<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1996
REGISTRATION STATEMENT NO. 333-3834
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UNIFY CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0427069
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
</TABLE>
181 METRO DRIVE, 3RD FLOOR
SAN JOSE, CALIFORNIA 95110
(408) 467-4500
(Address, including Zip Code and telephone number, including
Area Code, of Registrant's principal executive offices)
------------------------
REZA MIKAILLI
PRESIDENT
181 METRO DRIVE, 3RD FLOOR
SAN JOSE, CALIFORNIA 95110
(408) 467-4500
(Name, address, including Zip Code and telephone number,
including Area Code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PETER M. ASTIZ, ESQ. BARRY E. TAYLOR, ESQ.
JON M. APPLETON, ESQ. ARMANDO CASTRO, ESQ.
GEOFFREY A. WEXLER, ESQ. KEVIN M. GALLIGAN, ESQ.
Baker & McKenzie Wilson Sonsini Goodrich & Rosati
660 Hansen Way Professional Corporation
Palo Alto, California 94304 650 Page Mill Road
Palo Alto, California 94304-1050
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) FEE (3)
<S> <C> <C> <C> <C>
Common Stock, par value $0.001 per share.... 2,461,000 $12.00 $29,532,000 $10,183.00
</TABLE>
(1) Includes 321,000 shares subject to an over-allotment option granted to the
Underwriters by the Company.
(2) Estimated solely for the purposes of calculating the amount of the
registration fee pursuant to Rule 457(a).
(3) A filing fee of $9,994 was previously paid with the initial filing of the
Registration Statement on April 19, 1996.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UNIFY CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING
IN FORM S-1 REGISTRATION STATEMENT HEADING OR LOCATION IN PROSPECTUS
- -------------------------------------------------------- --------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Forepart of the Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution.......................................... Risk Factors; Dilution
7. Selling Security Holders.......................... Prospectus Summary; Principal and Selling
Stockholders
8. Plan of Distribution.............................. Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered........ Prospectus Summary; Capitalization; Description of
Capital Stock
10. Interests of Named Experts and Counsel............ Legal Matters
11. Information with Respect to the Registrant........ Inside Front Cover Page; Prospectus Summary; Risk
Factors; Dividend Policy; Capitalization;
Dilution; Selected Consolidated Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Transactions; Principal and
Selling Stockholders; Description of Capital
Stock; Shares Eligible For Future Sale;
Underwriting; Legal Matters; Experts; Additonal
Information; Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 22, 1996
2,140,000 SHARES
[LOGO]
COMMON STOCK
OF THE 2,140,000 SHARES OF COMMON STOCK OFFERED HEREBY, 1,850,000 ARE BEING
SOLD BY THE COMPANY AND 290,000 ARE BEING SOLD BY THE SELLING STOCKHOLDERS. THE
COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE
SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS."
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK
OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE
OF THE COMMON STOCK WILL BE BETWEEN $10.00 AND $12.00 PER SHARE. SEE
"UNDERWRITING" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING
THE INITIAL PUBLIC OFFERING PRICE. THE COMMON STOCK HAS BEEN APPROVED FOR
QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "UNFY."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE............... $ $ $ $
TOTAL (3)............... $ $ $ $
</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT $1,000,000.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
321,000 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER OVER-ALLOTMENTS,
IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE PRICE TO
PUBLIC WILL TOTAL $ , THE UNDERWRITING DISCOUNT WILL TOTAL
$ AND THE PROCEEDS TO COMPANY WILL TOTAL $ . SEE "UNDERWRITING."
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND TO THEIR RIGHT TO REJECT
ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE CERTIFICATES
REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT THE OFFICE OF
MONTGOMERY SECURITIES ON OR ABOUT JUNE , 1996.
-------------------
MONTGOMERY SECURITIES
NEEDHAM & COMPANY, INC.
BLACK & COMPANY
, 1996
<PAGE>
[Photos]
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent accountants and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION INCLUDING "RISK FACTORS" AND
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
THE COMPANY
Unify Corporation ("Unify" or the "Company") develops, markets and supports
client/server application development tools and database management software
products. In March 1995, the Company introduced Unify VISION 2.0, an advanced
client/server application development environment for the development,
deployment and management of high-end scalable applications. Unify VISION
combines a powerful and scalable client/server architecture with a flexible and
easy-to-use rapid application development technology. The Company is continuing
to market and enhance Unify ACCELL, a family of fourth generation language
("4GL") application development tools and Unify DataServer, a family of database
management system products. As of April 30, 1996, the Company had licensed Unify
VISION to over 175 customers and Unify ACCELL and DataServer products to over
2,000 customers worldwide.
The migration by many organizations towards client/server computing has
created significant demand for applications and their associated development
tools. The success of entry-level client/server applications has led
organizations to seek to extend client/server computing beyond the workgroup
level and across the enterprise to address business-critical operations. These
high-end business-critical applications are significantly more complex to
develop and maintain as compared to entry-level applications. Accordingly,
organizations increasingly require more sophisticated, powerful application
development tools to develop applications which support distributed
heterogeneous environments, high volumes of complex on-line transaction
processing and substantial numbers of concurrent enterprise-wide users.
According to the Hurwitz Consulting Group, the annual market size for high-end
client/ server application development environments is projected to increase
from approximately $600 million as of November 1995 to approximately $2.5
billion by the year 2000.
Unify's mission is to be the leading independent supplier of high-end
scalable client/server application development solutions. By providing
organizations with the benefits of low cost of entry, rapid time to market, and
low cost of ownership, Unify VISION is designed to enable organizations to
develop, deploy and manage business-critical high-end applications. Unify
VISION's approach to scalable application development is designed to allow
organizations to deliver full-scale, enterprise-wide high-end solutions or
migrate to high-end client/server solutions on an incremental basis. Unify
VISION is designed to enable organizations to rapidly develop and deploy
high-end client/server applications by taking immediate advantage of advanced
techniques including object-oriented programming, automatic application
partitioning and integrated application management. The Company believes that
Unify VISION enables organizations to adopt these advanced techniques at their
own pace, thereby reducing business disruption, time and high costs associated
with their initial client/server investments and allows them to deliver
applications to end-users more rapidly.
The Company's products are marketed and sold through the Company's direct
sales force in the U.S. and through subsidiaries in Japan, England, France, the
Netherlands and Germany and through a network of distributors and value added
resellers ("VARs") worldwide. Significant customers that have licensed Unify
VISION include, among others, Amoco, Fannie Mae, Glaxo, Hewlett-Packard, Merrill
Lynch, the National Security Agency, NYNEX, Pacific Bell and Sumitomo Metal
Industries Ceramics. The Company believes that significant opportunities exist
for continued sales of Unify VISION into the Company's worldwide installed base
of over 2,000 Unify ACCELL and DataServer customers. Unify VISION allows those
customers to preserve their substantial investments in existing applications
while upgrading to more advanced client/server applications. Additionally, the
Company's strategy is to expand sales through the VAR channel. Currently, the
Company's largest VAR customers include Computron Software, General Instrument,
Northern Telecom, Triad Systems and Westinghouse Security Electronics.
The Company was incorporated in California in 1980 and reincorporated into
Delaware in May 1996. The Company's executive offices are located at 181 Metro
Drive, 3rd Floor, San Jose, California 95110 and the telephone at that address
is (408) 467-4500. The Company's home page can be located on the World Wide Web
at http://www.unify.com.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,850,000 shares
Common Stock offered by the Selling
Stockholders................................ 290,000 shares
Common Stock to be outstanding after the
offering.................................... 7,490,831 shares (1)
Use of proceeds.............................. For working capital and general corporate
purposes
Nasdaq National Market symbol................ UNFY
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues................................................ $ 36,524 $ 37,160 $ 30,549 $ 28,849 30,165
Gross margin.................................................. 29,002 27,988 21,072 20,276 23,774
Loss from operations.......................................... (4,552) (2,998) (4,891) (479) (951)
Net loss...................................................... (4,375) (2,717) (7,063) (479) (938)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net loss per share (2).............................. $ (0.08) $ (0.18)
--------- ---------
--------- ---------
Shares used in computing pro forma net loss per share (2)..... 5,639 5,327
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1996
--------------------------------------
AS
ACTUAL PRO FORMA (3) ADJUSTED (4)
--------- ------------- ------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 3,028 $ 3,095 $ 21,021
Working capital (deficit)............................................... (3,183) (3,116) 14,810
Total assets............................................................ 12,997 13,064 30,710
Long-term debt, net of current portion.................................. 2,456 2,456 2,456
Total stockholders' equity (deficit).................................... (29,173) (2,380) 15,546
</TABLE>
- ------------------------------
(1) Excludes (i) 914,206 shares of Common Stock issuable upon exercise of
outstanding options and warrants, including options under the Company's 1991
Stock Option Plan ("Stock Option Plan"), with an average exercise price of
$2.27 per share, and (ii) 406,620 and 400,000 shares of Common Stock
reserved for future issuance under the Stock Option Plan and the Company's
1996 Employee Stock Purchase Plan ("Purchase Plan"), respectively, as of
April 30, 1996. See "Management" and Note 5 of Notes to Consolidated
Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the number of shares used to compute pro forma net loss per share.
(3) Reflects (i) the automatic conversion of all outstanding shares of the
Company's Preferred Stock (including accrued dividends) into 3,566,297
shares Common Stock upon the consummation of this offering; and (ii) the
issuance of 190,459 shares of Common Stock upon the exercise of outstanding
warrants upon the consummation of this offering.
(4) Adjusted to reflect the sale of 1,850,000 shares of Common Stock offered by
the Company hereby at the estimated public offering price of $11.00 per
share and application of the estimated net proceeds therefrom. See
"Capitalization" and "Use of Proceeds."
------------------------------
UNIFY, UNIFY ACCELL, UNIFY VISION, APPMAN, SMARTVIEW, DATASERVER, VISIONWEB
and the Unify logo are trademarks of the Company. All other trademarks or
tradenames referred to in this Prospectus are the property of their respective
owners.
------------------------
EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
GIVES EFFECT TO (I) THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF THE
COMPANY'S PREFERRED STOCK (INCLUDING ACCRUED DIVIDENDS) INTO 3,566,297 SHARES OF
COMMON STOCK UPON THE CONSUMMATION OF THIS OFFERING; AND (II) THE ISSUANCE OF
190,459 SHARES OF COMMON STOCK UPON THE EXERCISE OF OUTSTANDING WARRANTS UPON
THE CONSUMMATION OF THIS OFFERING; AND ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED.
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED BY THIS PROSPECTUS. THE DISCUSSION IN THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
HISTORY OF OPERATING LOSSES; TRANSITION OF BUSINESS
Although the Company had small profits for the third and fourth quarters of
fiscal 1996, the Company has had operating losses on an annual basis for each of
the past five fiscal years. As of April 30, 1996, the Company had an accumulated
deficit of $30.3 million. The Company's revenues have declined in each year
since fiscal 1993 as a result of declines in the sales of the Company's
DataServer database products and Unify ACCELL application development tools.
Such declines were in part offset by sales of Unify VISION 1.0 which was first
introduced in December 1993 and Unify VISION 2.0, an advanced client/server
application development environment introduced in March 1995. The Company's
ability to achieve revenue growth and profitability are substantially dependent
upon the success of Unify VISION. License revenues from Unify VISION were $2.2
million and $5.0 million for fiscal 1995 and 1996, respectively, representing
12% and 25% of total license revenues for each year. No assurance can be given
that Unify VISION or the Company's other products will achieve market acceptance
or that the Company will achieve and maintain profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FLUCTUATING QUARTERLY RESULTS AND SEASONALITY; EXPECTED OPERATING LOSS IN FIRST
FISCAL QUARTER
The Company's quarterly operating results have varied significantly in the
past, and the Company expects that such results are likely to vary significantly
from time to time in the future. Such variations result from, among other
matters, the following: the size and timing of significant orders and their
fulfillment; demand for the Company's products; the number, timing and
significance of product enhancements and new product announcements by the
Company and its competitors; changes in pricing policies by the Company or its
competitors; changes in the level of operating expenses; changes in the
Company's sales incentive plans; budgeting cycles of its customers; customer
order deferrals in anticipation of enhancements or new products offered by the
Company or its competitors; product life cycles; product defects and other
product quality problems; personnel changes; the results of international
expansion; currency fluctuations; seasonal trends and general domestic and
international economic and political conditions. The Company typically receives
a number of orders ranging in size from several hundred thousand dollars to
approximately $1 million in any fiscal quarter. Because a significant portion of
the Company's revenues has been, and the Company believes will continue to be,
derived from such large orders, the timing of such orders and their fulfillment
has caused and is expected to continue to cause material fluctuations in the
Company's operating results, particularly on a quarterly basis. In addition, the
Company intends to continue to expand its domestic and international direct
sales force. The timing of such expansion and the rate at which new sales people
become productive could also cause material fluctuations in the Company's
quarterly operating results.
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast. Revenues are also difficult to forecast because the
market for client/server application development software is rapidly evolving,
and the Company's sales cycle, from initial evaluation to purchase and the
provision of support services, is lengthy and varies substantially from customer
to customer. Because the Company normally ships products within a short time
after it receives an order, it typically does not have any material backlog. As
a result, to achieve its quarterly revenue objectives, the Company is dependent
upon obtaining orders in any given quarter for shipment in that quarter.
Furthermore, because many customers place orders toward the end of a quarter,
the Company generally recognizes a substantial portion of its revenues at the
end of a quarter. As the Company's expense levels are based in significant part
on the Company's expectations as to future revenues and are therefore relatively
fixed in the short
5
<PAGE>
term, if revenue levels fall below expectations, net income is likely to be
disproportionately adversely affected. The Company is increasing its sales,
marketing and product development expenditures, and operating results will be
materially adversely affected if the Company does not achieve revenue growth.
There can be no assurance that the Company will be able to achieve or maintain
profitability on a quarterly or annual basis in the future. Due to the foregoing
factors, it is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock would likely be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quarterly Information."
The Company expects that its operating results will be affected by seasonal
trends. The Company believes that it is likely it will experience relatively
higher revenues in fiscal quarters ending April 30 and relatively lower revenues
in fiscal quarters ending July 31 as a result of efforts by its direct sales
force to meet fiscal year-end sales quotas. The Company also anticipates that it
may experience relatively weaker demand in the quarters ending July 31 and
October 31 as a result of reduced sales activity in Europe during the summer
months. In particular, due to the foregoing factors and to increased investments
in selling, general and administrative and research and development expenses in
advance of the release of UNIFY VISION 3.0, the Company expects that it will
incur an operating loss for the quarter ending July 31, 1996. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON NEW PRODUCT ACCEPTANCE; DEPENDENCE ON GROWTH OF HIGH-END
CLIENT/SERVER TOOLS MARKET
The Company currently expects Unify VISION and related services to account
for an increasingly significant percentage of the Company's future revenues and
accordingly the Company is devoting an increasing level of its resources to such
product. As a result, factors adversely affecting the pricing of or demand for
Unify VISION, such as, but not limited to, competition or technological change,
would have a material adverse effect on the Company's business, operating
results and financial condition. The Company's future financial performance will
depend, in significant part, on the successful development, introduction and
customer acceptance of new and enhanced versions of Unify VISION, including
Unify VISION 3.0 scheduled for release in the third calendar quarter of 1996.
There can be no assurance that the Company will timely and successfully
introduce such new or enhanced versions. There also can be no assurance that the
Company will continue to be successful in marketing Unify VISION or other
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview;" "Business -- Products" and "-- Product
Development."
To date, only a limited number of the Company's customers have completed the
development and deployment of high-end client/server applications using Unify
VISION. If the Company's customers are not able to successfully develop and
deploy high-end client/server applications with Unify VISION, the viability of
Unify VISION could be questioned and the Company's reputation could be damaged,
which could have material adverse effects on the Company's business, operating
results and financial condition. In addition, the Company expects that a
significant percentage of its future revenues will be derived from sales to
existing customers of its Unify ACCELL and DataServer products. If such existing
customers fail to migrate to high-end client/server applications, purchase
competitive products, or have difficulty deploying applications built with Unify
VISION, the Company's relationships with such customers, revenues from sales of
Unify VISION and the Company's other products, and the Company's business,
operating results and financial condition could be materially adversely
affected. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Despite the recent growth in sales of Unify VISION, there can be no
assurance that the market for high-end client/server applications and associated
development tools will continue to grow. If the high-
6
<PAGE>
end client/server market fails to grow, or grows more slowly than the Company
currently anticipates, the Company's business, operating results and financial
condition would be materially and adversely affected. See "Business -- Industry
Background."
ANTICIPATED DECLINE IN REVENUE FROM MATURE PRODUCTS
Most of the Company's revenues to date have been attributable to its
DataServer database products and Unify ACCELL application development tools.
Revenues derived from the sales of these products declined over fiscal 1994 and
1995 and were flat for fiscal 1996. While the Company expects such decline to
continue, revenues from the sales of such products will continue to represent an
important portion of the Company's revenues for at least the next several years.
Although the Company is continuing to invest in the development, sales,
marketing and support of such products, there can be no assurance that revenues
from such products will not decline faster than expected. If revenues from such
products decline materially or at a more rapid rate than the Company currently
anticipates, the Company's business, operating results and financial condition
would be materially adversely affected. See "Business -- Strategy;" "--
Products;" "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
LENGTHY SALES CYCLE
The Company's products are typically used to develop applications that are
critical to a customer's business, and the purchase of the Company's products is
often part of a customer's larger business process re-engineering initiative or
implementation of client/server computing. As a result, the licensing and
implementation of the Company's software products generally involve a
significant commitment of management attention and resources by prospective
customers. Accordingly, the Company's sales process is subject to delays
associated with a long approval process that typically accompanies significant
initiatives or capital expenditures. The Company's business, operating results
and financial condition could be materially adversely affected if customers
reduce or delay orders. There can be no assurance that the Company will not
continue to experience these and additional delays in the future. Such delays
may contribute to significant fluctuations of quarterly operating results in the
future and may adversely affect such results.
INTENSE COMPETITION
The Company has experienced and expects to continue to experience intense
competition from current and future competitors. The Company's current direct
competitors for high-end client/server development tools, among others, include
Forte Software, Inc. ("Forte") and Dynasty Technologies, Inc. ("Dynasty"). The
Company also competes with database vendors such as Oracle Corporation
("Oracle"), Informix Corporation ("Informix"), Sybase, Inc. ("Sybase"), IBM
Corporation ("IBM") and others, which offer their own development tools for use
with their proprietary databases. In addition to its direct competitors, the
Company also competes with companies that offer other types of development tools
which can be used in lieu of advanced development tools such as Unify VISION.
Among the other types of tools which can be used by customers include products
offered by Powersoft (a subsidiary of Sybase), Microsoft Corporation
("Microsoft"), and others. Companies offering products competitive with the
Company's Unify ACCELL and DataServer products include Oracle, Informix and
Sybase among others.
Many of the Company's competitors have significantly greater financial,
technical, marketing and other resources than the Company. The Company's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or devote greater resources to the
development, promotion and sale of their products than the Company. Also, many
current and potential competitors have greater name recognition and more
extensive customer bases that could be leveraged. The Company also expects to
face additional competition as other established and emerging companies enter
the client/server application development market and new products and
technologies are introduced. Increased competition could result in price
reductions, fewer customer orders, reduced
7
<PAGE>
gross margins and loss of market share, any one of which could materially
adversely affect the Company's business, operating results and financial
condition. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address the
needs of the Company's prospective customers. Accordingly, it is possible that
new competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to sell additional licenses and
maintenance and support renewals on terms favorable to the Company. Further,
competitive pressures could require the Company to reduce the price of its
products and related services, which could materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competition, and the failure to do so would have a material adverse
effect upon the Company's business, operating results and financial condition.
See "Business -- Competition."
RAPID TECHNOLOGICAL CHANGE
The software market in which the Company competes is characterized by rapid
technological change, frequent introductions of new and enhanced products,
changes in customer demands and evolving industry standards. The introduction of
products embodying new technologies and the emergence of new industry standards
can render existing products obsolete and unmarketable. The Company's future
success will depend upon its ability to address the increasingly sophisticated
needs of its customers by supporting existing and emerging hardware, software,
database and networking platforms and by developing and introducing enhancements
to Unify VISION and new products on a timely basis that keep pace with such
technological developments, emerging industry standards and customer
requirements. There can be no assurance that the Company will be successful in
developing and marketing enhancements to Unify VISION and new products that
respond to technological change, evolving industry standards or customer
requirements, that the Company will not experience difficulties that could delay
or prevent the successful development, introduction and sale of such
enhancements or products or that such enhancements or products will adequately
meet the requirements of the marketplace and achieve any significant degree of
market acceptance. If the release dates of any future Unify VISION enhancements,
including Unify VISION 3.0, scheduled for release in the third calendar quarter
of 1996, or new products are delayed or if when released they fail to achieve
market acceptance, the Company's business, operating results and financial
condition would be materially adversely affected. In addition, the introduction
or announcement of new product offerings or enhancements by the Company or the
Company's competitors may cause customers to defer or forgo purchases of current
versions of Unify VISION, which could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business --
Product Development."
DEPENDENCE ON RESELLERS
A substantial portion of the Company's total revenues are derived through
sales through VARs and distributors. Revenues from distributors and resellers
accounted for approximately 61%, 59%, and 60% of the Company's software license
revenues for fiscal 1994, 1995 and 1996, respectively. The success of the
Company is therefore dependent in large part upon the performance of its
resellers, which is outside the Company's control. The Company's ability to
achieve significant revenue growth in the future will depend in large part on
its success in maintaining existing and establishing additional relationships
with distributors, resellers and VARs worldwide. The loss of any of the
Company's major resellers either to competitive products offered by other
companies or to products developed internally by the resellers, or the failure
to attract new resellers could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Sales and
Marketing."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND SALES
Revenues derived from international customers accounted for 51%, 56% and 56%
of total revenues in fiscal 1994, 1995 and 1996, respectively. A key component
of the Company's strategy is its planned further expansion into international
markets. If the revenues generated by international operations are
8
<PAGE>
not adequate to offset the expense of establishing, expanding and maintaining
such operations, the Company's business, operating results and financial
condition will be materially adversely affected. Although the Company has had
international operations for a number of years, there can be no assurance that
the Company will be able to successfully market, sell and deliver its products
in these markets. In addition, due to the uncertainty as to the Company's
ability to expand its international presence, there are certain risks inherent
in doing business on an international level, such as: unexpected changes in
regulatory requirements; export restrictions, tariffs and other trade barriers;
difficulties in staffing and managing foreign operations; longer payment cycles;
problems in collecting accounts receivable; political instability; fluctuations
in currency exchange rates; seasonal reductions in business activity during the
summer months in Europe and certain other parts of the world; and potentially
adverse tax consequences, any of which could adversely impact the success of the
Company's international operations. There can be no assurance that one or more
of such factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business, operating
results and financial condition. In addition, the Company's subsidiaries in
Europe and Japan operate in local currencies, and their results are translated
monthly into U.S. dollars. If the value of the U.S. dollar increases relative to
foreign currencies, the Company's business, operating results and financial
condition could be materially adversely affected. Currently the Company does not
employ any hedging strategies against currency exposures and does not anticipate
doing so in the foreseeable future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations;" "Business -- Sales and
Marketing" and Note 11 to Notes to Consolidated Financial Statements.
