITUATIONS FUND STOCK WARRANT
EXHIBIT B
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THESE
SECURITIES UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
Warrant to Purchase
__________ Shares of Common Stock
(Subject to Adjustment)
VERSANT CORPORATION
COMMON STOCK PURCHASE WARRANT
VERSANT CORPORATION, a California corporation (the "Company"), hereby
certifies that, for value received, ________________ is entitled, subject to the
terms set forth below, to purchase from the Company, on the terms hereof,
_________ fully paid and nonassessable shares of Common Stock of the Company.
The purchase price per share of such Common Stock shall be $2.25 (the
"Exercise Price"). The number and character of such shares of Common Stock are
subject to adjustment as provided below.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
1
<PAGE> 2
(a) The term "Company" includes any corporation which shall succeed
to or assume the obligations of the Company hereunder.
(b) The term "Common Stock" shall mean the Common Stock of the
Company, and any other securities or property of the Company or of any other
person (corporate or otherwise) which the holder of this Warrant at any time
shall be entitled to receive on the exercise hereof, in lieu of or in addition
to Common Stock, or which at any time shall be issuable in exchange for or in
replacement of Common Stock.
(c) The term "Blackout Period" shall mean any period during which the
ability of the holder of this Warrant to resell the Common Stock issued or
issuable upon exercise of this Warrant pursuant to the Registration Statement
(as defined in the Registration Rights Agreement) has been suspended, pursuant
to Section 2.4.3 of the Registration Rights Agreement or otherwise.
(d) The term "Registration Rights Agreement" shall mean that certain
Registration Rights Agreement among the Company, the initial holder of this
Warrant and certain third parties dated as of December 28, 1998.
1. Initial Exercise Date; Expiration. This Warrant may be exercised at
any time or from time to time. It shall expire upon the earlier of (i) December
28, 2001, (ii) an acquisition of the Company (whether by merger, consolidation,
tender offer or otherwise) in which the Company's shareholders prior to the
acquisition own less than a majority of the surviving corporation, or the sale
of all or substantially all of the Company's assets (any of such transactions,
an "Acquisition"), or (iii) 15 business days after the Company gives notice to
the holder that the Company's stock price on the Nasdaq National Market or other
primary market for the Company's stock has closed with a closing bid price above
$4.00 for ten consecutive business days (the earlier of all such dates, the
"Expiration Date"). After the Expiration Date, this Warrant shall terminate, and
shall be void and of no further force and effect; provided, however, that if the
Expiration Date is triggered by (i) or (iii) above and falls during or within 30
days after a Blackout Period, this Warrant shall not terminate until 30 days
after the end of such Blackout Period; and provided, further, that for the
Expiration Date to be triggered by (iii) above, the Company must furnish the
above-mentioned notice to the holder within five business days following the ten
consecutive business day trading period specified in (iii) above.
2. Exercise of Warrant; Partial Exercise. This Warrant may be exercised
in full or in part by the holder hereof by surrender of this Warrant, with the
form of subscription attached hereto and the completion of an appropriate
investment representation letter, as may be reasonably required by the Company,
duly executed by such holder, to the Company at its principal office,
accompanied by payment, in cash, by certified or official bank check payable to
the order of the Company or by wire transfer, of the purchase price of the
shares of Common Stock to be purchased hereunder. For any partial exercise
hereof, the holder shall designate in the subscription the number of shares of
Common Stock that it wishes to purchase. On any such partial exercise, the
Company at its expense shall forthwith issue and deliver to the holder hereof a
new warrant of like tenor, in the name of the holder hereof, which shall be
exercisable for such
2
<PAGE> 3
number of shares of Common Stock represented by this Warrant which have not been
purchased upon such exercise.
3. When Exercise Effective. The exercise of this Warrant shall be deemed
to have been effected immediately prior to the close of business on the business
day on which this Warrant is surrendered to the Company as provided in Section 2
and at such time the person in whose name any certificate for shares of Common
Stock shall be issuable upon such exercise, as provided in Section 4, shall be
deemed to be the record holder of such Common Stock for all purposes.
4. Delivery on Exercise; Penalty for Failure to Deliver. As soon as
practicable, and in any event within three business days, after the exercise of
this Warrant in full or in part, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder may direct, a
certificate or certificates for the number of fully paid and nonassessable full
shares of Common Stock to which such holder shall be entitled on such exercise,
together with cash, in lieu of any fraction of a share, equal to such fraction
of the current market value of one full share as determined in good faith by the
Board of Directors. If the Company fails to fulfill its obligations under the
previous sentence, and if, as a result, the holder of this Warrant is obligated
to and does buy shares in the market to meet an obligation to deliver shares of
the Common Stock, then the Company shall pay to the holder of this Warrant, as
liquidated damages, the amount, if any, by which the cost of purchasing such
shares in the market exceeds the net proceeds received by such holder from the
sale of the shares which such holder anticipated receiving upon exercise of this
Warrant.