SOFTWARE DEFECTS AND POTENTIAL RELEASE DELAYS
Software products frequently contain errors or defects, especially when
first introduced or when new versions or enhancements are released. The Company
expects to introduce Unify VISION 3.0 in the third calendar quarter of 1996.
Although the Company has not experienced material adverse effects resulting from
any such defects or errors to date, there can be no assurance that, despite
testing by the Company and by current and potential customers, defects and
errors will not be found in current versions, new versions or enhancements after
commencement of commercial shipments, resulting in loss of revenues, delay in
market acceptance, or unexpected re-programming costs, which could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Business -- Product Development."
PRODUCT LIABILITY
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective as
a result of existing or future federal, state or local laws or ordinances or
unfavorable judicial decisions. In fiscal 1990, the Company was subject to two
claims regarding its database product notwithstanding such provisions. In fiscal
1995, one of such claims was settled and the second resulted in a substantial
arbitration judgment award against the Company. The sale and support of Unify
VISION by the Company may involve the risk of such claims, any of which are
likely to be substantial in light of the use of Unify VISION in high-end
applications. A successful product liability claim brought against the Company
could have a material adverse effect upon the Company's business, operating
results and financial condition. See Note 10 to Notes to Consolidated Financial
Statements.
DEPENDENCE UPON KEY PERSONNEL; NEED TO HIRE ADDITIONAL PERSONNEL
The Company's success depends largely on the efforts and abilities of
certain key personnel. The loss of the services of one or more of the Company's
executive officers or the inability to recruit additional senior management
could have a material adverse effect on the Company's business, operating
results and financial condition. In particular, the loss of the services of Mr.
Reza Mikailli, the Company's Chief Executive Officer, would materially and
adversely affect the Company. Loss of other key personnel could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Employees."
9
<PAGE>
The success of the Company depends in large part upon the ability of the
Company to recruit and retain qualified employees, particularly highly-skilled
engineers and direct sales and support personnel. The competition for such
personnel is intense. There can be no assurance that the Company will be
successful in retaining or recruiting key personnel. Any failure by the Company
to expand or retain its engineering, direct sales and support personnel would
materially adversely affect the Company's business, operating results and
financial condition. See "Business -- Employees."
NEW PERSONNEL; MANAGEMENT OF GROWTH
Since February 1995, the Company has hired a new senior management team and
made significant changes in the Company's organization in order to focus on the
development, marketing and support of Unify VISION. Approximately half of the
Company's officers were hired within the past 18 months, and the Company intends
to hire additional key personnel in the near future. In addition, most of the
sales and marketing force was hired during the past 12 months. The Company's
potential expansion may also significantly strain the Company's management,
financial, customer support, operational and other resources. If the Company
achieves successful market acceptance of Unify VISION, the Company may undergo a
period of rapid growth. To accommodate this growth, the Company is in the
process of implementing a variety of new and upgraded operating and financial
systems, procedures and controls, including the improvement of its accounting
and other internal management systems. There can be no assurance that such
efforts can be accomplished successfully. Any failure to expand these areas in
an efficient manner could have a material adverse effect on the Company.
Moreover, there can be no assurance that the Company's systems, procedures and
controls will be adequate to support the Company's future operations. Any rapid
growth could require that the Company secure additional facilities or expand in
its current facilities. Any move to new facilities or expansion of its present
facilities could be disruptive and could have a material adverse effect on the
Company's business, operating results and financial condition.
THIRD-PARTY LICENSES
The Company is dependent on third-party suppliers for certain software such
as Galaxy from VISIX Software and RPC Tool from Microsoft which are embedded in
certain of its products. Although the Company believes that the functionality
provided by software which is licensed from third parties is obtainable from
multiple sources or could be developed by the Company, if any such third-party
licenses were terminated or not renewed or if these third parties fail to
develop new products in a timely manner, the Company could be required to
develop an alternative approach to developing its products which could require
payment of substantial fees to third parties, internal development costs and
delays and might not be successful in providing the same level of functionality.
Such delays, increased costs or reduced functionality could materially adversely
affect the Company's business, operating results and financial condition. See
"Business -- Intellectual Property."
FUTURE CAPITAL NEEDS
The Company believes that the net proceeds of this offering, together with
cash flow from operations and other existing sources of liquidity, will be
sufficient to meet its projected working capital and other cash requirements
through the end of fiscal 1997. However, there is no assurance that future
events may not cause the Company to seek additional capital sooner. If
additional capital is required, there can be no assurance that it will be
available or, if available, that it will be on terms satisfactory to the
Company. The sale of additional equity or other securities will result in
further dilution of the Company's stockholders. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of copyright, trademark and trade secret
laws, non-disclosure agreements and other intellectual property protection
methods to protect its proprietary technology. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's products or to obtain and use information that the Company
regards as proprietary. Policing unauthorized use of the Company's products is
difficult, and while the Company is
10
<PAGE>
unable to determine the extent to which piracy of its software products exists,
software piracy can be expected to be a persistent problem. In addition, the
laws of some foreign countries do not protect the Company's proprietary rights
as fully as do the laws of the United States. There can be no assurance that the
Company's means of protecting its proprietary rights in the United States or
abroad will be adequate or that competition will not independently develop
similar technology.
Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any notices that the Company is infringing the intellectual property rights of
others, there can be no assurance that such infringement claims will not be
asserted by third parties in the future. If any such claims are asserted, there
can be no assurance that the Company will be able to defend such claim or obtain
licenses on reasonable terms. The Company's involvement in any patent dispute or
other intellectual property dispute or action to protect trade secrets and
know-how may have a material adverse effect on the Company's business, operating
results and financial condition. Adverse determinations in any litigation may
subject the Company to significant liabilities to third parties, require the
Company to seek licenses from third parties and prevent the Company from
manufacturing and selling its products. Any of these situations can have a
material adverse effect on the Company's business, operating results or
financial condition. See "Business -- Intellectual Property."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of shares of Common Stock in the public market
after this offering could adversely affect the market price of the Common Stock
and the Company's ability to raise capital in the future in the equity markets.
In addition to the 2,140,000 shares to be sold in this offering approximately
100,000 shares not subject to lock-up agreements will be eligible for immediate
sale in the public market pursuant to Rule 144 and approximately 250,000
additional shares not subject to lock-up agreements will be eligible for sale
beginning 90 days after the date of this Prospectus, subject in some cases to
compliance with certain volume limitations under Rule 144. Approximately
5,000,000 shares are subject to lock-up agreements with the representatives of
the Underwriters pursuant to which such shares cannot be sold for 180 days
following the offering without the consent of Montgomery Securities. Commencing
180 days after the date of this Prospectus, upon the expiration of lock-up
agreements, substantially all of the Common Stock will be eligible for immediate
sale in the public market pursuant to Rule 144, subject in some cases to
compliance with certain volume limitations under Rule 144. However, Montgomery
Securities in its sole discretion and without notice, may release all or any
portion of the securities subject to lock-up agreements for sale in the public
market prior to the expiration of the lock-up agreements. Furthermore, the
Company intends, ninety days after the consummation of the offering, to register
approximately 1,700,000 shares of Common Stock reserved for issuance to its
employees, directors and consultants under the Company's Stock Option Plan and
Purchase Plan. As of April 30, 1996 options and warrants for the purchase of
914,206 shares of Common Stock were outstanding with an average exercise price
of $2.27, of which approximately 295,000 are subject to lock-up agreements. See
"Shares Eligible for Future Sale" and "Underwriting."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no prior public market for the Company's Common Stock, and
there can be no assurance that a viable public market for the Common Stock will
develop or be sustained after this offering. The initial public offering price
is being determined through negotiation between the Company and the Underwriters
based upon several factors and may not be an indication of the market price of
the Common Stock after the offering. The Company believes that a variety of
factors could cause the price of the Company's Common Stock to fluctuate,
perhaps substantially, including: announcements of developments related to the
Company's business; fluctuations in the Company's operating results and order
levels; general conditions in the computer industry or the worldwide economy;
announcements of technological innovations; new products or product enhancements
by the Company or its competitors; changes in financial estimates by securities
analysts; developments in patent, copyright or other intellectual property
rights; and developments in the Company's relationships with its customers,
distributors and suppliers. In addition, in recent years the stock market in
general, and the market for
11
<PAGE>
shares of equity securities of many high technology companies in particular, has
experienced extreme price fluctuations which have often been unrelated to the
operating performance of such companies. Such fluctuations may adversely affect
the market price of the Company's Common Stock. See "Underwriting."
CONTINUED CONTROL BY MANAGEMENT
Upon completion of this offering, the officers and directors of the Company
and entities affiliated with certain directors, as a group, will hold or be
deemed to beneficially own approximately 35.4% of the outstanding Common Stock.
Existing management will continue to hold sufficient voting power to enable it
to continue to significantly influence the election of directors and the control
of the business and affairs of the Company for the foreseeable future. Such
concentration of ownership may also have the effect of delaying, deferring or
preventing a change in control of the Company. See "Principal and Selling
Stockholders."
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION AND DELAWARE LAW
The Company's Certificate of Incorporation authorizes the Company's Board of
Directors to issue Preferred Stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of these shares, without
further stockholder approval. The rights of the holders of Common Stock will be
subject to and may be adversely affected by the rights of holders of any
Preferred Stock that may be issued in the future. The ability to issue Preferred
Stock without stockholder approval could have the effect of making it more
difficult for a third party to acquire a majority of the voting stock of the
Company thereby delaying, deferring or preventing a change in control of the
Company. See "Management -- Directors and Executive Officers;" "Principal and
Selling Stockholders" and "Description of Capital Stock."
SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution of $9.06 per share in the net tangible book value of the
Common Stock. To the extent that outstanding options and warrants to purchase
the Company's Common Stock are exercised, there will be further dilution. See
"Dilution."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,850,000 shares of
Common Stock offered by the Company hereby, based on an assumed initial public
offering price of $11.00 per share and after deducting the estimated
underwriting discount and commissions and offering expenses, are estimated to be
approximately $17,900,000 ($21,200,000 if the Underwriters' over-allotment
option is exercised in full).
The principal reasons for this offering are to increase the Company's equity
capital and to create a public market for the Company's Common Stock, which will
facilitate future access by the Company to public equity markets and enhance the
ability of the Company to use its Common Stock as consideration for
acquisitions.
The Company intends to use the net proceeds of this offering primarily for
working capital and other general corporate purposes, including expansion of the
Company's product development and sales and marketing efforts and potential
acquisitions. The amounts actually expended by the Company for working capital
purposes will vary significantly depending upon a number of factors, including
future revenue growth, the amount of cash generated by the Company's operations
and the progress of the Company's product development efforts. In addition, the
Company may make one or more acquisitions of complementary technologies,
products or businesses which broaden or enhance the Company's current product
offerings. However, the Company has no specific agreements or commitments, and
is not currently engaged in any negotiations, with respect to any such
acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
Pending the uses described above, the net proceeds from this offering will
be invested in deposits with banks and in short-term, investment grade,
interest-bearing securities, including government obligations and money market
instruments.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders. See "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain any future earnings to finance
the growth and development of its business. In addition, under the terms of the
Company's existing credit facilities, the payment of dividends is restricted.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of April
30, 1996, (i) on an actual basis, (ii) on a pro forma basis to give effect to
the reincorporation of the Company in the State of Delaware, the conversion of
all outstanding Preferred Stock into Common Stock (including accrued dividends)
and the issuance of 190,459 shares of Common Stock upon the exercise of certain
outstanding warrants, and (iii) as adjusted to reflect the sale of the 1,850,000
shares of Common Stock offered by the Company hereby and the receipt and
application by the Company of the estimated net proceeds therefrom, based on an
assumed initial public offering price of $11.00 per share, and after deducting
the estimated underwriting discounts and commissions and offering expenses. The
capitalization information set forth in the table below is qualified by the more
detailed Consolidated Financial Statements and Notes thereto appearing elsewhere
in this Prospectus and should be read in conjunction with such Consolidated
Financial Statements and Notes. See "Use of Proceeds."
<TABLE>
<CAPTION>
APRIL 30, 1996
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED (1)
---------- ----------- ---------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Current portion of long-term debt.................................. $ 255 $ 255 $ 255
---------- ----------- ---------------
---------- ----------- ---------------
Long-term debt..................................................... $ 2,456 $ 2,456 $ 2,456
Minority interest.................................................. 495 495 495
Redeemable preferred stock, $0.001 par value; 2,931,370 shares
designated; 2,876,136 shares issued and outstanding; no shares
authorized, issued or outstanding pro forma and as adjusted....... 26,726 -- --
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value; 7,931,370 shares authorized;
no shares issued or outstanding pro forma and as adjusted....... -- -- --
Common Stock, $0.001 par value, 40,000,000 shares authorized;
1,884,075 shares issued and outstanding; 5,640,831, shares
issued and outstanding pro forma; 7,490,831 shares issued and
outstanding as adjusted (2)..................................... 2 6 7
Additional paid-in capital....................................... 2,188 28,977 46,902
Notes receivable from stockholders............................... (265) (265) (265)
Cumulative translation adjustments............................... (816) (816) (816)
Accumulated deficit.............................................. (30,282) (30,282) (30,282)
---------- ----------- ---------------
Total stockholders' equity (deficit)......................... (29,173) (2,380) 15,546
---------- ----------- ---------------
Total capitalization..................................... $ 504 $ 571 $ 18,497
---------- ----------- ---------------
---------- ----------- ---------------
</TABLE>
- ------------------------
(1) As adjusted to reflect the sale of 1,850,000 shares of Common Stock offered
by the Company hereby at the estimated public offering price of $11.00 per
share and application of the estimated net proceeds therefrom.
(2) Excludes 914,206 shares of Common Stock issuable upon exercise of options
and warrants, 406,620 shares reserved for future issuances under the Stock
Option Plan and 400,000 shares reserved for future issuances under the
Purchase Plan. See "Management" and Notes 5 and 12 of Notes to Consolidated
Financial Statements.
14
<PAGE>
DILUTION
The pro forma net tangible book deficit of the Company as of April 30, 1996
was $3,430,000, or $0.61 per share of Common Stock. Pro forma net tangible book
deficit per share is equal to the Company's total tangible assets less its total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale of 1,850,000 shares of Common Stock offered by the
Company hereby and the receipt by the Company of the estimated net proceeds
therefrom, based on an assumed initial public offering price of $11.00 per share
and after deducting the estimated underwriting discounts and commissions and
offering expenses, the pro forma as adjusted net tangible book value of the
Company as of April 30, 1996 would have been $14,496,000 or $1.94 per share.
This represents an immediate increase in pro forma net tangible book value of
$2.55 per share to existing stockholders and an immediate dilution of $9.06 per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $ 11.00
Pro forma net tangible book deficit per share as of April 30,
1996.............................................................. $ (0.61)
Increase in net tangible book value per share attributable to new
investors......................................................... 2.55
---------
Pro forma as adjusted net tangible book value per share after the
offering.......................................................... 1.94
---------
Dilution per share to new investors................................ $ 9.06
---------
---------
</TABLE>
The following table sets forth on a pro forma basis as of April 30, 1996,
the existing stockholders and new investors with respect to number of shares of
Common Stock purchased from the Company, the total consideration paid to the
Company and the average price per share paid (based upon an assumed initial
public offering price of $11.00 per share and before deducting the estimated
underwriting discounts and commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION
------------------------ --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 5,640,831 75.3% $ 23,386,000 53.5% $ 4.15
New investors......................... 1,850,000 24.7 20,350,000 46.5 11.00
- -------------------------------------- ----------- ----- -------------- -----
Total............................. 7,490,831 100.0% $ 43,736,000 100.0%
----------- ----- -------------- -----
----------- ----- -------------- -----
</TABLE>
The foregoing tables exclude (i) 878,457 shares of Common Stock issuable
upon exercise of outstanding options including options under the Company's Stock
Option Plan, of which 254,530 are exercisable as of April 30, 1996, or within 60
days thereafter, (ii) 406,620 shares of Common Stock reserved for future
issuance under the Stock Option Plan and (iii) 35,749 shares of Common Stock
reserved for issuance upon exercise of currently exercisable outstanding
warrants. The weighted average exercise price per share of the Company's
outstanding stock options is $2.00 and the exercise price per share of the
outstanding warrants is $8.88. To the extent outstanding options and warrants
are exercised there will be further dilution to new investors. See "Management;"
and "Description of Capital Stock."
- ------------------------
(1) Sales by the Selling Stockholders in this offering will cause the number of
shares held by the existing stockholders to be reduced to 5,350,831, or
approximately 71.4% of the shares of Common Stock to be outstanding after
this offering, and will increase the number of shares to be purchased by new
stockholders to 2,140,000, or 28.6% of the total number of shares of Common
Stock to be outstanding after this offering. Assuming full exercise of the
Underwriters' over-allotment option, the percentage of shares held by
existing stockholders would be 68.5% of the total number of shares of Common
Stock to be outstanding after this offering, and the number of shares held
by new stockholders would be increased to 2,461,000 shares, or 31.5% of the
total number of shares of Common Stock to be outstanding after this
offering. See "Management" and "Principal and Selling Stockholders."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. The
consolidated statement of operations data for the years ended April 30, 1994,
1995 and 1996 and the consolidated balance sheet data at April 30, 1995 and 1996
are derived from the audited consolidated financial statements included
elsewhere herein. The consolidated statement of operations data for the years
ended April 30, 1992 and 1993 and the consolidated balance sheet data at April
30, 1992, 1993 and 1994 are derived from audited consolidated financial
statements not included in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses.................................... $ 25,566 $ 23,882 $ 19,048 $ 17,995 $ 20,444
Services............................................. 10,958 13,278 11,501 10,854 9,721
--------- --------- --------- --------- ---------
Total revenues..................................... 36,524 37,160 30,549 28,849 30,165
--------- --------- --------- --------- ---------
Cost of revenues:
Software licenses.................................... 2,769 2,400 3,262 2,787 2,059
Services............................................. 4,753 6,772 6,215 5,786 4,332
--------- --------- --------- --------- ---------
Total cost of revenues............................. 7,522 9,172 9,477 8,573 6,391
--------- --------- --------- --------- ---------
Gross margin........................................... 29,002 27,988 21,072 20,276 23,774
--------- --------- --------- --------- ---------
Operating expenses:
Product development.................................. 4,778 5,878 5,598 5,324 5,805
Selling, general and administrative.................. 28,776 24,389 19,795 15,000 18,920
Restructuring charges................................ -- 719 570 431 --
--------- --------- --------- --------- ---------
Total operating expenses........................... 33,554 30,986 25,963 20,755 24,725
--------- --------- --------- --------- ---------
Loss from operations............................... (4,552) (2,998) (4,891) (479) (951)
Other income (expense), net............................ 655 533 (1,830) 392 176
--------- --------- --------- --------- ---------
Loss before income taxes........................... (3,897) (2,465) (6,721) (87) (775)
Provision for income taxes............................. (478) (252) (342) (392) (163)
--------- --------- --------- --------- ---------
Net loss........................................... $ (4,375) $ (2,717) $ (7,063) $ (479) $ (938)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net loss per share........................... $ (0.08) $ (0.18)
--------- ---------
--------- ---------
Shares used in computing pro forma net loss per share
(1)................................................... 5,639 5,327
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
----------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 7,292 $ 4,730 $ 2,495 $ 3,776 $ 3,028
Working capital (deficit).......................... 5,575 1,803 (4,518) (3,116) (3,183)
Total assets....................................... 22,104 19,866 13,081 12,681 12,997
Long-term debt, net of current portion............. 959 803 471 1,488 2,456
Redeemable preferred stock......................... 21,466 21,466 23,219 24,973 26,726
Total stockholders' deficit........................ (12,502) (15,365) (24,287) (26,628) (29,173)
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the number of shares used to compute pro forma net loss per share.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company develops, markets and supports Unify VISION, an advanced
client/server application development environment for the development,
deployment and management of high-end scalable applications. The Company is also
continuing to market and enhance Unify ACCELL, a family of 4GL application
development tools, and Unify DataServer, a family of database management system
products.
The Company was founded in 1980 to develop a UNIX-based database and in 1990
began focusing on the development of application development tools compatible
with the Company's database as well as databases offered by other companies such
as Oracle and Informix. In response to the expected growth in client/server
computing, the Company determined in 1992 to concentrate its product development
efforts on advanced client/server development tools resulting in the
introduction of an initial version of Unify VISION in December 1993 which was
directed at entry-level workgroup applications. In response to the emerging
market for high-end scalable development tools, the Company developed Unify
VISION 2.0, a significant enhancement to the initial release including a new
product architecture. Unify VISION 2.0 was introduced in March 1995. Since
February 1995, the Company has hired a new senior management team and made
significant changes in the Company's organization. In particular, the Company's
sales and marketing organization has been significantly changed with most
personnel having been hired after May 1995.
The Company's strategy is to aggressively market and enhance Unify VISION.
The Company continues to support its extensive installed base of Unify ACCELL
and DataServer products, which represents a significant source of potential
Unify VISION customers. The Company also generates significant revenue from
services, including customer maintenance, consulting and training. The following
table sets forth the revenues from licenses of the Company's Unify VISION and
Unify ACCELL and DataServer products and services revenue for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
License revenues:
Unify VISION................................................................. $ 708 $ 2,176 $ 5,009
Unify ACCELL and DataServer.................................................. 18,340 15,819 15,435
--------- --------- ---------
Total license revenues..................................................... 19,048 17,995 20,444
Services revenues.............................................................. 11,501 10,854 9,721
--------- --------- ---------
Total revenues............................................................. $ 30,549 $ 28,849 $ 30,165
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company currently is focusing its product development and sales and
marketing resources principally on Unify VISION. The Company expects that
revenues from Unify VISION and related services will account for substantially
all of the growth, if any, in the Company's total revenues during the
foreseeable future. The Company expects that revenues from Unify ACCELL and
DataServer will continue to decline. As a result, factors adversely affecting
the pricing of or demand for Unify VISION could have a material adverse effect
on the Company's business, operating results and financial condition. See "Risk
Factors -- Dependence on New Product Acceptance; Dependence on Growth of High-
end Client/Server Tools Market;" "-- Anticipated Decline in Revenue from Mature
Products" and "-- Intense Competition."
17
<PAGE>
The Company incurred net losses in four of the last eight quarters and in
each of the last five fiscal years. As of April 30, 1996 the Company had an
accumulated deficit of $30.3 million. There can be no assurance that any of the
Company's business strategies will be successful or that the Company will be
able to sustain profitability on a quarterly or annual basis. See "Risk Factors
- -- History of Operating Losses; Transition of Business" and "-- Fluctuating
Quarterly Results and Seasonality."
The Company licenses its software through its direct sales force in the
U.S., Europe and Japan and through distributors and VARs worldwide. Revenues
from distributors and VARs accounted for approximately 61%, 59%, and 60% of the
Company's software license revenues for fiscal 1994, 1995 and 1996,
respectively. The Company's ability to achieve significant revenue growth in the
future will depend in large part on its success in maintaining existing and
establishing additional relationships with distributors and VARs worldwide. See
"Risk Factors -- Dependence on Resellers."
The Company recognizes software license revenue when a non-cancelable
license agreement has been executed, the product has been shipped, all
significant contractual obligations have been satisfied and collection of the
resulting receivable is deemed probable by management. Maintenance revenue is
recognized ratably over the maintenance period, and revenues from consulting and
training services are recognized as performed.
RESULTS OF OPERATIONS
The following table sets forth the consolidated statement of operations data
of the Company expressed as a percent of total revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Software licenses................................................................. 62.4 % 62.4 % 67.8 %
Services.......................................................................... 37.6 37.6 32.2
----- ----- -----
Total revenues.................................................................. 100.0 100.0 100.0
----- ----- -----
Cost of revenues:
Software licenses................................................................. 10.7 9.7 6.8
Services.......................................................................... 20.3 20.0 14.4
----- ----- -----
Total cost of revenues.......................................................... 31.0 29.7 21.2
----- ----- -----
Gross margin........................................................................ 69.0 70.3 78.8
----- ----- -----
Operating expenses:
Product development............................................................... 18.3 18.4 19.3
Selling, general and administrative............................................... 64.8 52.0 62.7
Restructuring charges............................................................. 1.9 1.5 --
----- ----- -----
Total operating expenses........................................................ 85.0 71.9 82.0
----- ----- -----
Loss from operations............................................................ (16.0) (1.6) (3.2)
Other income (expense), net......................................................... (6.0) 1.3 0.6
----- ----- -----
Loss before income taxes........................................................ (22.0) (0.3) (2.6)
Provision for income taxes.......................................................... (1.1) (1.4) (0.5)
----- ----- -----
Net loss........................................................................ (23.1)% (1.7)% (3.1)%
----- ----- -----
----- ----- -----
</TABLE>
COMPARISON OF YEARS ENDED APRIL 30, 1995 AND 1996
TOTAL REVENUES
The Company's total revenues include software license revenues from sales of
its Unify VISION, Unify ACCELL and DataServer products, as well as service
revenues from maintenance, consulting services and training. Total revenues for
fiscal 1996 increased 5% to $30.2 million from $28.8 million for fiscal 1995.
18
<PAGE>
International revenues include all software license and service revenues
from locations other than the United States. International revenues from the
Company's direct sales organizations in Europe and Japan and from distributors
and resellers in all international locations accounted for 56% of total revenues
for each of fiscal 1996 and 1995.
SOFTWARE LICENSES. Software license revenues for fiscal 1996 increased 14%
to $20.4 million from $18.0 million for fiscal 1995. Software license revenues
from Unify VISION 2.0 increased 130% to $5.0 million for fiscal 1996 from $2.2
million for fiscal 1995. This increase reflects increased acceptance of Unify
VISION and increased sales through the Company's direct sales organization in
the U.S. Software license revenues from Unify ACCELL and DataServer were
consistent from year to year. The Company expects that revenues from these
products will decline in future periods.
SERVICES. Service revenues for fiscal 1996 decreased 10% to $9.7 million
from $10.9 million for fiscal 1995. The decrease in service revenues during this
period was primarily the result of a decline in consulting revenue following a
strategic shift away from consulting services which do not directly support new
product sales.
COST OF REVENUES
COST OF SOFTWARE LICENSES. Cost of software licenses consists primarily of
product documentation, packaging and production costs in the U.S. and Japan,
royalties paid for licensed technology, costs related to funded development
contracts, and amortization of capitalized software development costs. Cost of
software licenses for fiscal 1996 decreased to $2.1 million, or 10% of software
license revenues, as compared to $2.8 million, or 15% of software license
revenues, for fiscal 1995. Amortization of capitalized software development
costs decreased to $0.6 million in fiscal 1996 from $1.1 million for fiscal
1995.
COST OF SERVICES. Cost of services consists primarily of employee,
facilities and travel costs incurred in providing customer support under
software maintenance contracts and consulting and training services. Cost of
services for fiscal 1996 decreased to $4.3 million, or 45% of service revenues,
as compared to $5.8 million, or 53% of service revenues for fiscal 1995. The
decrease in cost of services during this period was primarily due to a decline
in total consulting staff. Cost of services as a percentage of revenue declined
in fiscal 1996 as a result of improved consulting staff productivity. The
Company expects to gradually increase its consulting staff from current levels.
OPERATING EXPENSES
PRODUCT DEVELOPMENT. Product development expenses consist primarily of
employee and facilities costs incurred in the development and testing of new
products and in the porting of new and existing products to additional hardware
platforms and operating systems. Product development expenditures for fiscal
1996 remained relatively constant at $5.8 million, or 19% of total revenues, as
compared to $5.7 million, or 20% of total revenues, for fiscal 1995. The Company
believes that substantial investment in product development is critical to
maintaining technological leadership and therefore expects product development
expenditures to increase in fiscal 1997.
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86. Under this
standard, capitalization of software development costs begins upon the
establishment of technological feasibility. The Company begins capitalization
upon completion of a working model and amortizes capitalized software
development costs over the estimated useful life of the products, generally one
to three years. In accordance with this policy, there were no capitalizable
software development costs in fiscal 1996 and $0.4 million of such costs in
fiscal 1995. As of April 30, 1996, all capitalized software development costs
had been fully amortized. See Note 1 of Notes to Consolidated Financial
Statements.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
(SG&A) expenses consist primarily of salaries, bonuses and commissions,
promotional and travel expenses, professional services, facilities and bad debt
expenses. SG&A expenses for fiscal 1996 increased to $18.9 million, or 63% of
total revenues, as compared to $15.0 million, or 52% of total revenues, for
fiscal 1995. The percent and
19
<PAGE>
dollar increases in fiscal 1996 SG&A expenses were due to the recruitment of
several key employees which filled open positions in the U.S. sales and
marketing organizations and to an increase in promotional and travel expenses
related to the launch of Unify VISION 2.0. The Company anticipates additional
legal, accounting and other administrative expenses as a result of becoming a
publicly traded company. The Company intends to continue to increase its
expenditures in SG&A in absolute dollars.
OTHER INCOME (EXPENSE), NET. Other income (expense), net, consists of the
minority interest in the Company's Japanese joint venture, exchange gains and
losses, and interest earned by the Company on its cash and cash equivalents,
offset by interest expense on long-term debt. Other income was $0.2 million for
fiscal 1996 and $0.4 million for fiscal 1995.
PROVISION FOR INCOME TAXES. The Company has accounted for income taxes in
accordance with the provisions of SFAS No. 109 for all periods presented. Under
SFAS No. 109, the Company recognizes deferred tax assets and liabilities for the
expected future consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. The Company has provided a
full valuation allowance against its deferred tax assets as of April 30, 1996.
The Company had available federal net operating loss carryforwards of
approximately $10.7 million as of April 30, 1996. Under current tax legislation,
the Company's utilization of its operating loss carryforwards may be limited or
impaired in certain circumstances resulting from a change in ownership. See Note
6 of Notes to Consolidated Financial Statements. After utilization of its net
operating loss carryforwards, the Company expects that its effective tax rate
will approximate the statutory rate.
COMPARISON OF YEARS ENDED APRIL 30, 1994 AND 1995
TOTAL REVENUES
Total revenues for fiscal 1995 decreased 6% to $28.8 million from $30.5
million for fiscal 1994. The decrease in total revenues was primarily due to
declining software license revenues from Unify ACCELL and DataServer products,
partially offset by increases in Unify VISION sales.
International revenues were 56% of total revenues in fiscal 1995 as compared
to 51% of total revenues in fiscal 1994.
SOFTWARE LICENSES. Software license revenues for fiscal 1995 decreased 6%
to $18.0 million from $19.0 million for fiscal 1994. During fiscal 1995,
revenues from Unify ACCELL and DataServer products declined to $15.8 million as
compared to $18.3 million for fiscal 1994. Revenues from Unify VISION, which was
first introduced in December 1993, were $2.2 million during fiscal 1995 as
compared to $0.7 million in fiscal 1994.
SERVICES. Service revenues for fiscal 1995 decreased 6% to $10.9 million
from $11.5 million for fiscal 1994. The decrease was primarily attributable to a
$1.4 million decrease in consulting and training revenue, partially offset by an
increase in maintenance revenues.
COST OF REVENUES
COST OF SOFTWARE LICENSES. Cost of software licenses in fiscal 1995 was
$2.8 million, or 15% of software license revenues, as compared to $3.3 million,
or 17% of software license revenues, in fiscal 1994. Fiscal 1994 cost of
software licenses included higher costs associated with the development and
production of documentation and packaging for the new Unify VISION product.
Amortization of capitalized software development costs decreased to $1.1 million
in fiscal 1995 from $1.4 million for fiscal 1994.
COST OF SERVICES. Cost of services in fiscal 1995 was $5.8 million, or 53%
of service revenues, as compared to $6.2 million, or 54% of service revenues, in
fiscal 1994. The decrease in fiscal 1995 consulting costs due to the reduction
of subcontractor costs after the completion of a large consulting contract in
fiscal 1994 was partially offset by increased costs associated with customer
support following the introduction of Unify VISION.
20
<PAGE>
OPERATING EXPENSES
PRODUCT DEVELOPMENT. Product development expenditures in fiscal 1995 were
$5.7 million, or 20% of total revenues, as compared to $6.3 million, or 21% of
total revenues, in fiscal 1994. The decrease in expenditures was the result of a
cost reduction program instituted in the third quarter of fiscal 1994, and, to a
lesser extent, efficiencies associated with the automation of software testing
and the purchase of third-party software for integration into the Company's
products. Capitalized software development costs were $0.4 million and $0.8
million, or 1% and 2%, of total revenues in fiscal 1995 and 1994, respectively.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses in fiscal 1995 were
$15.0 million, or 52% of total revenues, as compared to $19.8 million, or 65% of
total revenues, in fiscal 1994. The percent and dollar decreases in fiscal 1995
from fiscal 1994 were primarily the result of a cost reduction program
instituted in the third quarter of fiscal 1994, significantly lower promotional
spending and lower legal expenses.
RESTRUCTURING CHARGE. The Company recorded restructuring charges of $0.4
million in fiscal 1995 and $0.6 million in fiscal 1994. The restructuring
charges represent costs associated with consolidation of facilities,
reorganization activities connected with reductions in work force and severance.
In fiscal 1995 the Company reorganized its operations, particularly its sales
and marketing staff, to focus on the opportunities for Unify VISION in the
high-end application development tools market. See Note 7 of Notes to
Consolidated Financial Statements.
OTHER INCOME (EXPENSE), NET. Other income was $0.4 million in fiscal 1995
and other expense was $1.8 million in fiscal 1994. Fiscal 1994 other expense
includes a charge of $2.2 million for settlement of litigation relating to two
product disputes. See Notes 8 and 10 of Notes to Consolidated Financial
Statements.
PROVISION FOR INCOME TAXES. In fiscal 1995 and 1994, the Company recorded
no federal income tax provision due to net losses in those periods. The Company
recorded a tax provision related primarily to foreign income tax withholding on
software license royalties paid to the Company by certain foreign licensees.
21
<PAGE>
QUARTERLY INFORMATION
The following tables set forth certain unaudited consolidated statement of
operations data for the eight quarters ended April 30, 1996, as well as such
data expressed as a percentage of the Company's total revenues for the periods
indicated. This data has been derived from unaudited condensed consolidated
financial statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information. Such statement of operations data should be
read in conjunction with the Company's audited consolidated financial statements
and notes thereto.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses........... $ 4,329 $ 4,580 $ 4,559 $4,527 $ 3,618 $ 4,777 $ 5,749 $6,300
Services.................... 2,793 2,722 2,626 2,713 2,494 2,484 2,333 2,410
-------- -------- -------- --------- -------- -------- -------- ---------
Total revenues............ 7,122 7,302 7,185 7,240 6,112 7,261 8,082 8,710
-------- -------- -------- --------- -------- -------- -------- ---------
Cost of revenues:
Software licenses........... 678 721 570 818 549 509 456 545
Services.................... 1,366 1,438 1,446 1,536 1,069 960 1,148 1,155
-------- -------- -------- --------- -------- -------- -------- ---------
Total cost of revenues.... 2,044 2,159 2,016 2,354 1,618 1,469 1,604 1,700
-------- -------- -------- --------- -------- -------- -------- ---------
Gross margin.................. 5,078 5,143 5,169 4,886 4,494 5,792 6,478 7,010
-------- -------- -------- --------- -------- -------- -------- ---------
Operating expenses:
Product development......... 1,385 1,289 1,138 1,512 1,401 1,532 1,464 1,408
Selling, general and
administrative............. 3,578 3,740 3,816 3,866 4,211 4,611 4,984 5,114
Restructuring charge........ -- -- -- 431 -- -- -- --
-------- -------- -------- --------- -------- -------- -------- ---------
Total operating
expenses................. 4,963 5,029 4,954 5,809 5,612 6,143 6,448 6,522
-------- -------- -------- --------- -------- -------- -------- ---------
Income (loss) from
operations............... 115 114 215 (923) (1,118) (351) 30 488
Other income (expense), net... (101) 90 162 241 204 33 (2) (59)
-------- -------- -------- --------- -------- -------- -------- ---------
Income (loss) before income
taxes...................... 14 204 377 (682) (914) (318) 28 429
Provision for income taxes.... (123) (109) (45) (115) (65) (44) (14) (40)
-------- -------- -------- --------- -------- -------- -------- ---------
Net income (loss)........... $ (109) $ 95 $ 332 $ (797) $ (979) $ (362) $ 14 $ 389
-------- -------- -------- --------- -------- -------- -------- ---------
-------- -------- -------- --------- -------- -------- -------- ---------
</TABLE>
22
<PAGE>
The following table sets forth certain unaudited quarterly financial
information of the Company for each of the Company's last eight fiscal quarters
expressed as a percent of total revenues for the periods indicated.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses..................... 60.8% 62.7% 63.5% 62.5% 59.2% 65.8% 71.1% 72.3%
Services.............................. 39.2 37.3 36.5 37.5 40.8 34.2 28.9 27.7
-------- -------- -------- --------- -------- -------- -------- ---------
Total revenues...................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- --------- -------- -------- -------- ---------
Cost of revenues:
Software licenses..................... 9.5 9.9 8.0 11.3 9.0 7.0 5.6 6.3
Services.............................. 19.2 19.7 20.1 21.2 17.5 13.2 14.2 13.2
-------- -------- -------- --------- -------- -------- -------- ---------
Total cost of revenues.............. 28.7 29.6 28.1 32.5 26.5 20.2 19.8 19.5
-------- -------- -------- --------- -------- -------- -------- ---------
Gross margin............................ 71.3 70.4 71.9 67.5 73.5 79.8 80.2 80.5
-------- -------- -------- --------- -------- -------- -------- ---------
Operating expenses:
Product development................... 19.4 17.7 15.8 20.9 22.9 21.1 18.1 16.2
Selling, general and administrative... 50.3 51.2 53.1 53.4 68.9 63.5 61.7 58.7
Restructuring charge.................. -- -- -- 6.0 -- -- -- --
-------- -------- -------- --------- -------- -------- -------- ---------
Total operating expenses............ 69.7 68.9 68.9 80.3 91.8 84.6 79.8 74.9
-------- -------- -------- --------- -------- -------- -------- ---------
Income (loss) from operations........... 1.6 1.5 3.0 (12.8) (18.3) (4.8) 0.4 5.6
Other income (expense), net............. (1.4) 1.3 2.3 3.3 3.3 0.4 -- (0.6)
-------- -------- -------- --------- -------- -------- -------- ---------
Income (loss) before income taxes..... 0.2 2.8 5.3 (9.5) (15.0) (4.4) 0.4 5.0
Provision for income taxes.............. (1.7) (1.5) (0.7) (1.5) (1.0) (0.6) (0.2) (0.5)
-------- -------- -------- --------- -------- -------- -------- ---------
Net income (loss)..................... (1.5)% 1.3% 4.6% (11.0)% (16.0)% (5.0)% 0.2% 4.5%
-------- -------- -------- --------- -------- -------- -------- ---------
-------- -------- -------- --------- -------- -------- -------- ---------
</TABLE>
Fiscal 1995 software license and service revenues were primarily from the
Company's more mature Unify ACCELL and DataServer product families and were flat
quarter to quarter. The Company introduced Unify VISION 2.0, its advanced
client/server application development environment, in March 1995. Total revenues
declined in the first quarter of fiscal 1996 due to seasonality and to the fact
that the U.S. sales organization was in the process of restaffing and
retraining. Revenues increased in the second, third and fourth quarters of
fiscal 1996 due to improved productivity in the U.S. sales organization,
increased sales of Unify VISION 2.0 worldwide and several large Unify ACCELL and
DataServer product sales.
23
<PAGE>
The following table sets forth the revenues from licenses of the Company's
Unify VISION and Unify ACCELL and DataServer products and service revenues for
each quarter of fiscal 1996.
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------
JUL. 31, OCT. 31, JAN. 31, APRIL 30,
1995 1995 1996 1996
--------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
License revenues:
Unify VISION.................................. $ 540 $ 1,012 $ 1,426 $ 2,031
Unify ACCELL and DataServer................... 3,078 3,765 4,323 4,269
--------- --------- --------- -------------
Total license revenues...................... 3,618 4,777 5,749 6,300
Services revenues............................... 2,494 2,484 2,333 2,410
--------- --------- --------- -------------
Total revenues.............................. $ 6,112 $ 7,261 $ 8,082 $ 8,710
--------- --------- --------- -------------
--------- --------- --------- -------------
</TABLE>
In the fourth quarter of fiscal 1995, the increase in cost of software
licenses and services was due to a one-time write off of third-party royalties
and capitalized maintenance costs.
The Company kept staffing levels and operating expenses relatively stable
during fiscal 1995 in order to minimize net losses in a period of flat revenues.
Quarterly product development expenditures were stable in fiscal 1995 and 1996.
SG&A expenses increased quarter by quarter in fiscal 1996 due to the restaffing
of the U.S. sales and marketing organizations and to increasing promotional and
travel expenses related to the launch of Unify VISION 2.0.
The Company's quarterly operating results have varied significantly in the
past, and the Company expects that such results are likely to vary significantly
from time to time in the future. Such variations result from, among other
matters, the following: the size and timing of significant orders and their
fulfillment; demand for the Company's products; the number, timing and
significance of product enhancements and new product announcements by the
Company and its competitors; changes in pricing policies by the Company or its
competitors; changes in the level of operating expenses; changes in the
Company's sales incentive plans; budgeting cycles of its customers; customer
order deferrals in anticipation of enhancements or new products offered by the
Company or its competitors; product life cycles; product defects and other
product quality problems; personnel changes; the results of international
expansion; currency fluctuations; seasonal trends and general domestic and
international economic and political conditions. The Company typically receives
a number of orders ranging in size from several hundred thousand dollars to
approximately $1 million in any fiscal quarter. Because a significant portion of
the Company's revenues has been, and the Company believes will continue to be,
derived from such large orders, the timing of such orders and their fulfillment
has caused and is expected to continue to cause material fluctuations in the
Company's operating results, particularly on a quarterly basis. In addition, the
Company intends to continue to expand its domestic and international direct
sales force. The timing of such expansion and the rate at which new sales people
become productive could also cause material fluctuations in the Company's
quarterly operating results.
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast. Revenues are also difficult to forecast because the
market for client/server application development software is rapidly evolving,
and the Company's sales cycle, from initial evaluation to purchase and the
provision of support services, is lengthy and varies substantially from customer
to customer. Because the Company normally ships products within a short time
after it receives an order, it typically does not have any material backlog. As
a result, to achieve its quarterly revenue objectives, the Company is dependent
upon obtaining orders in any given quarter for shipment in that quarter.
Furthermore, because many customers place orders toward the end of a quarter,
the Company generally recognizes a substantial portion of its revenues at the
end of a quarter. As the Company's expense levels are based in significant part
on the Company's expectations as to future revenues and are therefore relatively
fixed in the short term, if revenue levels fall below expectations, net income
is likely to be disproportionately adversely affected. The Company is increasing
its sales, marketing and product development expenditures, and operating results
will be materially adversely affected if the Company does not achieve revenue
growth.
24
<PAGE>
There can be no assurance that the Company will be able to achieve or maintain
profitability on a quarterly or annual basis in the future. Due to the foregoing
factors, it is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock would likely be
materially adversely affected.