5. Adjustment of Exercise Price and Number of Shares. The number and
character of the shares of Common Stock issuable upon exercise of this Warrant
(or any shares of stock or other securities at the time issuable upon exercise
of this Warrant) and the Exercise Price therefor, are subject to adjustment upon
the occurrence of the following events:
5.1 Adjustment for Stock Splits, Stock Dividends, etc. The Exercise
Price of this Warrant and the number of shares of Common Stock issuable upon
exercise of this Warrant (or any shares of stock or other securities at the time
issuable upon exercise of this Warrant) shall be appropriately adjusted to
reflect any stock dividend, stock split, combination of shares, or similar event
affecting the number of outstanding shares of Common Stock (or such other stock
or securities). For example if there should be a two-for-one (2-for-1) stock
split, the Exercise Price would be divided by two (2) and the number of shares
that may be purchased pursuant hereto would be doubled.
5.2 Adjustment for Other Dividends and Distributions. In case the
Company shall make or issue, or shall fix a record date for the determination of
eligible holders entitled to receive, a dividend or other distribution with
respect to the Common Stock (or any shares of stock or other securities at the
time issuable upon exercise of the Warrant) payable in (i) securities of the
Company (other than shares of Common Stock) or (ii) assets (excluding cash
dividends paid or payable solely out of retained earnings), then in each case,
the holder of this Warrant on exercise hereof at any time after the
consummation, effective date or record date of
3
<PAGE> 4
such event, shall receive, in addition to the Common Stock (or such other stock
or securities) issuable on such exercise prior to such date, the securities or
such other assets of the Company to which such holder would have been entitled
upon such date if such holder had exercised this Warrant immediately prior
thereto (all subject to further adjustment as provided in this Warrant).
5.3 Adjustment for Reorganization, Consolidation, Merger, etc. In
case of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, other than
an Acquisition, in which the Company shall not be the continuing or surviving
entity of such consolidation, merger or reorganization (any such transaction
being hereinafter referred to as a "Reorganization"), then, in each case, the
holder of this Warrant, on exercise hereof at any time after the consummation or
effective date of such Reorganization (the "Effective Date"), shall receive, in
lieu of the Common Stock issuable on such exercise prior to the Effective Date,
the stock and other securities and property (including cash) to which such
holder would have been entitled upon the Effective Date if such holder had
exercised this Warrant immediately prior thereto (all subject to further
adjustment as provided in this Warrant). Nothing in this Section 5.3 shall limit
the expiration provisions set forth in Section 1 hereof.
5.4 Reclassification or Recapitalization. If the Company's Common
Stock (or any other shares of stock issuable at any time upon exercise of this
Warrant) shall be changed into shares of any other class or series of the
Company's stock, whether pursuant to reclassification, recapitalization or
similar change, then the holder of this Warrant, upon exercise hereof, at any
time after the effective date of such reclassification, recapitalization or
similar event, shall receive, in lieu of the Common Stock issuable (or any other
shares of stock then issuable upon exercise of this Warrant) on exercise
immediately prior to such date, the stock and/or other securities and/or
property to which such holder would have been entitled upon such date if such
holder had exercised this Warrant immediately prior thereto (all subject to
further adjustment as provided in this Warrant).
5.5 Price-Based Anti-Dilution. The Exercise Price of this Warrant in
effect at any time and the number of securities purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the happening
of the following events:
(a) In the event that the Company shall issue or sell any shares
of Common Stock (except as provided in Section 5.5(d) hereof) for a
consideration per share less than the Exercise Price in effect immediately prior
to such issue or sale, then the Exercise Price, as of the date of such issue or
sale, shall be reduced to such lesser price (calculated to the nearest cent) as
shall be determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum of (i) the
number of shares of Common Stock outstanding immediately prior to the issuance
or sale of such additional shares and (ii) the number of shares of Common Stock
which the aggregate consideration received for the issuance or sale of such
additional shares would purchase at the Exercise Price then in effect, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after the issuance or sale of such additional shares.
4
<PAGE> 5
(b) For the purposes of Section 5.5(a) above, the following
subparagraphs (i) to (v), inclusive, shall be applicable:
(i) If at any time the Company shall issue or sell any
rights to subscribe for, or any rights or options to
purchase, Common Stock or any stock or other
securities convertible into or exchangeable for Common
Stock (such convertible or exchangeable stock or
securities being hereinafter called "Convertible
Securities"), whether or not such rights or options or
the right to convert or exchange any such Convertible
Securities shall be immediately excercisable, and the
price per share for which Common Stock shall be
issuable upon the exercise of such rights or options
or upon conversion or exchange of such Convertible
Securities (determined by dividing (1) the total
amount, if any, received or receivable by the Company
as consideration for the granting of such rights or
options, plus the minimum aggregate amount of
additional consideration payable to the Company upon
the exercise of such rights or options, plus, in the
case of any such rights or options which shall relate
to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (2)
the total number of shares of Common Stock issuable
upon the exercise of such rights or options or upon
the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights
or options) shall be less than the Exercise Price in
effect immediately prior to the time of the issue or
sale of such rights or options then the total number
of shares of Common Stock issuable upon the exercise
of such rights or options or upon conversion or
exchange of the total amount of such Convertible
Securities issuable upon the exercise of such rights
or options shall (as of the date of granting of such
rights or options) be deemed to be outstanding and to
have been issued for such price per share, and except
as provided in Section 5.5(c) no further adjustments
of the Exercise Price shall be made upon the actual
issue of such Common Stock or of such Convertible
Securities, upon the exercise of such rights or
options or upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible
Securities.