The Company expects that its operating results will be affected by seasonal
trends. The Company believes that it is likely that it will experience
relatively higher revenues in its quarters ending April 30 and relatively lower
revenues in its quarters ending July 31 as a result of efforts by its direct
sales force to meet fiscal year-end sales quotas. The Company also anticipates
that it may also experience relatively weaker demand in the quarters ending July
31 and October 31 as a result of reduced sales activity in Europe during the
summer months. In particular, due to the foregoing factors and to increased
investments in selling, general and administrative and research and development
expenses in advance of the release of UNIFY VISION 3.0, the Company expects that
it will incur an operating loss for the quarter ending July 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has principally financed its operations and
investments in property and equipment through the private sale of equity
securities, totaling $23.3 million, equipment lease and bank lines of credit
which have been substantially repaid, and a $3.0 million stockholder line of
credit.
The Company used cash from operations of $0.9 million in fiscal 1994,
generated cash from operations of $1.3 million in fiscal 1995 and used cash from
operations of $1.1 million in fiscal 1996. Cash used in fiscal 1996 was
primarily due to increased accounts receivable. In fiscal 1994, 1995 and 1996,
the Company's investing activities have consisted primarily of purchases of
property and equipment and capitalization of software development costs.
As of April 30, 1996, the Company had $3.0 million in cash and cash
equivalents and negative working capital of $3.2 million. The Company has a $3.0
million line of credit provided by certain stockholders of the Company which
expires in July 1997. Advances under this credit facility are made at the
discretion of the lenders and bear interest at 3.75% per annum. The amount
outstanding on this line of credit as of April 30, 1996 was $2.3 million. The
Company also has a $2.5 million revolving line of credit with a bank which
expires in March 1997. Total borrowings under this line are generally limited to
80% of eligible accounts receivable and up to $500,000 may be used separately to
finance equipment purchases with no receivable borrowing limitation. Borrowings
bear interest at 2.75% and 3.50% over the bank's prime lending rate for accounts
receivable based and equipment borrowings, respectively. See Notes 3, 4 and 5 of
Notes to Consolidated Financial Statements.
The Company believes that the net proceeds from the offering, anticipated
cash flow from operations, and its existing cash, cash equivalents and unused
borrowing capacity will be sufficient to meet its cash requirements during the
next 12 months. Thereafter, depending on its rate of growth and profitability,
the Company may require additional equity or debt financing to meet its working
capital requirements or capital equipment needs. There can be no assurance that
additional financing will be available when required or, if available, that it
will be on terms satisfactory to the Company.
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BUSINESS
THE COMPANY
Unify Corporation ("Unify" or the "Company") develops, markets and supports
client/server application development tools and database management software
products. In March 1995, the Company introduced Unify VISION 2.0, an advanced
client/server application development environment for the development,
deployment and management of high-end scalable applications. Unify VISION
combines a powerful and scalable client/server architecture with a flexible and
easy-to-use rapid application development technology. The Company is continuing
to market and enhance Unify ACCELL, a family of fourth generation language
("4GL") application development tools and Unify DataServer, a family of database
management system products. As of April 30, 1996, the Company had licensed Unify
VISION to over 175 customers and Unify ACCELL and DataServer products to over
2,000 customers worldwide.
The Company's products are marketed and sold through the Company's direct
sales force in the U.S. and through subsidiaries in Japan, England, France, the
Netherlands and Germany and through a network of distributors and value added
resellers ("VARs") worldwide. Significant customers that have licensed Unify
VISION include, among others, Amoco, Fannie Mae, Glaxo, Hewlett-Packard, Merrill
Lynch, the National Security Agency, NYNEX, Pacific Bell and Sumitomo Metal
Industries Ceramics. The Company's largest VAR customers include Computron
Software, General Instrument, Northern Telecom, Triad Systems and Westinghouse
Security Electronics.
INDUSTRY BACKGROUND
Information technology ("IT") has increasingly become central to almost all
aspects of business operations from customer ordering and support to
manufacturing systems to domestic and international financial systems.
Historically, large organizations relied upon mainframe and mini-computers,
which offered reliability, streamlined control and scalability for multiple
users running transaction-intensive applications. However, the combination of
significant price/performance advances in computing capabilities and increased
competitive pressures to lower costs, improve performance and increase
flexibility and responsiveness have led organizations to attempt to manage more
of their business over networks of "client" and "server" computers. The move to
enterprise-wide "client/server" systems often requires that organizations
integrate diverse hardware and software environments which are distributed in
multiple locations. At the same time, organizations are increasingly automating
business processes. Such organizations are demanding timely delivery of
easy-to-use, robust and flexible applications. Addressing these requirements
concurrently creates significant challenges in developing, deploying and
managing applications.
The initial adoption of client/server computing occurred primarily at an
entry level, typically for small workgroups. These entry-level client/server
applications generally require relatively simple data sharing, generate low
network traffic, involve limited, simple transactions and source information
from a single shared central database. Entry-level applications have been based
upon a two-tier architecture with the application generally running on a single
desktop PC platform (first tier) with all data transferred to the client over a
network from a single shared database server (second tier). The success of
entry-level client/server applications has led organizations to extend
client/server computing through more of the business enterprise to address
business-critical operations. These new "high-end" applications are
significantly more difficult to develop and deploy as compared to entry-level
applications in that they must address issues such as support of distributed
heterogeneous environments; high volumes of complex on-line transaction
processing; and substantial numbers of concurrent enterprise-wide users.
The migration by many organizations toward client/server computing has
created significant demand for applications and their associated development
tools. According to the Hurwitz Consulting Group, the annual market size for
client/server development tools is projected to increase from approximately $600
million as of November 1995 to approximately $2.5 billion by the year 2000. This
market
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includes both the development tools offered by major relational database
vendors, which currently capture a significant portion of the overall
client/server tools market, as well as the developers of database-independent
tools.
The first generation of independent tools vendors, such as Powersoft with
its PowerBuilder product, addressed the need for database independence in the
development of entry-level client/server applications and provided easy-to-use
graphical tools. However, such entry-level tools have proven to be ineffective
in implementing high-end client/server applications. As the number of users
increase and applications become more complex, the network becomes burdened by
the amount of data which must be transferred to desktop PCs. Further, the
requirement for PC-only processing is a limiting factor for applications which
require increasingly complex and concurrent processing by multiple users. The
architecture of entry-level tools generally does not support "application
partitioning," in which application functions can be divided and processed on
multiple servers and not limited to processing only on the desktop PC. In
addition to this lack of scalability, the architectures of entry-level
application development tools do not support advanced development methodologies,
heterogeneous computing environments with multiple development and deployment
platforms, or advanced applications management and maintenance functionality.
Organizations seeking to deliver high-end client/server applications
confront multiple business issues. These include the cost of development, the
requirement to rapidly develop and deploy applications and the cost of
maintaining and extending applications as organizations evolve. Faced with these
issues and the pressure to address a growing backlog of business-critical
applications, many organizations are choosing to move, or "migrate," to high-end
client/server applications on an incremental basis rather than pursue a
full-scale enterprise-wide development process. This enables them to maximize
use of existing investments in personnel and computer infrastructure and reduce
the business disruption, time and cost of full-scale application development,
deployment and maintenance.
Whether organizations require full-scale, enterprise-wide, high-end
applications, or are migrating to such applications on an incremental basis,
organizations need tools with available features such as application
partitioning, scalability, rapid application development, application management
and the ability to run in heterogenous computing environments. At the same time,
organizations want to minimize IT expenditures and to avoid substantial
complexity and inflexibility, which leads to longer and more costly development
and maintenance.
THE UNIFY SOLUTION
Unify VISION provides comprehensive, integrated application development
solutions for customers planning to develop enterprise-wide, high-end
applications on a full scale, as well as customers that are migrating to
high-end client/server applications on an incremental basis. By providing
organizations with the benefits of low cost of entry, rapid time to market and
low cost of ownership, Unify VISION addresses customer needs for developing,
deploying and managing high-end client/server applications cost effectively and
efficiently. Unify VISION combines ease-of-use with the power and scalability of
advanced application development technology.
LOW COST OF ENTRY. Unify VISION allows organizations to adopt high-end
client/server solutions on an incremental basis. Unify VISION's approach to
scalable application development is designed to allow organizations to deliver
full-scale, enterprise-wide, high-end solutions or migrate to high-end client/
server solutions on an incremental basis. These applications can be readily
extended in functionality and for broader use throughout the organization. The
Company believes that the ease of use and flexibility of Unify VISION allow
organizations to maximize use of their existing investments in computer
infrastructure and development personnel. For example, Unify VISION offers
object-oriented programming, but allows developers to adopt object orientation
at their own pace, thereby increasing productivity. Similarly, Unify VISION
enables developers to use application partitioning, but allows developers to
avoid partitioning if additional complexity is not needed.
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RAPID TIME TO MARKET. The Company believes that the unique architecture of
Unify VISION allows organizations to develop and deploy high-end client/server
applications rapidly. Unify VISION has a scalable RADD (Rapid Application
Development and Deployment) architecture that is designed to enable developers
to quickly and easily produce complex, business-critical applications. Unify
VISION is designed to simplify the development and deployment of high-end
client/server applications through an easy-to-use graphical application
development environment; application partitioning; cross-platform portability;
its built-in application and transaction models; a sophisticated, but not rigid
object-oriented programming environment; and repository-based, team development
facilities.
LOW COST OF OWNERSHIP. Unify VISION is designed to reduce the cost of
managing and extending high-end client/server applications, addressing the needs
of organizations as they grow and change. Applications developed on one platform
can be deployed automatically on multiple platforms in a heterogenous computing
environment while maintaining a complete native look and feel. Applications are
developed using components which can be reused or extended. Partitioning of
applications can be invoked or changed in connection with the deployment of
applications, thereby eliminating the need for the application to be
redeveloped. Unify VISION's APPMAN also offers a broad range of application
management services, including event management, performance management,
software distribution, and administration. The Company believes that such
services optimize use of existing IT infrastructure and extend the lifespan of
existing applications, thereby reducing the demands on development personnel.
Unify VISION's APPMAN also provides automatic integration with leading system
and network management products thereby reducing the need for custom
programming.
STRATEGY
The Company's mission is to be the leading independent supplier of high-end
scalable client/server application development solutions. The following are the
key elements of the Company's strategy:
DELIVER EASY-TO-USE, SCALABLE, HIGH-END CLIENT/SERVER SOLUTIONS. The
Company believes that today's high-end development tools do not offer the ease
of use and scalability that customers will increasingly require. In order to
address these needs, the Company has developed a unique architecture which
provides for ease of use, lower development cost and full scalability. The
Company provides solutions for customers seeking to preserve existing IT
investments and minimize the costs and complexity of migrating to a
client/server environment. A key aspect of this strategy is to provide tools
which allow customers to develop applications which are truly scalable and which
can continue to be used and extended as the application is adopted more widely
throughout an enterprise.
SUPPORT CHANGING COMPUTING ENVIRONMENTS. The Company's strategy is to
provide tools which offer the same degree of ease-of-use, power and flexibility
in response to changing environments. The Company is developing enhancements to
Unify VISION to support application development for Internet and Intranet
applications. The Company believes Unify VISION is well-positioned for these
emerging market opportunities because the architecture of Unify VISION allows
customers to easily extend and adapt their high-end client/server applications
to changing environments.
CAPITALIZE ON LARGE INSTALLED CUSTOMER BASE. The Company plans to continue
to leverage its installed base of over 2,000 customers of Unify ACCELL and
DataServer and 300,000 end-users worldwide. The Company's strategy is to sell
Unify VISION to this customer base as it migrates to high-end client/server
applications, while continuing to seek revenue from sales of enhanced versions
of its Unify ACCELL and DataServer products in the interim. Unify VISION
provides a unique scalable solution which allows Unify ACCELL customers to
maximize their significant investment in existing applications while upgrading
to more advanced client/server applications. The Company is continuing to devote
resources to enhance its Unify ACCELL and DataServer products, thereby assisting
its customers which are not yet ready to move to high-end client/server
environments.
LEVERAGE WORLDWIDE INFRASTRUCTURE. The Company has developed an extensive
international network to provide direct and indirect sales, product development
and support. The Company has more than five years of extensive experience in
developing international versions of its products and selling
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and supporting such products internationally. International sales represented
57% of revenues in each of fiscal 1995 and fiscal 1996. The Company believes
that this network will be an important competitive factor in taking advantage of
the emerging adoption of client/server computing internationally.
EXPAND VAR SALES CHANNELS. The Company believes that the flexibility and
ease of use of its development tools are particularly well-suited for use by
VARs. The Company currently has over 400 VAR customers, and sales to VARs
represented approximately 35% of software license revenues in fiscal 1996. Use
of VARs allows the Company to expand its sales channels using the VARs' sales
forces and minimizes the cost of customer support. The Company has developed
specialized pricing and support policies to support VARs. In order to increase
its market presence, the Company intends to focus additional resources to
recruit additional medium to large VARs.
DIFFERENTIATE THROUGH SUPERIOR CUSTOMER SUPPORT. The Company believes that
superior customer support is critical for customers to successfully deliver
high-end client/server solutions. Due to the complexity of client/server
computing, support services must be able to address issues which arise from
components of the client/server system beyond the Company's products such as
multiple databases, computing platforms and operating systems. The Company has
nearly fifteen years of experience in supporting database and application
development products. Because each customer has unique needs, the Company offers
modular customer support programs that match each customer's development cycle
and allow for the addition of new services as needs change.
PRODUCTS
The Company's products include Unify VISION and the Unify ACCELL and
DataServer families of products. Unify VISION is an advanced client/server
application development tool for development, deployment and management of
high-end scalable applications. Unify ACCELL is a family of 4GL application
development tools and Unify DataServer is a family of database management system
products. Since the introduction of Unify VISION 2.0, license revenues from
Unify VISION have continued to represent an increasing percentage of the
Company's revenue, increasing from 12% of license revenues in fiscal 1995 to 25%
of license revenues in fiscal 1996.
UNIFY VISION
Unify VISION is an advanced client/server application development
environment, designed to offer ease-of-use and to combine the flexibility and
productivity of client/server computing with the scalability and performance
required by enterprise-wide high-end applications. Unify VISION supports all
three major parts of the application lifecycle -- development, deployment and
management. Unify VISION is designed to provide deployment and management
flexibility and to allow end-users to adopt their applications to their changing
enterprise without substantial custom programming.
Unify VISION provides an object-oriented, graphical development environment
that includes a multi-user repository for team development, a powerful 4GL, a
graphical user interface ("GUI") designer, and an interactive debugging
facility. Unify VISION automatically interfaces and tightly integrates with
leading database systems. Unify VISION provides a set of built-in dialog forms,
called SmartView dialogs, that automates the task of selecting and customizing
application features and eliminates custom programming. Applications developed
with Unify VISION are portable across heterogenous desktop GUI, operating
system, network and database platforms. Developers can build complex
applications in their preferred development platform and deploy across preferred
end-user environment without the need for custom programming or recompilation.
Unify VISION supports automated, dynamic application partitioning, and can be
deployed in two-tier or multi-tier network environments.
Unify VISION's APPMAN is designed to automate the management of high-end
applications by embedding application management functionality into every
application. Unify VISION's APPMAN automatically supports software distribution,
event management, administration, and performance
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management. Unify VISION also automatically integrates with industry-leading
third-party system and network management products. It also includes an open
toolkit to allow developers to integrate the system and network management
products of their choice.
Unify VISION supports Windows, Windows NT and Motif desktops for both
application development and deployment and Macintosh for deployment only. Unify
VISION supports the native "look and feel" of all of these desktop interfaces.
Unify VISION supports all leading server platforms including IBM RS/6000, HP
9000, SUN SPARC, Digital Alpha UNIX, and Windows NT. Unify VISION provides
native interfaces to leading database products including Oracle, Sybase,
Informix, CA-Ingres, Microsoft SQL Server and Unify DataServer. Unify VISION
supports the Microsoft ODBC interface for PC-based workgroup database products.
The Company has adopted a platform-independent, user-based pricing model and
licenses its software for both development and deployment. The U.S. list price
for Unify VISION development license fees is $4,995 per developer. Deployment
license fees are $395 per application per end-user and $10,000 per application
server. The Company also bundles five development licenses and 10 deployment
licenses for a U.S. list price of $25,000. Typical initial license fees range
from $25,000 to $100,000.
UNIFY ACCELL
Unify ACCELL development tool sets are UNIX-based application development
products for building complex, business-critical applications targeted for
character-based platforms. They are designed to maximize developer productivity
through tight integration of 4GL technologies and optimized database features in
a flexible development environment. Unify ACCELL's modular architecture combines
an application generator, 4GL, and an interactive debugging facility with
database-server connectivity.
Developers can use the Unify ACCELL application generator to create forms
from scratch or can use an automatically-created default form. Unify ACCELL's
4GL is an event-driven programming language with powerful features supporting
more than 250 4GL statements, data types and functions. Unify ACCELL's database
independent technology supports native interfaces to major database products
including Oracle, Sybase, Informix, CA-Ingres and Unify DataServer. Unify ACCELL
applications are also portable across industry leading UNIX platform, database,
and client/server networking environments.
License fees for Unify ACCELL are based upon the hardware configuration and
number of end-users. The U.S. list prices range from $2,120 for a single
developer system to $425,000 for the largest multi-user systems.
UNIFY DATASERVER
Unify DataServer is a family of database management products that is
designed to scale from small systems to large high volume on-line transaction
processing (OLTP) systems. At the entry level, the Unify DataServer is designed
to be a high performance easy-to-use product with minimal maintenance and memory
requirements. The DataServer family of products is designed so that the growth
of user requirements over time can be quickly accommodated. Unify DataServer
supports ANSI SQL standard and an industry standard ODBC interface to provide
access to hundreds of third-party tools and products. Unify DataServer products
provide a variety of database access methods which deliver high performance
across a wide variety of environments and deployment configurations. Unify
DataServer products support all major UNIX platforms and client/server
networking environments.
Unify DataServer pricing is based upon hardware configuration and the number
of users. The U.S. list prices range from $1,410 for a single developer system
to $342,000 for the largest multi-user systems.
SERVICE AND SUPPORT
The Company believes that superior customer service and support, including
product support and maintenance, customer training and consulting services, are
critical for achieving and maintaining
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customer satisfaction and for assisting customers to successfully develop and
deliver high-end client/ server solutions. Due to the complexity of
client/server computing, support services must be able to address issues which
arise from components of the client/server system beyond the Company's products
such as multiple databases, computing platforms and operating systems. The
Company has extensive experience in supporting database and application
development products. The Company's service and support revenues for fiscal 1996
were $9.7 million or 32% of total revenues for such period.
SUPPORT. The Company offers modular customer support programs which can be
modified to match the customers' development cycles and can be customized as
needs change. All support levels provide telephone, e-mail and facsimile access,
enabling customers to log inquiries for resolution by the Company's support
staff. Service levels can be tailored by customers to select preferred call
response time, information reporting, and other features including 24-hour a
day, seven days a week support. The Company currently has annual maintenance
contracts with over 750 customers. During each of the past three years, over 80%
of the Company's support customers have renewed their support contracts.
Annual Unify VISION support is priced at $1,250 plus 10% of the development
license fee per developer for up to 4 developers. Support for additional
developers is generally priced at 10% of the license fee for each such
developer. Annual support for deployment licenses is generally priced at 10% of
the deployment license fee.
TRAINING. The Company is committed to offering its customers a
comprehensive range of training courses and materials. The Company offers two
educational options. Customers may attend a broad range of courses offered on a
regularly scheduled basis at Unify training centers located in San Jose,
California; Reston, Virginia; Surrey, England; Paris, France; Tokyo, Japan and
Vianen, the Netherlands. The Company can also provide on-site training at
customers' facilities. Charges for training services are $1,750 per student for
a five-day program.
CONSULTING. The Company provides a full range of consulting services with
the objective of adding value to the development process while at the same time
protecting customers' initial software investment. The primary goal of
consulting services is to enable customers to approach development in a manner
which maximizes the benefits that can be derived from the Company's tools and to
successfully develop high-end client/server applications. Consulting services
are generally used in connection with complex development projects and often
involve, among other elements, business process re-engineering, full life cycle
application development, and design and development reviews. Charges for
consulting services average between $1,000 to $1,500 per day with typical
consulting services running from one to eight weeks in duration.
As of April 30, 1996, the Company had 25 employees engaged in support and 15
in training and consulting. The Company intends to continue to expand its
service and support staff and make additional investments in its support
infrastructure during the remainder of fiscal 1997.
UNIFY VISION TECHNOLOGY
The Company has designed and developed Unify VISION to provide a
comprehensive, integrated solution for development, deployment and management of
high-end client/server applications.
APPLICATION DEVELOPMENT. Unify VISION provides an integrated,
object-oriented, repository-based development environment which is designed to
enable developers to quickly and easily produce high-end business-critical
client/server applications. Below is a graphical depiction of this development
environment.
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[LOGO]
Unify VISION's SCALABLE RADD (Rapid Application Development and Deployment)
architecture supports the transition to an object-oriented paradigm, but does
not require programmers to be fully trained in object orientation. Rather, Unify
VISION supports a flexible transition, combining object-oriented and procedural
programming techniques so that a customer can evolve towards object orientation
at its own speed while maintaining productivity. Unify VISION includes a
GUI-independent graphical designer, a class editor, an object-oriented 4GL,
graphical debugger, and built-in SmartView dialogs. Developers can use SmartView
dialogs to define complex operations such as application behavior and database
interfaces without manual coding. Unify VISION is built on a default application
and transaction model that eliminates much of the low-level repetitive complex
programming effort. The model consists of a set of built-in procedures and logic
that automates code-intensive functions including GUI behavior, form generation,
application partitioning, enterprise-wide database connectivity,
transaction-based logic and cross-platform portability. Unify VISION's
multi-user object repository and integrated version control facilities allow
large teams of developers to work together to develop an application without
overriding or corrupting each other's application code.
Unify VISION's GUI SMART ARCHITECTURE allows developers to build
applications which are independent of the desktop windowing system. Unify VISION
includes a platform-independent GUI toolkit that stores applications in a GUI
independent format and provides user-controlled font mapping. The application
automatically assumes the native look and feel of the GUI platform on which it
is running, eliminating the need to recompile or redesign the user interface.
This enables a team of developers to work within their preferred GUI environment
and co-develop an application.
Unify VISION's DATABASE SMART ARCHITECTURE automates and simplifies the
complex task of database interfacing. It provides built-in, high-performance
database access which exploits specialized features in major database management
systems. The application programmer simply specifies the database table
associated with each object, the transaction rules and the locking mode, and
Unify VISION automatically generates the optimum programming code. Unify VISION
provides portability for applications across all leading databases, supporting
all native extensions while enabling the use of vendor-specific enhancements
such as PL/SQL or TRANSACT-SQL. Unify VISION's DATABASE SMART interface
automates virtually all database connectivity and transaction management
including query-by-form, insert, update, delete, master/detail relationship, and
transaction control. Unify VISION generates optimized SQL for each brand of
database and supports simultaneous access to multiple heterogeneous data
sources. Furthermore, when an application originally developed for one database
is switched to another, Unify VISION automatically resolves the differences in
command syntax, semantics, locking, and transaction control without additional
coding.
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Unify VISION's EXTENSIBLE PLATFORM-INDEPENDENT ARCHITECTURE allows customers
to write platform-independent applications while at the same time integrating
with platform-specific products such as Microsoft Word and Lotus Notes.
Customers can integrate their applications with third-party products via
AppleTalk, AppleEvents, Windows DDE and UNIX sockets, depending on the platform.
In addition, Unify VISION 3.0, currently scheduled for release in the third
calendar quarter of 1996, will also support object linking and embedding (OLE).
Unify VISION's OLE automation will allow users to create form objects containing
Word documents, Excel spreadsheets, and other third-party objects. In addition,
applications running on Windows, Windows NT, UNIX, and Macintosh will be able to
access OLE objects via OLE automation.
APPLICATION DEPLOYMENT. Unify VISION's platform-independent architecture
combined with its advanced distributed application processing services,
including application partitioning, provide a variety of flexible and extendable
deployment alternatives. Below is a graphical depiction of this deployment
environment.
[LOGO]
Unify VISION's distributed application services are built around an OBJECT
BROKER technology that supports automated, dynamic partitioning and execution of
applications. Application partitioning involves the splitting apart of
application components such as desktop services, application services, and data
management services and locating them on various computing resources throughout
the network. Application partitioning provides enhanced scalability and resource
utilization and maximizes performance while reducing maintenance requirements.
Unify VISION's OBJECT BROKER is a custom messaging technology, designed to
scale for most any type of computing environment including single CPU, Symmetric
Multi-Processors (SMP), tightly-coupled processor clusters, and massively
parallel systems (MPP). Unify VISION's OBJECT BROKER supports asynchronous
messaging and publish/subscribe event generation and reporting features. Unify
VISION developers can develop partition-ready applications and deploy them
across multiple computing resources, all linked transparently with the Unify
OBJECT BROKER. Unify VISION applications are network configuration independent
and can be deployed on two-tier or multi-tier networks without specific coding,
configuration changes, or recompiling. These application partitions are binary
portable and can be stored in a network server. At the time of execution, Unify
VISION's advanced distributed services automatically establish communication
links among the various partitions of applications.
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Unify VISION's advanced distributed services support shared and reusable
application services that allow a single copy of an application service to be
shared by multiple clients and used among several applications. This allows IT
organizations to reduce maintenance costs and provides a higher level of control
and efficiency. Unify VISION's server replication technology supports multiple
copies of an application service distributed throughout the network. This
provides higher scalability, more efficient load balancing and higher system
availability in case of partial system failure.
APPLICATION MANAGEMENT. Unify VISION's comprehensive, open, integrated
management architecture enables IT organizations to manage their applications
using any preferred management system or different systems at different sites.
The architecture is open and extendable, capable of evolving in parallel with
the customers' developing client/server management infrastructures. Unify VISION
automatically embeds application management functionality in the application
during the development cycle. Below is a graphical depiction of this management
environment.
[LOGO]
For event management, Unify VISION automatically embeds over 400
application-specific events into the developed application. In addition,
developers can define their own application-specific events. Unify VISION's
APPMAN includes agents for Tivoli's Enterprise Console and BMC Patrol.
For performance management, Unify VISION's APPMAN automatically monitors and
generates over 60 different performance metrics. These metrics profile the vital
statistics of an application with respect to response times and resource
utilization. Unify VISION's APPMAN includes software agents for integration with
the H.P. MeasureWare system and PerfView console and BMC Patrol performance
management products.
For software distribution, Unify VISION's APPMAN enables developers to
incorporate software distribution and configuration information during the
development cycle. The resulting application is in a "distribution-ready"
format, compatible with industry-leading ESD (Electronic Software Distribution)
systems. Unify VISION's APPMAN includes an automated deployment configurator
that guides the developer through the process of specifying file configurations
for target platforms. The embedded software agents then automatically generate
the application description files and distribution specifications for the system
administrator's preferred ESD system. Unify VISION's APPMAN provides consistent,
standardized and correct installation of updates of VISION applications across
an enterprise. Unify VISION's APPMAN includes software agents to support
Tivoli's Courier and Microsoft's SMS products.
For administration, Unify VISION provides an integrated graphical console to
display, start, stop and restart Unify VISION application partitions. It also
enables system administrators to view and manage the various components of the
distributed application.
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CUSTOMERS AND MARKETS
As of April 30, 1996, the Company had licensed Unify VISION to over 175
customers worldwide and Unify ACCELL and DataServer products to over 2,000
customers worldwide. The Company's target end-user customers include commercial
and government organizations that utilize sophisticated business-critical
information systems distributed over heterogeneous operating systems and
databases. No customer accounted for more than 10% of the Company's total
revenues for fiscal 1995 or 1996. The following is a representative list of the
Company's end-user customers which purchased at least $25,000 of Unify product
during the last two years:
FINANCIAL SERVICES
3i
Abbey National*
Bear Stearns & Company
Citicorp
Credit Lyonnais
Fannie Mae*
Fondo Comun*
Merrill Lynch*
Monroe Title Insurance*
Moscow Savings Bank
National Australia Bank
National Westminster Bank plc
New Mexico Mutual Casualty
Sherwood Insurance Systems
State Fund Mutual Insurance
ENERGY
AMOCO*
Itron*
Martin Marrietta Energy Systems
North Power*
Oxley Electricity*
CONSUMER/RETAIL
Budweiser
Equifax
Escom
Tesco Stores
MANUFACTURING
Boeing
Cannon
Hewlett-Packard*
Hitachi
Interleaf
Kubota System Development*
Motorola
OKI
Northrop/Gruman
Pitney Bowes
Siemens
Sony
Sumitomo Metal Industries Ceramics*
Symphony Kitchens
Temple Inland*
Westinghouse Security*
GOVERNMENT AND EDUCATION
Auburn University
Deakin University
Defense Logistics Agency*
National Security Agency*
Social Security Administration*
U.S. Air Force*
U.S. Army
U.S. Navy
TELECOMMUNICATIONS AND MEDIA
- ------------------------
AT&T
BBC
Cellular Technical Services
Northern Telecom
NTT
NYNEX Corporation*
Pacific Bell*
Reed Information Systems*
Reuters Limited
Southwestern Bell
Telebahia*
US Order*
US West Communications
SERVICES/OTHER
Australian Red Cross*
Computer Sciences Corp.
France Informatique*
Glaxo
Management Recruiters International*
Parkside Community Psychiatric
Sogitec*
UGAP*
Wang Federal Systems*
- ------------------------
* Represents customers that have purchased at least $20,000 of licenses for
Unify VISION.
The Company also sells to VARs, the largest customers for the Company's
products, including Computron Software, General Instrument, Northern Telecom,
Triad Systems and Westinghouse Security Electronics.
Representative case studies of Unify VISION applications in use include:
GOVERNMENT. A large multinational security agency has used Unify VISION for
over a year to develop applications that serve over 700 users. The applications
run with over 50 concurrent users on each server. These enterprise applications
were built in about six months and are deployed on Sun, Microsoft Windows and
IBM RS/6000 platforms. As a result of Unify VISION's ability to run on
35
<PAGE>
multiple platforms, the development team needed to learn only one development
tool environment. A ten-person development team was able to leverage the rapid
application development features of Unify VISION to quickly amend the 150 forms
found in some of the relatively complex installed applications.
TELECOMMUNICATIONS. A major telecommunications firm is using Unify VISION
to develop and deploy customer service management applications, thereby
improving customer satisfaction while reducing costs. The application
facilitates closure of a customer trouble ticket on one call by retrieving the
incoming caller's ID and phone number and using this information to retrieve and
display all pertinent customer data. The application is used by over 150
customer service representatives and roll-out plans call for an additional 650
users within 12 months. Among the reasons Unify VISION was chosen for the
project include the product's ability to extract information from multiple
databases, such as Oracle and Unify DataServer databases, without locking the
user into a certain client platform.
MANUFACTURING. A large supplier of PC printers employs Unify VISION as the
application development environment for handling their 400-user defects
management system linking three servers at different locations. After three
months of development, the customer was able to rebuild its existing application
and migrate from a character-based client/server environment. Unify VISION's
built-in automated functionality and powerful 4GL enabled the customer to
significantly reduce the number of forms and coding required. Unify VISION
provided a rapid GUI application environment complete with an open interface to
CASE and source code management tools as well as a single code stream supporting
multiple platforms. These capabilities enabled the customer to deploy to
multiple platforms without recompiling, thereby enabling rapid deployment.
FINANCIAL SERVICES. A full-service brokerage firm uses Unify VISION to
develop and support on-line and static security trading systems for their
municipal bond trading floors. The Sun and Windows-based application is the
front-end to mainframe security and pricing data. Part of the enterprise
roll-out includes global and local distributed application partitioning and
application management in both London and New York. Unify VISION satisfied the
customer's requirement for a flexible, easy-to-use tool which could create
applications deployable across multiple platforms. Unify VISION met the
requirements and allowed three database administrators who were knowledgeable
about the data but lacked programming expertise to develop the application and
respond to changing user requirements. During end-user testing, the database
administrators effectively modified the application to integrate with an
additional data source.
SALES AND MARKETING
The Company markets its products and services domestically through a
combination of direct sales and indirect channels, including distributors and
VARs. The Company's marketing efforts are primarily directed at broadening the
market for Unify VISION by increasing the awareness of the importance of a
high-end client/server application development environment and at supporting the
Company's direct and indirect sales channels. Marketing activities include,
among others, conducting public relations and product seminars, issuing
newsletters, conducting direct mailings, preparing other marketing materials,
coordinating the Company's participation in industry programs and forums and
establishing and maintaining close relationships with recognized industry
analysts. The Company also maintains a site on the World Wide Web.
The Company plans to continue to leverage its installed base of over 2,000
Unify ACCELL and DataServer customers and 300,000 end-users worldwide. The
Company's sales and marketing strategy in part targets this installed base with
the objective of generating significant revenue for Unify VISION as this
customer base migrates to high-end client/server applications. The Company is
also continuing to devote resources to upgrade its ACCELL and DataServer
products, thereby assisting those of its customers that are not yet moving to
high-end client/server applications.
The Company believes that the flexibility and ease-of-use of the Company's
development tools are particularly well suited for use by VARs and that the VAR
channel represents a significant market opportunity. In order to increase its
market presence, the Company intends to supplement its direct
36
<PAGE>
sales activities by expanding its existing VAR sales channels through a focused
program to recruit additional medium to large VARs. Revenues from distributors
and resellers accounted for approximately 61%, 59%, and 60% of the Company's
software license revenues for fiscal 1994, 1995 and 1996, respectively. The
Company's ability to achieve significant revenue growth in the future will
depend in large part on its success in maintaining existing and establishing
additional relationships with distributors, resellers and VARs worldwide.
The Company markets its products internationally through subsidiaries in
Japan, England, France, the Netherlands and Germany and through distributors and
VARs. International revenue accounted for 51%, 56% and 56% of total revenues in
fiscal 1994, 1995 and 1996, respectively.
As of April 30, 1996, the Company had 64 and 11 employees engaged in sales
and marketing activities worldwide, respectively. The Company intends to
continue to expand its sales and marketing staff and make additional investments
in marketing and advertising during fiscal 1997.
PRODUCT DEVELOPMENT
Since its inception, the Company has made substantial investments in product
development, and the Company anticipates that it will continue to commit
substantial resources to product development in the future. The Company's
principal development projects include Unify VISION 3.0, which, in addition to a
number of enhancements to existing features, will incorporate support for OLE 2
for application integration and a native Microsoft Windows 95 desktop
environment. Unify VISION 3.0 is expected to be released during the third
calendar quarter of 1996. The Company is also developing a version of Unify
VISION'S APPMAN which can be used by customers to provide application management
for use with applications developed with other development tools. Also, as part
of its strategy to support the extended enterprise, the Company is developing a
version of Unify VISION for use in development of Internet and Intranet
deployable applications. Unify's VISION Web facility allows customers to develop
multi-tiered, high-end client/server applications which run in either LAN-based
client/server environments or over the Internet. In addition, the Company
continues to invest in enhancements to its Unify ACCELL and DataServer products.
The Company's product development activities are conducted at its
Sacramento, California facility and its San Jose, California headquarters. As of
March 31, 1996, the Company had a total of 59 employees and contractors in
product development, including 48 development engineers. The Company's product
development expenditures for fiscal 1993, 1994, 1995 and 1996 were $7.0 million,
$6.3 million, $5.7 million and $5.8 million, respectively. The Company expects
that product development expenses will continue to increase through fiscal 1997.
The Company believes that its future financial performance will depend, in
significant part, on the Company's ability to successfully develop, introduce
and gain customer acceptance of new products and enhanced versions of existing
products, to respond to changing customer requirements and to develop and
introduce enhancements and new products in a timely manner that keep pace with
technological developments and emerging industry standards.
COMPETITION
The Company has experienced and expects to continue to experience intense
competition from current and future competitors. The Company's current direct
competitors for high-end client/server development tools include, among others,
Forte and Dynasty. The Company also competes with database vendors such as
Oracle, Informix, Sybase, IBM and others, which offer their own development
tools for use with their proprietary databases. In addition to its direct
competitors, the Company also competes with companies that offer other types of
development tools which can be used in lieu of advanced development tools such
as Unify VISION. Among the other types of tools which can be used by customers
include products offered by Powersoft, Microsoft and others.
For its Unify ACCELL and DataServer products, the Company's business
generally derives from sales of upgrades or additional run time versions of its
products. As a result, the competitive factors are generally the consideration
by a customer as to whether to develop a new system rather than whether to
37
<PAGE>
use a competitor's products with the existing application built using the
Company's products. Vendors of products competitive to the Company's Unify
ACCELL and DataServer products include companies such as Oracle, Informix and
Sybase, among others.
Many of the Company's competitors have significantly greater financial,
technical, marketing and other resources than the Company. The Company's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or devote greater resources to the
development, promotion and sale of their products than the Company. Also, many
current and potential competitors have greater name recognition and more
extensive customer bases that could be leveraged. The Company also expects to
face additional competition as other established and emerging companies enter
the client/server application development market and new products and
technologies are introduced. Increased competition could result in price
reductions, fewer customer orders, reduced gross margins and loss of market
share, any one of which could materially adversely affect the Company's
business, operating results and financial condition. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Such competition could materially adversely affect the Company's ability
to sell additional licenses and maintenance and support renewals on terms
favorable to the Company. Further, competitive pressures could require the
Company to reduce the price of its products and related services, which could
materially adversely affect the Company's business, operating results and
financial condition. There can be no assurance that the Company will be able to
compete successfully against current and future competition, and the failure to
do so would have a material adverse effect upon the Company's business,
operating results and financial condition.
The Company believes that the most significant competitive factors include
ease of application development, deployment and management functionality;
product performance and quality; customer support; product architecture; and
price. The Company believes it presently competes favorably with respect to each
of these factors. However, the Company's market is still evolving and there can
be no assurance that the Company will be able to compete successfully against
current and future competitors and the failure to do so successfully will have a
material adverse effect upon the Company's business, operating results and
financial condition.
INTELLECTUAL PROPERTY
The Company relies on a combination of copyright, trademark and trade-secret
laws, non-disclosure agreements and other methods to protect its proprietary
technology. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights as fully as do the laws of the United States. There can be no assurance
that the Company's means of protecting its proprietary rights in the United
States or abroad will be adequate or that competition will not independently
develop similar technology.
Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any notices that the Company is infringing intellectual property rights of
others, there can be no assurance that such infringement claims will not be
asserted by third parties in the future. If any such claims are asserted, there
can be no assurance that the Company will be able to obtain licenses on
reasonable terms. The Company's involvement in any patent dispute or other
intellectual property dispute or action to protect trade secrets and know-how
may have a material adverse effect on the Company. Adverse determinations in any
litigation may subject the Company to significant liabilities to third parties,
require the Company to seek licenses from third
38
<PAGE>
parties and prevent the Company from manufacturing and selling its systems. Any
of these situations can have a material adverse effect on the Company's
business, results of operations or financial condition.
The Company is dependent on third-party suppliers for certain software such
as Galaxy from VISIX Software and RPC Tool from Microsoft, which are imbedded in
certain of its products. Although the Company believes that the functionality
provided by software which is licensed from third parties is obtainable from
multiple sources or could be developed by the Company, if any such third-party
licenses were terminated or not renewed or if these third parties fail to
develop new products in a timely manner, the Company could be required to
develop an alternative approach to developing its products which could require
payment of substantial fees to third parties, internal development costs and
delays and might not be successful in providing the same level of functionality.
Such delays, increased costs or reduced functionality could materially adversely
affect the Company's business, operating results and financial condition.
EMPLOYEES
As of April 30, 1996, the Company had a total of 190 employees, including 42
in product development, 40 in consulting, training and support, 75 in sales and
marketing and 33 in operations and administration. Of these employees, 146 were
located in the United States, 34 were located in Europe, and ten were located in
Japan.
Since February 1995, the Company has hired a new senior management team and
made significant changes in the Company's organization in order to focus on the
development, marketing and support of Unify VISION. Approximately half of the
Company's officers were hired within the past 18 months, and the Company intends
to hire additional key personnel in the near future. In addition, most of the
sales and marketing force was hired during the past 12 months.
The success of the Company depends in large part upon the ability of the
Company to recruit and retain qualified employees, particularly highly-skilled
engineers and direct-sales and support personnel. The competition for such
personnel is intense. There can be no assurance that the Company will be
successful in retaining or recruiting key personnel. Any failure by the Company
to expand or retain its engineering, direct sales and support personnel would
materially adversely affect the Company's business, operating results and
financial condition. None of the Company's employees are represented by a
collective bargaining agreement, nor has the Company experienced any work
stoppage. The Company considers its relations with its employees to be good.
FACILITIES
The Company maintains its headquarters in San Jose, California, in a 12,000
square foot facility under a lease which expires in September 2000. The Company
also leases 30,000 square feet of administrative and engineering space in
Sacramento, California under a lease which expires in October 2000. In addition,
the Company leases sales and support offices in Chicago, Illinois; Irving,
Texas; New York, New York; and Reston, Virginia. The Company also maintains
international offices in England, France, the Netherlands and Japan. The Company
believes that its existing facilities are adequate for its current needs. The
Company believes that suitable additional or alternative space will be available
in the future on commercially reasonable terms as needed. Nevertheless, any move
to new facilities or expansion could be disruptive and could have a material
adverse effect on the Company's business results, operations and financial
condition.
39
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
----------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Reza Mikailli 44 President, Chief Executive Officer and Director
Paul H. Bach 38 Vice President, US Commercial Sales
Scott Canali 39 Vice President, Marketing
James C. Fleming 51 Vice President, Worldwide Sales
Malcolm Padina 50 Vice President, European Sales
Terrence J. Reilly 51 Vice President, Intercontinental Sales
Susan Salvesen 40 Vice President, Finance and Administration and Chief
Financial Officer
Frank Verardi 47 Vice President, Customer Support & Product Delivery
Walter Kopp 38 Director, Product Development
D. Kirkwood Bowman (1)(2) 55 Director
Arthur C. Patterson (1)(2) 52 Director
Gerard H. Langeler (1)(2) 45 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
REZA MIKAILLI has been President and Chief Executive Officer and a Director
of the Company since November 1994, after serving as Senior Vice President of
Products from October 1992 to November 1994. From 1989 to 1992 Mr. Mikailli was
Vice President of Server and Connectivity Products at Informix, a manufacturer
of computer database and software tool products. Mr. Mikailli received an M.S.
degree in computer science from Santa Clara University, and a B.S. degree in
computer science and a M.S. degree in mathematics from the University of Tehran,
Iran.
PAUL H. BACH has served as Vice President of U.S. Commercial Sales at the
Company since June 1995. From 1994 to May 1995, Mr. Bach served as Executive
Vice President, Field Operations of Infinity Financial Technology Incorporated,
a software company. From 1989 to 1994, Mr. Bach was employed by Borland
International, Inc. ("Borland"), a software company, most recently as Vice
President and General Manager, Interbase Business Unit and previously as Vice
President of U.S. Interbase Sales. Mr. Bach received a B.S. degree in economics
from The American University, Washington, D.C.
SCOTT CANALI has served as Vice President, Marketing at the Company since
April 1995. From 1992 to April 1995, Mr. Canali was Director, Marketing Programs
at Informix. From 1988 to 1992, Mr. Canali was employed by Motorola Inc., an
electronics company, as Director, Software & Channel Marketing of the Computer
Group. Mr. Canali received a B.A. in public service/management and
administration from the University of California at Davis.
JAMES C. FLEMING joined the Company as Vice President, Worldwide Sales in
January 1995. Prior thereto he was President of Intext Systems, a text storage
and retrieval company. From 1992 to 1994, Mr. Fleming served as Vice President,
U.S. Sales at Borland. From 1986 to 1992, Mr. Fleming was employed by Informix,
most recently as Vice President, U.S. & Canadian Sales and Client Services. Mr.
Fleming holds a bachelor's degree from U.C. Santa Barbara and California State
University at San Francisco.
40
<PAGE>
MALCOLM PADINA was appointed Vice President, European Sales at the Company
in February 1995. During 1994 Mr. Padina served as Vice President, European
Operations, of Visgenic Software Inc., a supplier of graphical database
development tools. From 1990 to 1993, Mr. Padina was Managing Director of the
English subsidiary of Informix.