(ii) If at any time the Company shall issue or sell any
Convertible Securities, whether or not the rights to
exchange or convert thereunder shall be immediately
exercisable, and the price per share for which Common
Stock shall be issuable upon such
5
<PAGE> 6
conversion or exchange (determined by dividing (1) the
total amount received or receivable by the Company as
consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to
the Company upon the conversion or exchange thereof,
by (2) the total number of shares of Common Stock
issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the
Exercise Price in effect immediately prior to the time
of such issue or sale, then the total number of shares
of Common Stock issuable upon conversion or exchange
of all such Convertible Securities shall (as of the
date of the issue or sale of such Convertible
Securities) be deemed to be outstanding and to have
been issued for such price per share, and, except as
provided in paragraph Section 5.5(c) no further
adjustments of the Exercise Price shall be made upon
the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities. In
addition, if any issue or sale of such Convertible
Securities shall be made upon exercise of any rights
to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which
adjustments of the Exercise Price shall have been or
shall be made pursuant to other provisions of this
Section 5.5(b), no further adjustment of the Exercise
Price shall be made by reason of such issue or sale.
(iii) If at any time any shares of Common Stock or
Convertible Securities or any rights or options to
purchase any such Common Stock or Convertible
Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be
the amount received by the Company therefor, without
deduction therefrom of any expenses incurred or any
underwriting commissions or concessions or discounts
paid or allowed by the Company in connection
therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to
purchase any such Common Stock or Convertible
Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other
than cash received by the Company shall be deemed to
be the fair value of such consideration as determined
by the Board of Directors, without deduction therefrom
of any expenses incurred or any underwriting
commissions or concessions or discounts paid or
allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any
such
6
<PAGE> 7
Common Stock or Convertible Securities shall be issued
in connection with any merger of another corporation
into the Company, the amount of consideration therefor
shall be deemed to be the fair value of such merged
corporation as determined by the Board of Directors
reduced by all cash and other consideration (if any)
paid by the Company in connection with such merger.
(iv) If at any time the Company shall take a record of the
holders of Common Stock for the purpose of entitling
them (1) to receive a dividend or other distribution
payable in Common Stock or in Convertible Securities,
or (2) to subscribe for or purchase Common Stock or
Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the
making of such other distribution or the date of the
granting of such right of subscription or purchase, as
the case may be.
(v) The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held
by or for the account of the Company, provided that
such shares are neither issued, sold or otherwise
distributed by the Company,
(c) If the purchase or exercise price provided for in any right
or option referred to in Section 5.5(b)(i), or the rate at which any Convertible
Securities referred to in Section 5.5(b)(i) or (ii) shall be convertible into or
exchangeable for Common Stock, shall change or a different purchase or exercise
price or rate shall become effective at any time or from time to time, then,
upon such change becoming effective, the Exercise Price then in effect hereunder
shall forthwith be increased or decreased to such Exercise Price as would have
been in effect had the adjustments made upon the granting or issuance of such
rights or options or Convertible Securities been made upon the basis of (i) the
issuance of the number of shares of Common Stock theretofore actually delivered
upon the exercise of such options or rights or upon the conversion or exchange
of such Convertible Securities consideration received therefor and (ii) the
granting or issuance at the time of such change of any such options, rights or
Convertible Securities then still outstanding for the consideration, if any,
received by the Company therefor and to be received on the basis of such changed
price.
(d) The Company shall not be required to make any adjustment to
the Exercise Price in the case of:
(i) options or shares granted or issued pursuant to any
employee incentive plan approved by the Company's
Board of Directors as of the date hereof, including,
without limitation, options currently outstanding or
granted in the future under the
7
<PAGE> 8
Company's 1996 Employee Stock Purchase Plan, 1996
Directors Stock Option Plan or 1996 Equity Incentive
Plan.
(ii) the issuance of shares of Common Stock pursuant to the
exercise of any warrants or conversion of any
convertible notes outstanding on the date hereof;
(iii) the issuance of shares of Common Stock pursuant to the
Common Stock and Warrant Purchase Agreement between
the Company and the original holder of this Warrant;
and
(iv) the issuance of shares of Common Stock upon the
exercise of any of the Warrants.