TERRENCE J. REILLY joined the Company as Vice President, Intercontinental
Sales in April 1995. From 1993 to 1995, Mr. Reilly was employed by Blyth
Software, a software company, most recently as Vice President of North American
Sales. From August 1992 to November 1993, Mr. Reilly served as Vice President of
OEM & International Sales at Netlabs, Inc., a network management company. Mr.
Reilly received a B.A. degree in business administration/marketing from Dowling
College, and an A.S.B.A. degree in business and finance from State University of
New York, Farmingdale.
SUSAN SALVESEN joined the Company as Vice President, Finance and
Administration and Chief Financial Officer in April 1996. From May 1994 to April
1996, Ms. Salvesen was Vice President, Finance and Chief Financial Officer of AG
Associates, a semiconductor equipment company. From February 1988 to May 1994,
she served as Corporate Controller at Aspect Telecommunications, where she
managed the accounting and finance operations. She holds a B.A. degree in
economics from Douglass College of Rutgers University and an M.B.A. from the
University of Pittsburgh.
FRANK VERARDI joined the Company in 1988 as Manager of Consulting Services
and was named Director of Client Services in 1989. In November 1995, Mr. Verardi
was appointed Vice President, Customer Support & Product Delivery. Mr. Verardi
received a B.S. degree in Computer Sciences from California State University,
Chico.
WALTER KOPP joined the Company in 1987 as Engineering Manager. In 1992, Mr.
Kopp was named Director of Software Development and in January 1995 he was
appointed as Director of Product Development. Previously, he was Manager of
Software Tools at ROLM Corporation, a manufacturer of telecommunications
equipment, and a Systems Engineer and Systems Programmer at Data General, a
computer company. Mr. Kopp received a B.S. degree from Cornell University and a
M.S. degree in computer science from the University of Massachusetts.
D. KIRKWOOD BOWMAN has served as a director of the Company since December
1986. From 1985 to the present, Mr. Bowman has served as a General Partner of
Inman & Bowman Management, a venture capital management firm, which is the
General Partner of Inman & Bowman and Inman & Bowman Entrepreneurs, both of
which are venture capital funds. Mr. Bowman received a B.A. degree from the
University of the Pacific in international relations and an M.B.A. degree in
finance from the University of California at Berkeley.
ARTHUR C. PATTERSON has served as a director of the Company since December
1986. For more than five years Mr. Patterson has been a Managing Partner of
Accel Partners, a venture capital management firm investing in software and
telecommunication companies. Mr. Patterson is also a Director of Axcent
Technologies, a security software company, UUNet, an Internet access provider,
VIASOFT, a software company, PageMart, a wireless communication company and the
GT Global group of mutual funds.
GERARD H. LANGELER has served as a director of the Company since May 1993.
From 1992 to the present, Mr. Langeler has served as a General Partner of
Olympic Venture Partners, a venture capital firm. From 1981 to 1992, Mr.
Langeler served as an officer of Mentor Graphics, Inc., a software company. Mr.
Langeler currently serves as a director of Consep, Inc., an agricultural
biotechnology company. Mr. Langeler holds an A.B. degree from Cornell University
and an M.B.A. degree from Harvard University.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors or officers of the Company.
41
<PAGE>
The Board of Directors has a Compensation Committee and an Audit Committee,
both currently comprised of Messrs. Bowman, Langeler and Patterson. The
Compensation Committee makes recommendations to the Board concerning salaries
and incentive compensation for officers and employees of the Company. The Audit
Committee reviews the results and scope of the audit and other accounting
related services.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation earned by or paid to the
Company's Chief Executive Officer and to each of the Company's other most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000 (collectively, the "Named Executive Officers") for services rendered in
all capacities to the Company during the fiscal year ended April 30, 1996.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
OTHER ANNUAL OPTIONS ALL OTHER
SALARY BONUS COMPENSATION GRANTED COMPENSATION
NAME AND PRINCIPAL FUNCTION (1) YEAR ($) ($) ($) (#) ($)
- ------------------------------------------------------------ ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Reza Mikailli .............................................. 1996 $200,000 $ 88,250 -- 416,274 $12,000(1)
President & Chief Executive Officer
James Fleming .............................................. 1996 170,000 70,600 -- 10,000 12,000(1)
Vice President,
Worldwide Sales
Malcolm Padina ............................................. 1996 133,100 48,300 -- 7,142 30,700(2)
Vice President,
European Sales
Scott Canali ............................................... 1996 160,000 35,300 -- 81,790 6,000(1)
Vice President,
Marketing
Terrence Reilly ............................................ 1996 120,000 77,000 -- 40,977 6,000(1)
Vice President,
Intercontinental Sales
</TABLE>
- ------------------------
(1) Represents an automobile allowance.
(2) Includes $17,000 for automobile allowance and $12,000 for pension
contributions by the Company.
42
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the option grants
during fiscal 1996 to the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
INDIVIDUAL GRANT ANNUAL RATES OF
----------------------------------------------- STOCK PRICE
% OF TOTAL APPRECIATION FOR
OPTIONS GRANTED OPTION TERM (1)
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION ----------------
NAME (#)(2) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- -------------------------------------- ---------------------- --------------- ---------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Reza Mikailli......................... 223,070 21.4% $0.35 7/20/05 $49,101 $124,431
57,490 5.5 1.40 1/26/06 50,618 128,276
135,714 13.0 4.20 2/07/06 358,469 908,431
James Fleming......................... 10,000 1.0 1.40 1/26/06 8,805 22,312
Malcolm Padina........................ 7,142 0.7 1.40 1/26/06 6,289 15,938
Scott Canali.......................... 81,790 7.9 0.35 5/17/05 18,003 45,623
Terrence Reilly....................... 27,263 2.6 0.35 5/17/05 6,001 15,208
13,714 1.3 1.40 1/26/06 12,075 30,599
</TABLE>
- ------------------------
(1) The potential realizable value is based on the term of the option at the
time of grant (ten years). Potential gains are net of the exercise price but
before taxes associated with the exercise. Amounts represent hypothetical
gains that could be achieved for the respective options if exercised at the
end of the relevant option term. The assumed 5% and 10% rates of stock
appreciation are based on appreciation from the exercise price per share
established at the relevant grant date. These rates are provided in
accordance with the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of the future Common
Stock price. Actual gains, if any, on stock option exercises are dependent
on the future financial performance of the Company, overall market
conditions and the option holders' continued employment through the vesting
period. This table does not take into account any appreciation in the price
of the Common Stock from the date of grant to the date of this Prospectus,
other than the columns reflecting assumed rates of appreciation of 5% and
10%.
(2) All options granted in fiscal 1996 have an exercise price equal to the fair
market value on the date of grant. The Company granted options to purchase
an aggregate of 1,040,218 shares to all employees and consultants in fiscal
1996.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the option exercises
during the fiscal year ended April 30, 1996 by the Named Executive Officers and
the fiscal 1996 year end option values.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END (#) FY-END (1)
--------------------------- ---------------------------
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Reza Mikailli ...... 346,931 $181,790 -- 135,714 $ -- $617,499
James Fleming ...... 110,202 40,000 -- 8,639 -- 63,497
Malcolm Padina ..... -- -- 15,904 45,765 133,594 376,927
Scott Canali ....... 81,790 28,627 -- -- -- --
Terrence Reilly .... 27,263 9,542 -- 13,714 -- 100,798
</TABLE>
- ------------------------
(1) Based upon the fair market value of the Company's Common Stock at fiscal
year end of $8.75 per share, as determined by the Board of Directors less
the exercise price payable for such shares.
43
<PAGE>
1991 STOCK OPTION PLAN
The Company's 1991 Stock Option Plan (the "Stock Option Plan") became
effective in March 1991 and was last amended and restated in March 1996. The
purpose of the Stock Option Plan is to attract and retain qualified personnel,
to provide additional incentives to employees, officers and consultants of the
Company and to promote the success of the Company's business. A reserve of
2,200,000 shares of the Company's Common Stock has been established for issuance
under the Stock Option Plan. The Stock Option Plan is administered by the
Compensation Committee of the Board of Directors. Subject to the Stock Option
Plan, the Compensation Committee has complete discretion to determine which
eligible individuals are to receive option grants, the number of shares subject
to each such grant, the status of any granted option as either an incentive
stock option or a non-statutory option, the vesting schedule to be in effect for
the option grant and the maximum term for which any granted option is to remain
outstanding.
Each option granted under the Stock Option Plan has a maximum term of ten
years, subject to earlier termination following the optionee's cessation of
service with the Company. Options granted under the Stock Option Plan may be
exercised only for fully vested shares. The exercise price of incentive stock
options and non-statutory stock options granted under the Stock Option Plan must
be at least 100% and 85% of the fair market value of the stock subject to the
option on the date of grant, respectively (or 110% with respect to holders of
more than 10% of the voting power of the Company's outstanding stock). The
Compensation Committee determines the fair market value of the stock. The
purchase price is payable immediately upon the exercise of the option. Such
payment may be made in cash, in outstanding shares of Common Stock held by the
participant, through a full recourse promissory note payable in installments
over a period of years or any combination of the foregoing.
The Board of Directors may amend or modify the Stock Option Plan at any
time, provided that no such amendment or modification may adversely affect the
rights and obligations of the participants with respect to their outstanding
options or unvested shares without their consent. In addition, no amendment of
the Stock Option Plan may, without the approval of the Company's stockholders,
(i) materially modify the class of individuals eligible for participation, (ii)
increase the number of shares available for issuance, except in the event of
certain changes to the Company's capital structure, (iii) materially increase
the benefits accruing to Optionees under the Stock Option Plan, or (iv) extend
the term of the Stock Option Plan. The Stock Option Plan will terminate in March
2002, unless sooner terminated by the Board.
EMPLOYEE STOCK PURCHASE PLAN
In March 1996, the Board adopted the 1996 Employee Stock Purchase Plan (the
"Purchase Plan"). The Purchase Plan was approved by the stockholders of the
Company in May 1996. The Purchase Plan provides a means by which employees may
purchase Common Stock of the Company through payroll deductions. The Purchase
Plan is implemented by offerings of rights to eligible employees. Generally,
each offering is of 24 months' duration with purchases occurring every six
months. Common Stock is purchased for accounts of employees participating in the
Purchase Plan at a price per share equal to the lower of (i) 85% of the fair
market value of a share of Common Stock on the date of commencement of
participation in the Purchase Plan offering period or (ii) 85% of the fair
market value of a share of Common Stock on the date of purchase. Generally, all
employees, including executive officers, who work at least 20 hours per week and
are customarily employed by the Company or an affiliate of the Company for at
least five months per calendar year may participate in the Purchase Plan and may
authorize payroll deductions of up to 15% of their base compensation for the
purchase of Common Stock under the plan. The Purchase Plan authorizes the
Company to issue up to 400,000 shares of Common Stock. As of the date hereof, no
shares of Common Stock had been purchased under the Purchase Plan. The Purchase
Plan will terminate in March 2006.
EMPLOYMENT AGREEMENTS
In March 1995, the Company entered into an employment agreement with Mr.
Mikailli. Under the agreement, Mr. Mikailli receives an annual salary of
$200,000 and is eligible to receive certain bonus payments upon the Company's
achieving certain levels of its business plan. Mr. Mikailli was also given a
44
<PAGE>
one-time $25,000 "sign-on" bonus and was guaranteed a minimum bonus of $25,000
for each of the third and fourth quarters of fiscal year 1995. In addition, the
Company granted to Mr. Mikailli incentive stock options to purchase a number of
shares of the Common Stock of the Company such that the total number of shares
already held by him, plus the number of shares subject to options, represents 6%
of the fully diluted outstanding capital stock of the Company at such time. The
exercise price of the options is $0.35 per share and the options become
exercisable under a three-year vesting schedule. If Mr. Mikailli is terminated
within twelve months following a merger of the Company or a sale by the Company
of all or substantially all of its assets, these options will automatically
vest. If Mr. Mikailli is terminated under any other circumstances, such options
will have the benefit of one additional year of vesting and Mr. Mikailli will
receive his annual base salary, benefits and bonus for an additional six months
from the date of termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was formed in
March 1996 and the members of the Compensation Committee are Messrs. Bowman,
Langeler and Patterson. No executive officer of the Company serves as a member
of the board of directors or compensation committee of any entity which has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
DIRECTOR COMPENSATION
Members of the Company's Board of Directors currently do not receive cash
compensation for their services as directors. During February 1996 each of the
non-employee directors was granted an option to purchase 14,285 shares of Common
Stock at an exercise price of $4.20 per share, which options vest over a
three-year period.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation (the "Certificate")
limits the liability of directors to the maximum extent permitted by Delaware
law. Delaware law provides that a corporation's certificate of incorporation may
contain a provision eliminating or limiting the personal liability of a director
for monetary damages for breach of their fiduciary duties as directors, except
for liability for (i) any breach of their duty of loyalty to the corporation or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law or (iv) any transaction from which
the director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its directors,
officers, and trustees to the fullest extent permitted by law. The Company
believes that indemnification under its Bylaws covers at least negligence and
gross negligence on the part of indemnified parties. The Company's Bylaws also
permit the Company to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether the Bylaws would permit indemnification.
The Company has entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in the
Company's Bylaws. These agreements, among other things, indemnify the Company's
directors and executive officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the right of the
Company, arising out of such person's services as a director or executive
officer of the Company or any other company or enterprise to which the person
provides services at the request of the Company. The Company believes that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.
45
<PAGE>
CERTAIN TRANSACTIONS
In November 1993, the Company entered into a Revolving Credit Agreement with
certain investors (the "Lenders"), pursuant to which the Lenders agreed to make
available to the Company a revolving credit facility of up to $3,000,000. The
amount of the credit facility provided by holders of more than 5% of the
outstanding shares of the Company's Common Stock was as follows:
<TABLE>
<CAPTION>
NAME AMOUNT OF CREDIT
- --------------------------------------------------------------------------- -----------------
<S> <C>
Inman & Bowman (1)......................................................... $ 561,148
Accel Capital L.P (2)...................................................... 456,557
Olympic Venture Partners (3)............................................... 431,929
Merrill, Pickard, Anderson & Eyre (4)...................................... 274,991
Institutional Venture Partners (5)......................................... 255,199
Robert Fleming Nominees, Ltd. (6).......................................... 179,534
</TABLE>
- ------------------------
(1) D. Kirkwood Bowman, a director of the Company, is a General Partner of Inman
& Bowman ("I&B") Management which is a General Partner of I&B.
(2) Arthur Patterson, a director of the Company, is a General Partner of Accel
Capital L.P., Accel Capital (International) L.P, International Synergies
Ltd. and Ellmore Patterson Partners.
(3) Gerard Langeler, a director of the Company, is a General Partner of Olympic
Venture Partners ("OVP") II, is Attorney-in-Fact of Rainier Venture Partners
("RVP"), and a Vice President of RVP Advisors Fund and OVP II Advisors Fund.
(4) Merrill, Pickard, Anderson & Eyre ("MPAE") and related parties own of record
391,765 shares of Common Stock of the Company.
(5) Institutional Venture Partners ("IVP") and related parties owns of record
312,657 shares of Common Stock of the Company.
(6) Robert Fleming Nominees, Ltd. and related parties own of record 255,771
shares of the Common Stock of the Company.
The Company's obligations to pay each of the Lenders any amounts loaned to
the Company under the Revolving Credit Agreement were evidenced by full-recourse
Promissory Notes. Each Promissory Note provided that the principal amount of any
amounts loaned accrued interest at a rate of 3.75% per annum. The principal and
all accrued interest under each Promissory Note initially was due on August 30,
1995. In connection with the Revolving Credit Agreement, each Lender was also
issued a Warrant to purchase its pro rata share of 190,476 shares of the
Company's Common Stock at an exercise price of $1.75 per share. Such warrants
were immediately exercisable as to one-half of the shares covered thereby, with
the remaining one-half of the warrant exercisable only after such time as the
total amount advanced to the Company under the credit facility exceeded
$2,000,000. The amount advanced to the Company under the credit facility
exceeded $2,000,000 in January 1996. The warrants may be exercised by payment of
cash or the delivery of a promissory note or by a cashless exercise if the
Lender elects to receive the number of shares receivable upon exercise less the
number of shares having a value equal to the exercise price. The Revolving
Credit Agreement subsequently was amended on two separate occasions, pursuant to
which, among others, the term of the Agreement was extended, initially to
December 31, 1995, and, most recently, to July 31, 1997. Additionally, effective
as of December 31, 1995 the exercise price of the warrants was reduced from
$1.75 per share to $0.35 per share and the Lenders were granted certain
conversion rights relating to amounts outstanding under the revolving Credit
Agreement. Such conversion rights terminate upon the consummation of the
offering.
In January 1996, the Company entered into a loan transaction with Mr.
Mikailli, the proceeds of which was used to exercise stock options. As of April
30, 1996 the principal amount outstanding under such loan was $195,022. The loan
is a full recourse loan bearing interest at the rate of 5% per year and secured
by the underlying shares. The loan is due in three years or earlier on the sale
of the shares.
46
<PAGE>
In March 1995, the Company entered into an Employment Agreement with Mr.
Mikailli. See "Management -- Employment Agreements." The Company has entered
into indemnification agreements with each of its executive officers and
directors. See "Management -- Limitation of Liability and Indemnification
Matters."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors and principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested directors of the Board of
Directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
47
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of April 30, 1996, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by:
(i) each person (or group of affiliated persons) who is known by the Company to
own beneficially 5% or more of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers, (iv) all
directors and executive officers as a group and (v) each of the Selling
Stockholders of the Company's Common Stock. Except as otherwise noted, the
persons or entities in this table have sole voting and investment power with
respect to all the shares of Common Stock beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER OFFERING
-------------------------- NUMBER OF --------------------------
BENEFICIAL OWNER (1) NUMBER PERCENTAGE SHARES BEING SOLD NUMBER PERCENTAGE
- ------------------------------------------------ ----------- ------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Inman & Bowman (2) ............................. 769,781 13.3% 35,628 734,153 9.6%
4 Orinda Way
Bldg. D, Suite 150
Orinda, CA 94563
Accel Capital L.P. (3) ......................... 629,932 10.9% -- 629,932 8.3%
One Embarcadero Center
Suite 3820
San Francisco, CA 94111
Olympic Venture Partners (4) ................... 604,636 10.5% -- 604,636 7.9%
2420 Carillon Point
Kirkland, WA 98033
Merrill, Pickard, Anderson & Eyre (5) .......... 391,765 6.8% -- 391,765 5.1%
2480 Sand Hill Road
Bldg. 2, Suite 290
Menlo Park, CA 94025
Institutional Venture Partners (6) ............. 312,657 5.4% -- 312,657 4.1%
3000 Sand Hill Road
Bldg. 2, Suite 290
Menlo Park, CA 94025
Fleming Capital Management (7) ................. 255,771 4.4% -- 255,771 3.3%
1285 Avenue of the Americas
16th Floor
New York, New York 10019
D. Kirkwood Bowman (8) ......................... 771,368 13.3% 35,628 735,740 9.6%
Arthur C. Patterson (9) ........................ 631,519 10.5% -- 631,519 8.3%
Gerard Langeler (10) ........................... 606,223 10.5% -- 606,223 7.9%
Reza Mikailli (11) ............................. 384,732 6.7% -- 384,732 5.0%
James Fleming (12) ............................. 110,202 1.9% -- 110,202 1.4%
Malcolm Padina ................................. 18,175 * -- 18,175 *
Scott Canali (13) .............................. 81,790 1.4% -- 81,790 1.1%
Terrence Reilly (14) ........................... 27,263 * -- 27,263 *
All directors and executive officers as
a group (12 persons) (15) ..................... 2,726,423 47.1% 35,628 2,690,795 35.2%
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER OFFERING
-------------------------- NUMBER OF --------------------------
BENEFICIAL OWNER (1) NUMBER PERCENTAGE SHARES BEING SOLD NUMBER PERCENTAGE
- ------------------------------------------------ ----------- ------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Other Selling Stockholders
Selby F. Little, III ........................... 28,571 * 28,571 -- --
Merritt Lutz ................................... 25,704 * 25,704 -- --
David B. Edwards ............................... 52,135 * 24,985 27,150 *
Richard Terry Duryea ........................... 37,800 * 24,857 12,943 *
Nicholas Nierenberg ............................ 107,826 1.8% 20,717 87,109 1.2%
William Osberg ................................. 62,736 1.1% 20,912 41,824 *
Reed Taussig ................................... 17,535 * 17,535 -- --
Harris Trust and Savings Bank .................. 20,317 * 20,317 -- --
as Trustee for the Unisys
Corporation Master Trust
Rhode Island Securities Corporation ............ 19,203 * 19,203 -- --
Hall, Morris, Drufva II LP ..................... 33,648 * 8,878 24,770 *
Battery Ventures ............................... 195,636 3.4% 8,719 186,917 2.5%
Ronald Bassin .................................. 7,428 * 7,428 -- --
Larry Howard ................................... 32,427 * 6,855 25,572 *
Dougery & Wilder III ........................... 146,009 2.5% 6,507 139,502 1.8%
J. Gregory Harris .............................. 12,857 * 4,285 8,572 *
Emil Osberg .................................... 13,264 * 4,285 8,979 *
Sarah E. Gamble ................................ 1,548 * 1,548 -- --
Citibank/N.A. Custodian ........................ 1,548 * 1,548 -- --
for Larry Hagman IRA
Charles Fullerton .............................. 963 * 963 -- --
John R. Dougery ................................ 8,028 * 358 7,670 *
North Carolina Trust Company ................... 197 * 197 -- --
</TABLE>
- ------------------------
* Less than one percent.
(1) Except as set forth herein the address of the directors and executive
officers set forth in the table is the address of the Company appearing
elsewhere in the Prospectus. A person is deemed to be the beneficial owner
of securities that can be acquired by such person within 60 days upon the
exercise of options.
(2) Includes 756,601 shares held by I&B and 13,180 shares held by I&B
Entrepreneurs.
(3) Includes 356,687 shares held by Accel Capital L.P., 237,790 shares held by
Accel Capital (International) L.P., 4,617 shares held by Arthur C.
Patterson, 3,204 shares held by Internal Synergies Limited, and 27,634
shares held by Ellmore Patterson Partners.
(4) Includes 451,478 shares held by OVP II, 149,254 shares held by RVP, 2,053
shares held RVP Advisors Fund and 1,851 shares held by OVP II Advisors Fund.
(5) Includes 386,097 shares held by MPAE IV and 5,668 shares held by MPAE
Technology Partners.
(6) Includes 307,970 shares held by IVP IV and 4,687 shares held by IVP
Management IV.
49
<PAGE>
(7) Includes 212,570 shares held by Fleming Capital Management, Inc. and 43,201
shares held by Robert Fleming Nominees, Ltd.
(8) Includes 756,601 shares held by I&B and 13,180 shares held by I&B
Entrepreneurs. Mr. Bowman is a General Partner of I&B Management, which is
the General Partner of I&B and I&B Entrepreneurs. Mr. Bowman disclaims
beneficial ownership of such shares except to the extent to which he holds a
pecuniary interest.
(9) Includes 356,687 shares held by Accel Capital L.P., 273,790 shares held by
Accel Capital (International) L.P., 4,617 shares held by Arthur C.
Patterson, 3,204 shares held by Internal Synergies Limited, and 27,634
shares held by Ellmore Patterson Partners. Mr. Patterson is a Managing
Partner of Accel Partners. Mr. Patterson disclaims beneficial ownership of
such shares except to the extent of which he holds a pecuniary interest.
(10) Includes 451,478 shares held by OVP II, 149,254 shares held by RVP, 2,053
shares held by RVP Advisors Fund and 1,851 shares held by OVP II Advisors
Fund. Mr. Langeler is a General Partner of OVP, and is Attorney-in-Fact of
Rainier Venture Partners and a Vice President of both RVP Advisors Fund and
OVP II Advisers Fund. Mr. Langeler disclaims beneficial ownership of such
shares except to the extent to which he holds a pecuniary interest.
(11) Includes 194,762 shares subject to a right of repurchase in favor of the
Company which expires ratably over a three year period.
(12) Includes 76,189 shares subject to a right of repurchase in favor of the
Company which expires ratably over a four year period.
(13) Includes 63,046 shares subject to a right of repurchase in favor of the
Company which expires ratably over a four year period.
(14) Includes 21,015 shares subject to a right of repurchase which expires
ratably over a four year vesting period.
(15) Includes 426,910 shares subject to a right of repurchase which expires
ratably over a three or four year vesting period.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.001 par value,
7,490,831 of which will be outstanding, and 5,000,000 shares of Preferred Stock,
$0.001 par value, none of which will be outstanding. At April 30, 1996, the
Company had 5,640,831 shares of Common Stock outstanding. The following
description of the capital stock of the Company and certain provisions of the
Company's Restated Certificate of Incorporation and Bylaws is a summary and is
qualified in its entirety by the provisions of the Restated Certificate of
Incorporation and Bylaws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders, including the election of
directors, and, subject to preferences that may be applicable to any Preferred
Stock outstanding at the time, are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." Cumulative voting is
neither required nor permitted under the Company's Restated Certificate of
Incorporation. In the event of liquidation or dissolution of the Company, the
holders of Common Stock are entitled to receive all assets available for
distribution to the stockholders, subject to any preferential rights of any
Preferred Stock then outstanding. The holders of Common Stock have no preemptive
or other subscription rights, and there are no conversion rights or redemption
or sinking fund provisions with respect to the Common Stock. All outstanding
shares of Common Stock are, and the shares offered hereby upon issuance and sale
will be, fully paid and nonassessable. The rights, preferences and privileges of
the holders of Common Stock are subject to, and may be adversely affected by,
the rights of the holders of any shares of Preferred Stock which the Company may
designate and issue in the future.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock that
may be issued from time to time in one or more series upon authorization by the
Company's Board of Directors. The Board of Directors, without further approval
of the stockholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, and any other rights, preferences, privileges and restrictions
applicable to each series of Preferred Stock. The issuance of Preferred Stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes could, among other things, adversely affect the voting power
of the holders of Common Stock and, under certain circumstances, make it more
difficult for a third party to gain control of the Company, discourage bids for
the Company's Common Stock at a premium or otherwise adversely affect the market
price of the Common Stock. The Company has no current plans to issue any
Preferred Stock.
REGISTRATION RIGHTS
After the closing of this offering, the holders ("Holders") of an aggregate
of approximately 4,900,000 shares of Common Stock are entitled to certain rights
with respect to the registration of such shares for offer and sale to the public
under the Securities Act. Under these provisions, the Holders may request that
the Company file up to two registration statements under the Securities Act with
respect to at least 30% of such Common Stock or lesser percentage if the
aggregate offering price to the public would be at least $3,000,000. Upon
receipt of such a request, the Company is required to notify all other Holders
and to use all reasonable efforts to effect such registration, subject to
certain conditions, including that the request must be received three months
following the closing of this offering. Further, whenever the Company proposes
to register any of its securities under the Securities Act for its own account
or for the account of other security holders, the Company is required to notify
each Holder of the proposed registration and include all Common Stock which such
Holder may request to be included in such registration, subject to certain
limitations. The Company has obtained a waiver of these rights to the extent
they would have applied to this offering. Generally, the Company is required to
bear all
51
<PAGE>
expenses (except underwriting discounts, selling commissions and stock transfer
taxes) of all registrations. No Holders have given the Company notice that they
intend to exercise registration rights following the offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The First National
Bank of Boston. Its telephone number is (617) 575-2500.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for securities of
the Company. No prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Common Stock of the Company in the public market after the lapse of the
restrictions described below could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future at a time
and price which it deems appropriate.
Upon completion of this offering, the Company will have approximately
7,490,831 shares of Common Stock outstanding. Of these shares, the 2,140,000
shares sold in this offering will be freely transferable without restriction or
registration under the Securities Act, except for any shares purchased by
affiliates of the Company. The remaining 5,350,831 shares were sold by the
Company in reliance on exemptions from the registration requirements of the
Securities Act and are "restricted" shares within the meaning of Rule 144
adopted under the Securities Act (the "Restricted Shares"). Of the Restricted
Shares, approximately 100,000 shares not subject to lock-up agreements will be
eligible for immediate sale in the public market pursuant to Rule 144(k).
Beginning 90 days after the effective date of the Registration Statement
approximately 250,000 additional shares not subject to lock-up agreements will
be eligible for sale in the public market pursuant to Rule 144 or Rule 701,
subject to compliance with certain volume limitations under Rule 144.
Approximately 5,000,000 shares are subject to lock-up agreements (the "Lock-Up
Agreements") with the Representatives of the Underwriters (as both terms are
defined below). The holders of shares subject to Lock-Up Agreements have agreed
not to offer, sell or otherwise dispose of any of their shares of Common Stock
for a period of 180 days following the date of this Prospectus, without the
prior written consent of Montgomery Securities, one of the Representatives. See
"Underwriting." Montgomery Securities in its sole discretion and without notice
may earlier release for sale in the public market all or any portion of the
shares subject to the Lock-up Agreements.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate who has beneficially owned
Restricted Shares for at least a two-year period (as computed under Rule 144) is
entitled to sell within any three-month period a number of such shares that does
not exceed the greater of (i) 1% of the then outstanding shares of the Common
Stock (approximately 75,000 shares after giving effect to this offering) and
(ii) the average weekly trading volume in the Company's Common Stock during the
four calendar weeks immediately preceding such sale. Sales under Rule 144 are
also subject to certain provisions relating to the manner and notice of sale and
the availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed an affiliate of the
Company at any time during the 90 days immediately preceding a sale, and who has
beneficially owned restricted shares for at least a three-year period (as
computed under Rule 144), would be entitled to sell such shares under Rule
144(k) without regard to the volume limitation and other conditions described
above. Restricted shares and options to purchase Common Stock sold by the
Company to, among others, its employees, officers and directors pursuant to
written compensation plans or contracts and in reliance on Rule 701 under the
Securities Act, may be resold in reliance on Rule 144 by such persons who are
not affiliates subject only to the provisions of Rule 144 regarding manner of
sale, and by such persons who are affiliates without complying with the Rule's
holding period requirements.
52
<PAGE>
The Company expects to file a registration statement under the Securities
Act 90 days after the completion of this offering to register approximately an
additional 1,700,000 shares of Common Stock reserved for issuance under the
Stock Option Plan and the Purchase Plan.
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Needham & Company, Inc. and Black & Company (the "Representatives"),
have severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company and the Selling
Stockholders the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to purchase
all of such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- -----------
<S> <C>
Montgomery Securities............................................................
Needham & Company, Inc...........................................................
Black & Company..................................................................
-----------
Total........................................................................ 2,140,000
-----------
-----------
</TABLE>
The Representatives have advised the Company that the Underwriters initially
propose to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow to selected dealers a
concession of not more than $ per share, and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the initial public offering, the offering price and
other selling terms may be changed by the Representatives. The Common Stock is
offered subject to receipt and acceptance by the Underwriters and to certain
other conditions, including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 321,000 additional shares of Common Stock, to cover over-allotments, if any,
at the same price per share as the initial 2,140,000 shares to be purchased by
the Underwriters. To the extent the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover
over-allotments made in connection with this offering.
Holders of approximately 5,000,000 shares of Common Stock prior to this
offering have agreed, subject to certain limited exceptions, not to sell or
offer to sell or otherwise dispose of the shares of Common Stock currently held
by them, any options or warrants to purchase any shares of Common Stock or any
securities convertible into or exchangeable for any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Montgomery Securities. Montgomery Securities may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to these lock-up agreements. In addition, the Company has
agreed that for a period of 180 days after the date of this Prospectus it will
not, without the consent of Montgomery
53
<PAGE>
Securities, issue, offer, sell, grant options to purchase or otherwise dispose
of any equity securities or securities convertible into or exchangeable for
equity securities except for shares of Common Stock offered hereby and shares
issued pursuant to the Stock Option Plan or the Purchase Plan. See "Management
- -- 1991 Stock Option Plan;" "-- Employee Stock Purchase Plan" and "Shares
Eligible for Future Sale."
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters and their controlling persons
against certain liabilities, including civil liabilities under the Securities
Act, or will contribute to payments the Underwriters may be required to make in
respect thereof.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined
through negotiations among the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in such negotiations are the
history of, and prospects for, the Company and the industry in which it
competes, an assessment of the Company management, its past and present
operations and financial performance, the prospects for future earnings of the
Company, the present state of the Company's development, the general condition
of the securities markets at the time of the offering and the market prices of
and demand for publicly traded common stocks of comparable companies in recent
periods and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Baker & McKenzie, Palo
Alto, California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The audited Consolidated Financial Statements and schedule of the Company
included in this Prospectus and appearing in the Registration Statement (as
defined below) have been audited by KPMG Peat Marwick LLP, independent auditors,
as set forth in their report thereon appearing elsewhere herein, and are
included in reliance upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement") under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete, and in each instance, reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference. The Registration
Statement and the exhibits and schedules thereto may be inspected without charge
at the public reference facilities maintained by the Securities and Exchange
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: 13th Floor, Seven World Trade
54
<PAGE>
Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission, Washington,
D.C. at prescribed rates.
55
<PAGE>
UNIFY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Financial Statements:
Balance Sheets as of April 30, 1995 and 1996............................................................. F-3
Statements of Operations for the years ended April 30, 1994, 1995 and 1996............................... F-4
Statements of Stockholders' Deficit for the years ended April 30, 1994, 1995 and 1996.................... F-5
Statements of Cash Flows for the years ended April 30, 1994, 1995 and 1996............................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Unify Corporation:
We have audited the accompanying consolidated balance sheets of Unify
Corporation and subsidiaries as of April 30, 1995 and 1996, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
each of the years in the three-year period ended April 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Unify
Corporation and subsidiaries as of April 30, 1995 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended April 30, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
San Jose, California
May 17, 1996
F-2
<PAGE>
UNIFY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, 1996
--------- -------------------
1995 ACTUAL PRO FORMA
--------- -------- ---------
ASSETS (NOTE 12)
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents....................... $ 3,776 $ 3,028 $ 3,095
Accounts receivable, net of allowances of $1,043
in 1995 and $483 in 1996....................... 3,667 4,745 4,745
Amounts due from minority interest stockholders,
net of allowances of $492 in 1995 and $382 in
1996........................................... 1,091 525 525
Prepaid expenses................................ 520 893 893
Other current assets............................ 408 119 119
--------- -------- ---------
Total current assets.......................... 9,462 9,310 9,377
Property and equipment, net....................... 2,226 3,358 3,358
Capitalized software, net of accumulated
amortization of $914 in 1995..................... 582 -- --
Other assets...................................... 411 329 329
--------- -------- ---------
Total assets.................................. $ 12,681 $ 12,997 $ 13,064
--------- -------- ---------
--------- -------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt............... $ 189 $ 255 $ 255
Accounts payable................................ 833 1,866 1,866
Amounts due to minority interest stockholders... 2,155 1,392 1,392
Accrued compensation and related expenses....... 1,409 1,655 1,655
Taxes payable................................... 690 542 542
Litigation settlements.......................... 443 217 217
Other accrued liabilities....................... 2,347 1,916 1,916
Deferred revenue................................ 4,512 4,650 4,650
--------- -------- ---------
Total current liabilities..................... 12,578 12,493 12,493
Long-term debt, net of current portion............ 1,488 2,456 2,456
Minority interest................................. 270 495 495
Commitments and contingencies.....................
Redeemable preferred stock, $0.001 par value;
2,931,370 shares designated; 2,876,136 shares
issued and outstanding; aggregate liquidation
preference of $25,424 and $27,177 in 1995 and
1996, respectively; no shares authorized, issued
or outstanding pro forma......................... 24,973 26,726 --
Stockholders' deficit:
Preferred stock, $0.001 par value; 7,931,370
shares authorized; no shares issued or
outstanding pro forma.......................... -- -- --
Common stock, $0.001 par value; 40,000,000
shares authorized; 1,340,344 and 1,884,075
shares issued and outstanding in 1995 and 1996,
respectively; 5,640,831 shares outstanding pro
forma.......................................... 1 2 6
Additional paid-in capital...................... 2,159 2,188 28,977
Notes receivable from stockholders.............. (515) (265) (265)
Cumulative translation adjustments.............. (682) (816) (816)
Accumulated deficit............................. (27,591) (30,282) (30,282)
--------- -------- ---------
Total stockholders' deficit................... (26,628) (29,173) (2,380)
--------- -------- ---------
Total liabilities and stockholders' deficit... $ 12,681 $ 12,997 $ 13,064
--------- -------- ---------
--------- -------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
UNIFY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Software licenses............................................................ $ 19,048 $ 17,995 $ 20,444
Services..................................................................... 11,501 10,854 9,721
--------- --------- ---------
Total revenues............................................................. 30,549 28,849 30,165
--------- --------- ---------
Cost of revenues:
Software licenses............................................................ 3,262 2,787 2,059
Services..................................................................... 6,215 5,786 4,332
--------- --------- ---------
Total cost of revenues..................................................... 9,477 8,573 6,391
--------- --------- ---------
Gross margin................................................................... 21,072 20,276 23,774
--------- --------- ---------
Operating expenses:
Product development.......................................................... 5,598 5,324 5,805
Selling, general and administrative.......................................... 19,795 15,000 18,920
Restructuring charges........................................................ 570 431 --
--------- --------- ---------
Total operating expenses................................................... 25,963 20,755 24,725
--------- --------- ---------
Loss from operations....................................................... (4,891) (479) (951)
Other income (expense), net.................................................... (1,830) 392 176
--------- --------- ---------
Loss before income taxes..................................................... (6,721) (87) (775)
Provision for income taxes..................................................... (342) (392) (163)
--------- --------- ---------
Net loss..................................................................... $ (7,063) $ (479) $ (938)
--------- --------- ---------
--------- --------- ---------
Pro forma net loss per share................................................... $ (0.08) $ (0.18)
--------- ---------
--------- ---------
Shares used in computing pro forma net loss per share.......................... 5,639 5,327
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UNIFY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE CUMULATIVE TOTAL
----------------- PAID-IN FROM TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS ADJUSTMENTS DEFICIT DEFICIT
--------- ------ ---------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at April 30, 1993.............. 940,855 $ 1 $1,592 $-- $(416) $(16,542) $(15,365)
Exercise of stock options............. 379,906 -- 665 (621) -- -- 44
Dividend accrual...................... -- -- -- -- -- (1,753) (1,753)
Translation adjustments............... -- -- -- -- (150) -- (150)
Net loss.............................. -- -- -- -- -- (7,063) (7,063)
--------- ------ ---------- ------ ----------- ----------- --------------
Balances at April 30, 1994.............. 1,320,761 1 2,257 (621) (566) (25,358) (24,287)
Exercise of stock options............. 19,583 -- 8 -- -- -- 8
Cancellation and reissuance of common
stock................................ -- -- (106) 106 -- -- --
Dividend accrual...................... -- -- -- -- -- (1,754) (1,754)
Translation adjustments............... -- -- -- -- (116) -- (116)
Net loss.............................. -- -- -- -- -- (479) (479)
--------- ------ ---------- ------ ----------- ----------- --------------
Balances at April 30, 1995.............. 1,340,344 1 2,159 (515) (682) (27,591) (26,628)
Exercise of stock options............. 776,897 1 341 (182) -- -- 160
Exercise of warrants.................. 13,571 -- 48 -- -- -- 48
Repurchase of common stock............ (246,737) -- (432) 432 -- -- --
Dividend accrual...................... -- -- -- -- -- (1,753) (1,753)
Imputed interest on note payable to
preferred stockholders............... -- -- 72 -- -- -- 72
Translation adjustments............... -- -- -- -- (134) -- (134)
Net loss.............................. -- -- -- -- -- (938) (938)
--------- ------ ---------- ------ ----------- ----------- --------------
Balances at April 30, 1996.............. 1,884,075 $ 2 $2,188 $(265) $(816) $(30,282) $(29,173)
--------- ------ ---------- ------ ----------- ----------- --------------
--------- ------ ---------- ------ ----------- ----------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNIFY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................................... $ (7,063) $ (479) $ (938)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation..................................................................... 1,305 1,086 979
Amortization of capitalized software............................................. 1,422 1,149 582
Provision for losses on accounts receivable...................................... 149 35 (42)
Noncash restructuring charges.................................................... 570 431 --
Minority interest................................................................ (378) (493) (366)
Provision for litigation settlements............................................. 2,154 300 --
Forgiveness of amounts due to minority interest stockholders..................... -- (305) --
Imputed interest on note payable to preferred stockholders....................... -- -- 72
Changes in operating assets and liabilitites:
Accounts receivable............................................................ 2,428 1,711 (1,364)
Amounts due from minority interest stockholders................................ (69) (729) 356
Prepaid expenses and other current assets...................................... 303 250 (184)
Accounts payable............................................................... (1,262) 129 1,068
Amounts due to minority interest stockholders.................................. (81) 997 (336)
Accrued compensation and related expenses...................................... (309) (553) 292
Taxes payable.................................................................. 7 32 (85)
Litigation settlements......................................................... -- (2,702) (226)
Other accrued liabilities...................................................... (379) 295 (387)
Deferred revenue............................................................... 352 156 (491)
--------- --------- ---------
Net cash (used in) provided by operating activities.................................. (851) 1,310 (1,070)
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment................................................. (849) (811) (784)
Capitalized software............................................................... (750) (420) --
Other assets....................................................................... 384 330 8
--------- --------- ---------
Net cash used in investing activities................................................ (1,215) (901) (776)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from debt obligations..................................................... 198 1,250 1,000
Principal payments under debt obligations.......................................... (279) (483) (428)
Proceeds from issuance of common stock............................................. 44 8 208
Additional investment in subsidiary by minority interest stockholders.............. -- -- 591
--------- --------- ---------
Net cash (used in) provided by financing activities.................................. (37) 775 1,371
--------- --------- ---------
Effect of exchange rate changes on cash.............................................. (132) 97 (273)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents................................. (2,235) 1,281 (748)
Cash and cash equivalents, beginning of year......................................... 4,730 2,495 3,776
--------- --------- ---------
Cash and cash equivalents, end of year............................................... $ 2,495 $ 3,776 $ 3,028
--------- --------- ---------
--------- --------- ---------
Interest paid........................................................................ $ 190 $ 164 $ 167
--------- --------- ---------
--------- --------- ---------
Income taxes paid.................................................................... $ 310 $ 304 $ 232
--------- --------- ---------
--------- --------- ---------
Noncash investing and financing activities:
Common stock issued (canceled) in return for notes receivable from stockholders.... $ 621 $ (106) $ (250)
--------- --------- ---------
--------- --------- ---------
Unify VISION software, maintenance and training exchanged for financial
applications software, support and training....................................... $ 1,050
---------
---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Unify Corporation (the "Company") develops, markets and supports Unify
VISION, an advanced client/server application development environment for
development, deployment and management of high-end scalable applications. The
Company also enhances, markets and supports Unify ACCELL, a family of fourth
generation language application development tools and Unify DataServer, a family
of database management system products.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries and Unify Japan KK, which is 51%
owned by the Company. All significant intercompany balances and transactions
have been eliminated.
The functional currencies of the Company's foreign subsidiaries are the
local currencies. Assets and liabilities denominated in foreign currencies are
translated into U.S. dollars at period-end exchange rates. Income and expense
accounts are translated at average rates of exchange in effect during the
respective period. Translation adjustments are excluded from net income and
accumulated in a separate component of stockholders' deficit.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities 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. Significant estimates made in preparing these consolidated financial
statements include the degree of certainty of collection for revenue recognition
and allowances for potential credit losses.
CASH EQUIVALENTS
Cash equivalents are highly liquid investments with original maturities of
three months or less and are stated at cost, which approximates fair value. Cash
equivalents consist primarily of demand deposits with banks, certificates of
deposit and money market funds.
CONCENTRATIONS OF CREDIT RISK AND CREDIT EVALUATIONS
Financial instruments potentially subjecting the Company to concentrations
of credit risk consist primarily of temporary cash investments, including
certificates of deposit and money market funds. The Company places its temporary
cash investments primarily with two financial institutions.
The Company licenses its products principally to companies in North America,
Europe and Japan and no customer accounted for more than 10% of consolidated
revenues in the years ended April 30, 1994, 1995 and 1996. The Company performs
periodic credit evaluations of its customers and generally does not require
collateral. Allowances are maintained for potential credit losses.