(e) Whenever the Exercise Price payable upon exercise of this
Warrant shall be adjusted pursuant to this Section 5.5, the number of shares
purchasable upon exercise hereof simultaneously shall be adjusted by multiplying
the number of shares issuable immediately prior to such adjustment by the
Exercise Price in effect immediately prior to such adjustment and dividing the
product so obtained by the Exercise Price, as adjusted.
5.6 Certificate as to Adjustments. In case of any adjustment or
readjustment in the number, price or kind of securities issuable on the exercise
of this Warrant, the Company will promptly give written notice thereof to the
holder of this Warrant in the form of a certificate, setting forth such
adjustment or readjustment and showing in reasonable detail the facts upon which
such adjustment or readjustment is based.
6. Impairment. The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock receivable on the
exercise of this Warrant above the amount payable therefor on such exercise, (b)
will at all times reserve and keep available a number of its authorized shares
of Common Stock, free from all preemptive rights therein, which will be
sufficient to permit the exercise of this Warrant, and (c) shall take all such
action as may be necessary or appropriate in order that all shares of Common
Stock as may be issued pursuant to the exercise of this Warrant will, upon
issuance, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof.
7. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
8
<PAGE> 9
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
8. Transfer. Subject to the transfer conditions referred to in the
legend endorsed hereon, this Warrant and all rights hereunder are transferable,
in whole or in part, without charge to the holder hereof upon surrender of this
Warrant with a properly executed assignment (in the form annexed hereto) at the
principal office of the Company. Upon any partial transfer, the Company will at
its expense issue and deliver to the holder hereof a new Warrant of like tenor,
in the name of the holder hereof, which shall be exercisable for such number of
shares of Common Stock which were not so transferred.
9. No Rights or Liability as a Shareholder. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provisions hereof, in the absence of affirmative action by
the holder hereof to purchase Common Stock, and no enumeration herein of the
rights or privileges of the holder hereof shall give rise to any liability of
such holder as a shareholder of the Company.
10. Notices.
(a) Prior to any merger, consolidation, sale of all or substantially
all of the Company's assets, or any taking by the Company of a record of the
holders of any class of securities of the Company for the purpose of determining
the holders thereof who are entitled to receive any dividend (excluding cash
dividends paid or payable solely out of retained earnings), or other
distribution, the Company will provide to the holder of this Warrant at least
twenty (20) days prior to the closing of such event or the earliest record date
specified therein, a notice specifying:
(i) The date on which any such record is to be taken for the
purpose of such dividend or distribution, and the amount and character of such
dividend or distribution; or
(ii) The expected closing date of any merger, consolidation or
sale of assets, and that upon the closing of such event, this Warrant will
automatically expire if not previously exercised.
(b) All notices referred to in this Warrant shall be in writing and
shall be delivered personally or by certified or registered mail, return receipt
requested, postage prepaid or by Federal Express or other recognized express
courier and will be deemed to have been given when so delivered or mailed (i) to
the Company, at its principal executive offices and (ii) to the holder of this
Warrant, at such holder's address as it appears in the records of the Company
(unless otherwise indicated by such holder).
11. Amendment. This Warrant is one of a series of Warrants providing for
the purchase, in the aggregate, of up to 350,000 shares of the Company's Common
Stock (the "Warrant Series"). The provisions of this Warrant may be amended
and/or waived, either prospectively or retroactively, with the written approval
of the Company and the holder(s) of Warrant(s) to purchase a majority of the
shares of Common Stock purchasable upon exercise of
9
<PAGE> 10
all of the outstanding Warrants in the Warrant Series. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any of the Warrants at the time outstanding and the Company. The Warrant(s) may
only be amended in writing.
12. Miscellaneous. This Warrant is being delivered in the State of New
York and shall be governed by and construed and enforced in accordance with the
internal laws of the State of New York (without reference to any principles of
the conflicts of laws). The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
13. Entire Agreement. This Warrant, together with all attachments
hereto, constitutes the entire understanding and agreement of the Company and
the holder of this Warrant with respect to the subject matter hereof and
supersedes all prior understandings and agreements with respect to such matters.
Dated: December 28, 1998 VERSANT CORPORATION
By: ____________________________________
Name: __________________________________
Title: _________________________________
[SIGNATURE PAGE TO WARRANT]
10
<PAGE> 11
ATTACHMENT A TO WARRANT
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To: VERSANT CORPORATION
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase rights represented by such Warrant for, and to
purchase thereunder, ___________* shares of Common Stock of VERSANT CORPORATION,
and herewith makes payment of $___________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to _______
_______________________ , whose address is ____________________________________.
___________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
___________________________________________
(Print Warrantholder Name)
___________________________________________
___________________________________________
(Address)
Dated:
__________________
* Insert here the number of shares as to which the Warrant is being exercised.
11
<PAGE> 12
ATTACHMENT B TO WARRANT
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ______________ the right represented by the within Warrant to purchase
shares of Common Stock of VERSANT CORPORATION, to which the within Warrant
relates, and appoints __________________________ Attorney to transfer such right
on the books of _________________________ with full power of substitution in the
premises.
___________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
___________________________________________
(Print Warrantholder Name)
___________________________________________
___________________________________________
(Address)
Dated: ________________
12
<PAGE> 1
EXHIBIT 10.35
EXHIBIT D
VERSANT CORPORATION
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made as of this
28th day of December, 1998, by and between Versant Corporation, a California
corporation (the "Company") and the entities listed on Exhibit 1 attached hereto
(each, a "Purchaser"), the purchasers of the Company's Common Stock and Warrants
pursuant to that certain Common Stock and Warrant Purchase Agreement dated of
even date herewith (the "Purchase Agreement").
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
1.1 "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
1.2 "Common Stock" shall mean the shares of the Company's Common
Stock, no par value.
1.3 "Form S-3" shall mean Form S-3 promulgated by the Commission
or any substantially similar form then in effect.
1.4 "Holder" shall mean any holder of record of Registrable
Securities or any transferee or assignee of record of such Registrable
Securities.
1.5 "Purchasers" shall mean collectively, the Purchasers, their
assignees and transferees, and individually, a Purchaser and any transferee or
assignee of such Purchaser.
1.6 The terms "Register," "Registered" and "Registration" refer
to a registration effected by preparing and filing a registration statement
("Registration Statement") in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such Registration Statement.
1.7 "Registrable Securities" shall mean the Common Stock issued
pursuant to the Purchase Agreement and issuable upon exercise of the Warrant (as
defined in the Purchase Agreement), excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which the rights
hereunder are not assigned in accordance with this Agreement, or any Registrable
Securities sold to the public or sold pursuant to Rule 144 promulgated under the
Securities Act.
<PAGE> 2
1.8 "Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 2 and 3 hereof, including without
limitation, all federal and state registration, qualification and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses and the expense of any special audits incident to or required
by any such Registration.
1.9 "Registration Termination Date" shall mean, with respect to
any Registrable Securities, the earliest of (i) December 28, 2002, (ii) the date
that such Registrable Securities shall have been Registered and sold or
otherwise disposed of in accordance with the intended method of distribution by
the seller or sellers thereof set forth in the registration statement covering
such securities or transferred in compliance with Rule 144, and (iii) the date
as of which the Company shall have notified the Holder, in writing, that it has
determined that such Registrable Securities may be sold pursuant to paragraph
(k) of Rule 144 (or any successor provision). The termination date specified in
(i) above shall be extended for a period equal to the number of days, occurring
after the effective date and prior to the termination date of the Registration
Statement described in Section 2.1 below, during which a Holder's ability to
resell its Registrable Securities under the Registration Statement is suspended
pursuant to Section 2.4.3 hereof or otherwise.
1.10 "Rule 144" shall mean Rule 144 promulgated by the Commission
pursuant to the Securities Act.
1.11 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.12 "Shares" shall mean Common Stock.
1.13 "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities pursuant to
this Agreement, together with the fees of any counsel to the selling
shareholders.
2. S-3 Registration.
2.1 Registration. The Company covenants and agrees with the
Purchaser that the Company will prepare and file with the Commission a
Registration Statement on Form S-3 or other applicable form covering the
Registrable Securities by April 7, 1999, and use its best efforts to have the
Registration Statement declared effective as soon as possible thereafter. Such
Registration Statement also may include other shares of the Company's Common
Stock, in the Company's discretion.
2.2 Blue Sky. The Company will use its best efforts to Register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders for the distribution of such securities;
provided, however, that the Company shall not be required to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
2
<PAGE> 3
2.3 Expenses of Registration. All Registration Expenses incurred
in connection with the Registration pursuant to Section 2 shall be borne by the
Company. All Selling Expenses shall be borne by the persons who sell the Shares
generating said Selling Expenses.
2.4 S-3 Registration Procedures.
2.4.1 Advice By Company. The Company will keep each Holder
advised as to the initiation and completion of the Registration. At its expense
the Company will (a) use its best efforts to keep any Registration pursuant to
Section 2 effective until the Registration Termination Date and (b) furnish
promptly to each Holder such number of copies of prospectuses (including
preliminary prospectuses), and all amendments and supplements thereto, in
conformity with the requirements of the Securities Act, and such other documents
as any such Holder from time to time may reasonably request.
2.4.2 Amendments. The Company will prepare and file with
the Commission such amendments and prospectus supplements, including
post-effective amendments, to the Registration Statement filed pursuant to
Section 2 as the Company determines may be necessary or appropriate, and use its
best efforts to have such post-effective amendments declared effective as
promptly as practicable; cause the related prospectus to be supplemented by any
prospectus supplement, and as so supplemented, to be filed with the Commission;
and notify the Holders and the underwriter thereof, if any, promptly when a
prospectus, any prospectus supplement or post-effective amendment must be filed
or has been filed and, with respect to any post-effective amendment, when the
same has become effective.
2.4.3 Blackout Period. Notwithstanding any other provision
hereof, the Company may delay the Holders' ability to resell Registrable
Securities pursuant to the Registration Statement if the Company delivers a
certificate in writing to the Holders to the effect that a delay in such sale is
necessary because, in the good faith and reasonable judgment of the Company's
Board of Directors, a sale pursuant to the Registration Statement would require
the public disclosure of information that could have a significant adverse
effect on the Company, or could constitute a violation of the federal securities
laws. In such an event, the Company shall notify the Holders promptly after it
is determined that such circumstances no longer exist. The Company shall not be
entitled to delay the Holders' ability to resell Registrable Securities more
than 45 days in any calendar year.
3. Piggyback Registrations.
3.1 Registration. The Company shall notify all Holders of
Registrable Securities in writing at least fifteen (15) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to any registration
under Section 2 of this Agreement or to any employee benefit plan or a corporate
reorganization pursuant to Rule 145 promulgated under the Securities Act) and
will afford each such Holder an opportunity to include in such registration
statement all or any part of the Registrable Securities then held by
3
<PAGE> 4
such Holder. Each Holder desiring to include in any such registration statement
all or any part of the Registrable Securities held by such Holder shall, within
ten (10) days after receipt of the above-described notice from the Company, so
notify the Company in writing, and in such notice shall inform the Company of
the number of Registrable Securities such Holder wishes to include in such
registration statement. If a Holder decides not to include any or all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
3.2 Underwriting. If a registration statement under which the
Company gives notice under this Section 3 is for an underwritten offering, then
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude Registrable Securities as it sees fit. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) business days prior to the effective date of the
registration statement. Any Registrable Securities excluded or withdrawn from
such underwriting shall be excluded and withdrawn from the registration. For any
Holder which is a partnership or corporation, the partners, retired partners and
shareholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "Holder", and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder", as defined in this sentence.
3.3 Expenses of Registration. All Registration Expenses incurred
in connection with the Registration pursuant to Section 3 shall be borne by the
Company. All Selling Expenses shall be borne by the persons who sell the Shares
generating said Selling Expenses.
3.4 Registration Procedures.
3.4.1 Advice By Company. The Company will keep each Holder
advised as to the initiation and completion of the Registration. At its expense
the Company will furnish promptly to each Holder such number of copies of
prospectuses (including preliminary prospectuses), and all amendments and
supplements thereto, in conformity with the requirements of the Securities Act,
and such other documents as any such Holder from time to time may reasonably
request.
4
<PAGE> 5
3.4.2 Amendments. The Company will prepare and file with
the Commission such amendments and prospectus supplements, including
post-effective amendments, to the Registration Statement filed pursuant to
Section 3 as the Company determines may be necessary or appropriate, and use its
appropriate efforts to have such post-effective amendments declared effective;
cause the related prospectus to be supplemented by any prospectus supplement,
and as so supplemented, to be filed with the Commission; and notify the Holders
and the underwriter thereof, if any, promptly when a prospectus, any prospectus
supplement or post-effective amendment must be filed or has been filed and, with
respect to any post-effective amendment, when the same has become effective.
3.4.3 Blue Sky. The Company will use its best efforts to
Register and qualify the Registrable Securities covered by the Registration
Statement under such other securities or Blue Sky laws of such United States
jurisdictions as shall be reasonably requested by the Holders for the
distribution of such securities; provided, however, that the Company shall not
be required to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
4. Information Furnished by Holder. It shall be a condition precedent to
the Company's obligations under this Agreement as to any Holder that (i) such
Holder furnish to the Company in writing such information regarding such Holder
and the distribution proposed by such Holder as the Company may reasonably
request; and (ii) such Holder is not a securities market professional, i.e., a
market maker, specialist, ordinary broker dealer, member of the National
Association of Securities Dealers, Inc. or a registered representative thereof,
or an affiliate of any of the foregoing.
5. Indemnification.
5.1 Company's Indemnification of Holders. The Company will
indemnify each Holder, each of its officers, directors and constituent partners,
and each person controlling such Holder, with respect to which Registration of
Registrable Securities has been effected pursuant to this Agreement, and each
underwriter thereof, if any, and each of its officers, directors, constituent
partners, and each person who controls such underwriter, against all claims,
losses, damages or liabilities (or actions in respect thereof) suffered or
incurred by any of them, to the extent such claims, losses, damages or
liabilities arise out of or are based upon any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus or any related
Registration Statement incident to any such Registration, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to actions or inaction required of the
Company in connection with any such Registration; and the Company will reimburse
each such Holder, each such underwriter and each person who controls any such
Holder or underwriter, and each other indemnitee named above, for any legal and
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action; provided, however,
that the indemnity contained in this Section 5.1 shall not apply to amounts paid
in settlement of any such claim, loss, damage, liability or action
5
<PAGE> 6
if settlement is effected without the consent of the Company (which consent
shall not unreasonably be withheld); and provided, further, that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based upon any untrue statement
or omission based upon written information furnished to the Company by such
Holder, underwriter, controlling person or other indemnified person and stated
to be for use in connection with the offering of securities of the Company.
Notwithstanding the above, the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any such untrue statement, alleged
untrue statement, omission or alleged omission made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the Commission
at the time the Registration Statement becomes effective or a prospectus is
filed with the Commission pursuant to Rule 424(b) (the "Final Prospectus"), such
indemnity agreement shall not inure to the benefit of any person if a copy of
the Final Prospectus was furnished to such person and was not furnished to the
person asserting the loss, liability, claim or damage at or prior to the time
such action is required by the Securities Act.
5.2 Holder's Indemnification of Company. Each Holder will
indemnify the Company, each of its directors and officers, each underwriter, if
any, of the Company's Shares covered by a Registration Statement, each person
who controls the Company or such underwriter within the meaning of the
Securities Act, and each other Holder, each of its officers, directors, and
constituent partners and each person controlling such other Holder, against all
claims, losses, damages and liabilities (or actions in respect thereof) suffered
or incurred by any of them and arising out of or based upon any untrue statement
(or alleged untrue statement) of a material fact contained in such Registration
Statement or related prospectus, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by such Holder of any rule
or regulation promulgated under the Securities Act applicable to such Holder and
relating to action or inaction required of such Holder in connection with the
Registration of Securities pursuant to such Registration Statement; and will
reimburse the Company, such other Holders, such directors, officers, partners,
persons, underwriters and controlling persons for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such Registration Statement or
prospectus in reliance upon and in conformity with written information furnished
to the Company by such Holder and stated to be specifically for use in
connection with the offering of Shares of the Company; provided, however, that
each Holder's liability under this Section 5.2 shall not exceed such Holder's
proceeds from the offering of Shares made in connection with such Registration.
5.3 Indemnification Procedure. Promptly after receipt by an indemnified
party under this Section 5 of notice of the commencement of any action which may
give rise to a claim for indemnification hereunder, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying party under
this Section 5, notify the indemnifying party in writing of the commencement
thereof and generally summarize such action. The indemnifying party shall have
the right to participate in and to assume the defense of such action, and shall
be entitled to select counsel for the defense of such action with the approval
of any parties entitled
6
<PAGE> 7
to indemnification, which approval shall not be unreasonably withheld.
Notwithstanding the foregoing, the parties entitled to indemnification shall
have the right to employ separate counsel (reasonably satisfactory to the
indemnifying party) to participate in the defense thereof, but the fees and
expenses of such counsel shall be the expense of such indemnified parties unless
the named parties to such action or proceedings include both the indemnifying
party and the indemnified parties and the indemnifying party or such indemnified
parties shall have been advised by counsel that there are one or more legal
defenses available to the indemnified parties which are different from or
additional to those available to the indemnifying party (in which case, if the
indemnified parties notify the indemnifying party in writing that they elect to
employ separate counsel at the reasonable expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
or proceeding on behalf of the indemnified parties, it being understood,
however, that the indemnifying party shall not be liable for the reasonable fees
and expenses of more than one separate counsel at any time for all indemnified
parties, whether under this agreement or otherwise).
5.4 Contribution. If the indemnification provided for in this
Section 5 from an indemnifying party is unavailable to an indemnified party
hereunder in respect to any losses, claims, damages, liabilities or expenses
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified party in connection with the statements
or omissions which result in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party and indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by such indemnifying party or indemnified party
and the parties' relative intent, knowledge, access to information supplied by
such indemnifying party or indemnified party and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with the investigating or defending any
action, suit, proceeding or claim. Notwithstanding anything to the contrary
contained in this Section 5.4, the aggregate of the amount paid pursuant to this
Section 5.4 and pursuant to Section 5.2 by a party that is a Holder shall not
exceed such Holder's proceeds from the offering of Shares made in connection
with the Registration that gives rise to Holder's liability.
6. Covenants of the Company. The Company agrees to:
6.1 Notice of Defect. Notify the Holders at any time when a
prospectus relating to Registrable Securities covered by the Registration
Statement is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing. The
7
<PAGE> 8
Company shall promptly amend or supplement the Registration Statement to correct
any such untrue statement or omission.
6.2 Notice of Stop Order. Notify the Holders of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose.
The Company will make every reasonable effort to prevent the issuance of any
stop order and, if any stop order is issued, to obtain the lifting thereof at
the earliest possible time.
6.3 Inspection. Make available for inspection by the Holders, and
the counsel, accountants or other agents retained by the Holders, all pertinent
financial and other records, corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by the Holders in connection with the
Registration, subject to appropriate confidentiality obligations.
6.4 Listing. If the Common Stock is then listed on a national
securities exchange or national market system, use its best efforts to cause the
Registrable Securities to be listed on such exchange or market system.
6.5. Assistance. Take all other reasonable actions necessary to
expedite and facilitate disposition by the Holders of the Registrable Securities
pursuant to the Registration Statement.
6.6 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the Commission that may at
any time permit the Holders to sell securities of the Company to the public
without registration, the Company agrees to:
6.6.1 for at least four years from the date hereof, make
and keep public information available, as those terms are understood and defined
in Rule 144;
6.6.2 for at least four years from the date hereof, file
with the Commission in a timely manner all reports and other documents required
of the Company under the Securities Act and the Securities and Exchange Act of
1934 (the "1934 Act"); and
6.6.3 furnish to each Holder, so long as such Holder owns
any Registrable Securities, forthwith upon written request (a) a written
statement by the Company whether it has complied with the reporting requirements
of Rule 144, the Securities Act and the 1934 Act, (b) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company and (c) such other information as may be reasonably
requested in availing the Holders of any rule or regulation of the Commission
which permits the selling of any such securities without registration.
8
<PAGE> 9
7. Miscellaneous.
7.1 Notice. Notices required or permitted to be given hereunder
shall be in writing and shall be deemed to be sufficiently given when personally
delivered or sent by nationally recognized express courier, addressed (i) if to
the Company, at Versant Corporation, 6539 Dumbarton Circle, Fremont, California
94555; Attention: Chief Executive Officer and (ii) if to a Purchaser, at the
address set forth on Exhibit 1, or at such other address as each such party
furnishes by notice given in accordance with this Section 7.1.
7.2 Amendment and Waiver. Any term of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and Holders representing at least a
majority of the Registrable Securities then outstanding. Any amendment or waiver
effected in accordance with this Section 7.2 will be binding upon each Holder of
Registrable Securities then outstanding, each future Holder of such securities
and the Company.
7.3 Governing Law; Severability. This Agreement shall be
enforced, governed and construed in all respects in accordance with the laws of
the State of New York, as such laws are applied by New York courts to agreements
entered into and to be performed in New York by and between residents of New
York. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.
7.4 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
9
<PAGE> 10
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the date first written above.
VERSANT CORPORATION SPECIAL SITUATIONS FUND III LP
By:_______________________________ By::_______________________________
Name:_____________________________ Name::_____________________________
Title:____________________________ Title::____________________________
SPECIAL SITUATIONS CAYMAN LP SPECIAL SITUATIONS TECHNOLOGY
FUND LP
By:_______________________________ By::_______________________________
Name:_____________________________ Name::_____________________________
Title:____________________________ Title::____________________________
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
10
<PAGE> 11
EXHIBIT 1
Special Situations Fund III LP
153 East 53rd Street
51st Floor
New York, NY 10022
Special Situations Cayman LP
153 East 53rd Street
51st Floor
New York, NY 10022
Special Situations Technology Fund LP
153 East 53rd Street
51st Floor
New York, NY 10022
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Subsidiary and Name under which
Subsidiary Does Business Jurisdiction of Incorporation
- ------------------------ -----------------------------
<S> <C>
Versant GmbH (Europe) Germany
Versant SARL France
Versant Ltd. United Kingdom
Versant Pty Ltd. Australia
Soft Mountain S.A. France
Versant India India
</TABLE>
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-KSB into the Company's previously filed
Registration Statements, File Nos. 333-08537 and 333-29947 (both filed on Form
S-8).
ARTHUR ANDERSEN LLP
San Jose, California
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF OPERATIONS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,564
<SECURITIES> 0
<RECEIVABLES> 6,213
<ALLOWANCES> 335
<INVENTORY> 0
<CURRENT-ASSETS> 10,760
<PP&E> 13,605
<DEPRECIATION> 6,224
<TOTAL-ASSETS> 20,669
<CURRENT-LIABILITIES> 14,063
<BONDS> 0
0
0
<COMMON> 45,727
<OTHER-SE> (43,872)
<TOTAL-LIABILITY-AND-EQUITY> 20,669
<SALES> 23,233
<TOTAL-REVENUES> 23,233
<CGS> 0
<TOTAL-COSTS> 9,739
<OTHER-EXPENSES> 32,719
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (640)
<INCOME-PRETAX> (19,917)
<INCOME-TAX> 18
<INCOME-CONTINUING> (19,935)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,935)
<EPS-PRIMARY> (2.16)<F1>
<EPS-DILUTED> (2.16)
<FN>
<F1>For Purposes Of This Exhibit, Primary Means Basic.
</FN>
</TABLE>