REVENUE RECOGNITION
Software license revenue is recognized when a noncancelable license
agreement has been executed, the product has been shipped, all significant
contractual obligations have been satisfied and collection of the resulting
receivable is probable. Services revenue includes maintenance revenue, which is
recognized ratably over the maintenance period, and revenue from consulting and
training services, which is recognized as services are performed. The Company's
revenue recognition policies are in compliance with the provisions of the
American Institute of Certified Public Accountants' Statement of Position No.
91-1, SOFTWARE REVENUE RECOGNITION.
F-7
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is recorded on a
straight-line basis over the estimated useful lives of the related assets,
generally five years.
CAPITALIZED SOFTWARE
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED. Under this
standard, capitalization of software development costs begins upon the
establishment of technological feasibility. The Company begins capitalization
upon completion of a working model and amortizes capitalized software
development costs over the estimated useful lives of the products, generally one
to three years. Unamortized capitalized software development costs are
periodically compared to their net realizable value and a loss is recorded for
any excess.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes pursuant to SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Under the asset and
liability method, deferred taxes are recorded for the difference between the
financial statement and tax bases of the Company's assets and liabilities. A
valuation allowance is recorded to reduce deferred tax assets to an amount whose
realization is more likely than not. U.S. income taxes are not provided on the
undistributed earnings of foreign subsidiaries as they are considered to be
permanently invested.
PRO FORMA NET LOSS PER SHARE
Pro forma net loss per common and common equivalent share is based upon the
weighted average number of outstanding shares of common stock and common
equivalent shares from stock options and warrants (under the treasury stock
method, if dilutive) and redeemable preferred stock (using the as-if-converted
method, even if antidilutive). Pursuant to certain Securities and Exchange
Commission (SEC) Staff Accounting Bulletins, common and common equivalent shares
issued at prices below the anticipated initial public offering (IPO) price
during the twelve-month period prior to the offering have been included in the
calculation, even if antidilutive, as if they were outstanding for all periods
presented using the treasury stock method and the anticipated IPO price.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Equipment............................................................... $ 5,961 $ 6,474
Furniture and leasehold improvements.................................... 1,526 1,776
Financial applications software......................................... -- 888
--------- ---------
7,487 9,138
Less accumulated depreciation........................................... 5,261 5,780
--------- ---------
Property and equipment, net............................................. $ 2,226 $ 3,358
--------- ---------
--------- ---------
</TABLE>
In December 1995, the Company entered into an agreement with a customer
whereby the Company exchanged licenses for its Unify VISION software,
maintenance and training for licenses for the customer's financial applications
software, support and training. The Company recorded the transaction using the
fair value of the assets exchanged. During fiscal 1996, the Company recognized
$262,000
F-8
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT (CONTINUED)
for the initial delivery of software development licenses to the customer. The
remaining $788,000 has been deferred because either the related software
licenses have not been delivered or the support and training have not been
provided.
3. LINE OF CREDIT
In March 1996, the Company established a $2.5 million revolving line of
credit with a bank. This line of credit permits borrowings up to 80% of eligible
accounts receivable and up to $500,000 of the line may also be used to finance
80% of equipment purchases with no receivable borrowing limitation. The line is
secured by all of the Company's assets, bears interest at 2.75% and 3.50% over
the bank's prime lending rate for receivable based and equipment borrowings,
respectively, and expires in March 1997. The agreement provides for minimum
interest payments and contains certain financial covenants.
4. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Unsecured note payable to preferred stockholders, interest at 3.75%, due
July 1997 (Note 5)...................................................... $ 1,250 $ 2,250
Note payable, secured by equipment, bearing interest at 8.7%, payable in
monthly installments of $7 through April 1997........................... 126 66
Other.................................................................... 301 395
--------- ---------
1,677 2,711
Less current portion..................................................... 189 255
--------- ---------
Long-term debt, net of current portion................................... $ 1,488 $ 2,456
--------- ---------
--------- ---------
</TABLE>
Future maturities of long-term debt as of April 30, 1996 were $255,000,
$2,410,000 and $46,000 for the years ending April 30, 1997, 1998 and 1999,
respectively.
5. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
REDEEMABLE PREFERRED STOCK
Authorized and outstanding redeemable preferred stock and its principal
terms are as follows at April 30, 1996 (in thousands, except share data):
<TABLE>
<CAPTION>
SHARES SHARES AMOUNT DIVIDEND LIQUIDATION
SERIES AUTHORIZED OUTSTANDING PAID IN PREFERENCE PREFERENCE
- ----------- ----------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
A 571,428 571,421 $ 2,955 $ 720 $ 3,000
B 571,428 571,409 2,940 720 3,000
C 744,800 744,779 6,439 1,564 6,517
D 608,000 559,978 4,672 1,176 4,900
E 435,714 428,549 4,460 1,080 4,500
--------- ----------- -----------
$ 21,466 $ 5,260 $ 21,917
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
Each share of preferred stock and all accumulated dividends are convertible,
at the holder's option, into common stock at an initial conversion price of
$5.25 per share for Series A and B, $8.75 per share for Series C and D and
$10.50 per share for Series E. In certain instances, the preferred stock
automatically converts to common stock upon completion of a public offering of
the Company's common stock. The holders of preferred stock are entitled to the
number of votes equal to the number of shares of common stock into which their
preferred stock is convertible.
F-9
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT (CONTINUED)
Beginning in May 1993, the holders of the Series A, B, C, D and E preferred
stock became entitled to receive annual dividends at the rate of $0.42, $0.42,
$0.70, $0.70 and $0.84 per share, respectively. Accumulated dividends of
$3,507,000 and $5,260,000 are included in redeemable preferred stock as of April
30, 1995 and 1996, respectively. The Company is currently unable to pay cash
dividends under state law. No dividends or payments in liquidation may be made
with respect to common stock until all accumulated preferred stock dividends
have been paid in full and, in the event of liquidation, until the accumulated
dividends and the liquidation preferences of the preferred stock have been paid.
Beginning May 31, 1996 for the holders of Series A, B, C and D preferred
stock and May 31, 1997 for the holders of Series E preferred stock, each
preferred stockholder will have the option to require the Company to repurchase
up to 100% of their initial investment over five years at $5.25, $5.25, $8.75,
$8.75 and $10.50 per share, respectively, plus accrued but unpaid dividends.
STOCK OPTIONS
Under the terms of the 1991 Stock Option Plan (the "1991 Option Plan"),
2,200,000 shares of common stock have been reserved for issuance to eligible
directors, officers and employees. Under the 1991 Option Plan, incentive stock
options or nonqualified stock options may be granted at prices not less than
100% of the fair market value of the Company's common stock at the date of
grant, as determined by the Company's Board of Directors. Options granted
generally vest over four years, are exercisable to the extent vested, and expire
10 years from the date of grant.
A summary of stock option activity under the 1991 Option Plan is as follows:
<TABLE>
<CAPTION>
SHARES OUTSTANDING
SHARES --------------------------
AVAILABLE NUMBER OF PRICE
FOR GRANT SHARES PER SHARE
---------- ---------- --------------
<S> <C> <C> <C>
Outstanding at May 1, 1993...... 269,917 1,123,380 $0.07 to $5.25
Granted....................... (419,910) 419,910 0.35 to 1.75
Exercised..................... -- (379,906) 1.75 to 3.50
Expired/cancelled............. 385,547 (385,547) 1.75 to 5.25
---------- ----------
Outstanding at April 30, 1994... 235,554 777,837 0.07 to 3.50
Granted....................... (519,688) 519,688 0.35
Exercised..................... -- (19,583) 0.35 to 1.75
Expired/cancelled............. 452,152 (452,152) 0.35 to 3.50
---------- ----------
Outstanding at April 30, 1995... 168,018 825,790 0.07 to 1.75
Authorized.................... 821,429 --
Granted....................... (1,083,075) 1,083,075 0.35 to 7.00
Exercised..................... -- (776,897) 0.35 to 1.40
Expired/cancelled............. 500,248 (253,511) 0.35 to 1.75
---------- ----------
Outstanding at April 30, 1996... 406,620 878,457 $0.07 to $7.00
---------- ----------
---------- ----------
Vested at April 30, 1996........ 253,205 $0.07 to $4.20
----------
----------
Shares subject to repurchase at
April 30, 1996................. 544,884
----------
----------
</TABLE>
STOCK PURCHASE PLAN
In March 1996, the Company's Board of Directors adopted the 1996 Employee
Stock Purchase Plan (the "1996 Purchase Plan") which authorizes the issuance of
up to 400,000 shares of common stock.
F-10
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT (CONTINUED)
Under the 1996 Purchase Plan eligible employees may purchase shares at 85% of
the fair market value of the common stock at the date of purchase. No shares of
common stock had been purchased under the 1996 Purchase Plan at April 30, 1996.
NOTES RECEIVABLE FOR COMMON STOCK
In fiscal 1994, four of the Company's officers exercised stock options to
purchase 354,764 shares of common stock at $1.75 per share for non recourse, non
interest bearing notes due in the year 2000 or upon sale of the related common
stock. In fiscal 1995, a total of 75,600 shares owned by two of the officers
were cancelled and reissued at $0.35 per share and the notes related to these
shares were consequently reduced by a total of $106,000. In fiscal 1996, 246,737
shares owned by another officer, who had left the Company, were reacquired by
the Company in exchange for cancellation of the related $432,000 note.
During fiscal 1996, one of the Company's officers exercised stock options to
purchase 346,931 shares of common stock at prices ranging from $0.35 to $1.40
per share for a note receivable which bears interest at 5% annually and is
secured by the shares of common stock. The note and accrued interest are due in
three years or earlier on the sale of the shares. This note receivable also
includes $13,000 for common shares originally purchased in fiscal 1994 for a
non-recourse note that has been cancelled.
WARRANTS
In connection with a $3.0 million revolving credit facility provided in
November 1993 by certain preferred stockholders, the Company issued warrants
which are exercisable into 190,459 shares of common stock at an exercise price
of $1.75 per share. In December 1995, the exercise price for these warrants was
reduced to $0.35 per share in conjunction with a one year extension of the
revolving credit facility. These warrants were fully exercisable at April 30,
1996 and expire in November 1996 or upon completion of a public registration of
the Company's common stock which meets certain minimum criteria.
In connection with various other financings, the Company has issued warrants
which are exercisable into 28,412 shares of Series D preferred stock and 7,337
shares of Series E preferred stock at exercise prices of $8.54 and $10.22,
respectively. These warrants were exercisable at April 30, 1996 and expire in
December 1996 and September 1998, respectively.
6. PROVISION FOR INCOME TAXES
Income tax expense for the years ended April 30, 1994, 1995 and 1996
consisted of current tax expense as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Foreign withholding taxes........................................................... $ 329 $ 370 $ 151
State............................................................................... 13 22 12
--------- --------- ---------
Total income tax expense.......................................................... $ 342 $ 392 $ 163
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-11
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROVISION FOR INCOME TAXES (CONTINUED)
Income tax expense for the years ended April 30, 1994, 1995 and 1996 differs
from the amounts computed by applying the U.S. federal income tax rate of 34% to
pretax loss as a result of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)........................................... $ (2,285) $ (30) $ (264)
Increases (reductions) in tax expense resulting from:
Foreign (income) losses subject to foreign income tax expense (benefit) not
subject to U.S. tax.............................................................. 196 (240) 382
Foreign withholding taxes......................................................... 329 370 151
Benefit from utilization of federal net operating loss deduction.................. -- -- (136)
Increase in valuation allowance for deferred tax assets -- nonutilization of U.S.
tax loss......................................................................... 2,079 249 --
Other............................................................................. 23 43 30
--------- --------- ---------
Actual income tax expense....................................................... $ 342 $ 392 $ 163
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company provides deferred income taxes which reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................................... $ 5,870 $ 5,980
Reserves and other accruals........................................... 561 496
Deferred maintenance revenue.......................................... 1,345 1,036
Accounts receivable................................................... 522 348
Foreign tax credits................................................... 1,003 907
Other................................................................. 423 370
--------- ---------
Total deferred tax assets............................................. 9,724 9,137
Deferred tax liabilities -- principally software capitalization......... (283) (162)
Valuation allowance..................................................... (9,441) (8,975)
--------- ---------
Net deferred tax assets................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
Due primarily to an increase in the deferred tax assets recorded for net
operating loss carry-forwards offset by a decrease in the deferred tax assets
recorded for reserves and other accruals, the valuation allowance increased by
$117,000 in the year ended April 30, 1995. Due primarily to decreases in the
deferred tax assets recorded for deferred maintenance revenue and accounts
receivable, the valuation allowance decreased by $466,000 in the year ended
April 30, 1996.
At April 30, 1996, the Company had approximately $10,658,000 in federal net
operating loss carryforwards, approximately $6,932,000 in foreign net operating
loss carryforwards and approximately $907,000 in foreign tax credit
carryforwards which expire in various years through 2008.
Due to the "change of ownership" provisions of the Tax Reform Act of 1986,
the availability of the Company's net operating loss and credit carryforwards
will be subject to an annual limitation in future periods if a change of
ownership of more than 50% should occur over a three-year period. Such a change
could substantially limit the eventual utilization of these tax carryforwards.
F-12
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RESTRUCTURING CHARGES
In the third quarter of fiscal 1994, the Company recorded a charge of
$570,000 which included $407,000 for severance and other costs associated with a
reduction in force and $163,000 for facilities reorganization and professional
fees. The Company reduced its workforce by 15%, primarily in sales and product
development. The reserves for facilities reorganization related to the closing
of six small satellite sales offices and included future rent for those offices,
buyout payments for expected early termination of certain leases and equipment
moving expenses. These restructuring costs were paid out primarily during the
fourth quarter of fiscal 1994 and during fiscal 1995. There were no significant
reclassifications or reductions of the original reserves.
In the fourth quarter of fiscal 1995, the Company incurred a charge of
$431,000 which included $276,000 for severance and other costs associated with a
reduction in force and $155,000 for facilities reorganization and professional
fees. The reduction in force totaled 8% of the Company's employees and affected
every functional area. The reserves for facilities reorganization were for the
write off of leasehold improvements and the costs to remove portable
infrastructure in connection with the relocation of the Company's product
development, customer support, telesales and administrative functions to a
smaller facility in Sacramento, California. These reserves also included the
costs of consolidating two smaller West Coast sales offices into the Company's
new corporate headquarters in San Jose, California. These restructuring costs
were paid out during fiscal 1996 and there were no significant reclassifications
or reductions of the original reserves.
8. OTHER INCOME (EXPENSE)
Other income (expense) for the years ended April 30, 1994, 1995 and 1996
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest income..................................................................... $ 65 $ 107 $ 81
Interest expense.................................................................... (171) (225) (234)
Foreign currency gain (loss)........................................................ 52 12 (37)
Minority interest................................................................... 378 493 366
Litigation settlements.............................................................. (2,154) (300) --
Forgiveness of amounts due to minority interest stockholders (Note 9)............... -- 305 --
--------- --------- ---------
Other income (expense), net......................................................... $ (1,830) $ 392 $ 176
--------- --------- ---------
--------- --------- ---------
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company, Sumitomo Metals Industries, Ltd. ("SMI") and Artificial
Intelligence Research, Ltd. ("AIR") are related parties as they own 51%, 34% and
15% interests, respectively, in Unify Japan KK ("Unify Japan").
TRANSACTIONS WITH AIR
AIR distributed the Company's products in Japan prior to July 1990. In
conjunction with the formation of Unify Japan in July 1990, the Company
appointed AIR as exclusive distributor and master licensee for Unify products in
Japan. AIR then granted Unify Japan the exclusive right to subdistribute
products in the non-OEM market in Japan in return for approximately 185 million
yen, payable in five equal annual installments. From July 1990 to July 1994,
Unify Japan paid royalties on its non-OEM market revenue to AIR and AIR paid
royalties on all Unify products sold in Japan to the Company. In July 1994, the
Company terminated AIR's exclusive distribution rights and appointed Unify Japan
exclusive distributor and master licensee for the Company's products in Japan.
The balance due AIR on the non-OEM subdistribution note was reduced by 53
million yen in connection with this action,
F-13
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
resulting in a $305,000 credit to the consolidated statement of operations (net
of 49% minority interest). After July 1994, AIR purchased software licenses from
Unify Japan as a subdistributor and Unify Japan paid intercompany royalties on
all Unify products sold in Japan to the Company.
Total revenues include revenues from AIR of $2,202,000, $3,098,000 and
$1,870,000 in the years ended April 30, 1994, 1995 and 1996, respectively. Cost
of software licenses includes AIR royalty expense of $207,000 in fiscal 1994.
Cost of software licenses also includes charges from AIR to duplicate and ship
the Japanese versions of all Unify products sold in Japan totaling $88,000,
$207,000 and $384,000 in fiscal 1994, 1995 and 1996, respectively. Cost of
services includes contract labor from AIR to provide customer support totaling
$430,000 and $333,000 for the years ended April 30, 1995 and 1996, respectively.
Product development expense includes contract labor from AIR to provide software
porting and translation services totaling $300,000, $463,000 and $1,160,000 in
the years ended April 30, 1994, 1995 and 1996, respectively.
Net amounts due from minority interest stockholders at April 30, 1995 and
1996 represent amounts payable by AIR to Unify Japan for the purchase of
software licenses and related services and amounts payable by AIR to the Company
for royalties.
TRANSACTIONS WITH SMI
In fiscal 1995, SMI advanced Unify Japan 45 million yen for the translation
of Unify VISION software and related documentation from English to Japanese.
Under the terms of the joint development agreement, SMI will receive a 40%
discount from list price on purchases of the translated software for its
internal use. The agreement also grants SMI a 10% royalty on sales of the
Japanese version of Unify VISION from its release for shipment to regular
customers, which occurred in August 1995, through December 1996. Software
licenses revenue for fiscal 1996 includes approximately $450,000 in funded
development revenue relating to this translation project, recognized ratably as
the related product development expenses of approximately $880,000 were
incurred. Royalties due SMI during the same period were not significant. In
fiscal 1995 SMI also made a refundable prepayment of 72 million yen to Unify
Japan for the purchase of software licenses for the Japanese version of Unify
VISION; revenue for this prepayment was deferred until shipment of product.
During fiscal 1996, Unify Japan shipped SMI approximately 24 million yen of
Japanese product against this prepayment.
In September 1995, Unify Japan entered into a 100 million yen loan agreement
with a bank affiliated with SMI. The loan bears interest at the prime rate, is
secured by the assets of Unify Japan and is due in September 1996. As of April
30, 1996, 50 million yen was outstanding on this line of credit. Under a
separate agreement which expires on May 31, 1996, Unify Japan also owes Sumitomo
Bank 30 million yen.
Finally, Unify Japan leased office space from SMI under a renewable one-year
lease beginning in August 1994; rent expense paid to SMI totaled approximately
$130,000 in fiscal 1995 and $150,000 in fiscal 1996.
F-14
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
Amounts due to minority interest stockholders consisted of the following (in
thousands):
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Notes payable to SMI banking affiliates.................................. $ -- $ 747
Non-OEM subdistribution note due AIR..................................... 169 --
Other amounts due AIR.................................................... 573 199
Product development advances from SMI.................................... 543 --
Refundable prepayment from SMI........................................... 870 446
--------- ---------
Total amounts due...................................................... $ 2,155 $ 1,392
--------- ---------
--------- ---------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and equipment under noncancelable operating
lease arrangements. Future minimum rental payments under these leases as of
April 30, 1996 were as follows (in thousands):
<TABLE>
<S> <C>
YEARS ENDING APRIL 30,
- --------------------------------------------------------------------------
1997...................................................................... $ 1,179
1998...................................................................... 839
1999...................................................................... 754
2000...................................................................... 756
2001...................................................................... 357
---------
$ 3,885
---------
---------
</TABLE>
Rent expense under operating leases was $2,425,000, $2,110,000 and
$1,622,000 for the years ended April 30, 1994, 1995 and 1996, respectively.
LITIGATION
In November 1994, the Company paid $2,650,000 in full and final settlement
of a dispute with two former customers which related to software sold by the
Company in 1989. In October 1994, the Company also settled a dispute with a
former French customer for approximately $467,000, to be paid over three years.
The Company increased existing reserves by $2,154,000 in fiscal 1994 for these
litigation settlements. Finally, the Company recorded a charge of $300,000 in
fiscal 1995 for the settlement of an employment dispute with a former officer of
the Company which arose in that year.
The Company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, after
consulting with legal counsel, the amount of ultimate liability with respect to
these actions will not materially affect the consolidated financial position of
the Company.
F-15
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEGMENT INFORMATION
The Company operates in one industry segment: developing, marketing and
supporting client/ server products for developing, deploying and managing
high-end scalable software applications. The distribution of revenues, operating
income (loss) and assets by geographic area for the years ended April 30, 1994,
1995 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
North America............................................ $ 22,806 $ 21,233 $ 21,696
Japan.................................................... 1,459 3,404 4,913
Europe................................................... 10,880 9,942 9,394
Eliminations............................................. (4,596) (5,730) (5,838)
--------- --------- ---------
Total revenues......................................... $ 30,549 $ 28,849 $ 30,165
--------- --------- ---------
--------- --------- ---------
Operating income (loss):
North America............................................ $ (3,770) $ 320 $ 965
Japan.................................................... (233) (988) (543)
Europe................................................... (888) 189 (1,373)
--------- --------- ---------
Total operating income (loss).......................... $ (4,891) $ (479) $ (951)
--------- --------- ---------
--------- --------- ---------
Identifiable assets:
North America............................................ $ 3,294 $ (3,169) $ 7,686
Japan.................................................... 1,071 2,796 1,692
Europe................................................... 4,233 2,610 3,660
--------- --------- ---------
Subtotal identifiable assets............................. 8,598 2,237 13,038
Corporate assets......................................... 4,424 5,469 4,784
Eliminations............................................. 59 4,975 (4,825)
--------- --------- ---------
Total assets........................................... $ 13,081 $ 12,681 $ 12,997
--------- --------- ---------
--------- --------- ---------
</TABLE>
North America revenue includes export sales of approximately $3,300,000,
$2,900,000 and $2,700,000 in the years ended April 30, 1994, 1995 and 1996,
respectively. Intercompany sales are at prices intended to provide a profit
after marketing, support and general and administrative costs. North America
operating income (loss) is net of corporate product development and
administrative expenses. Corporate assets consist primarily of cash and cash
equivalents, property and equipment, and capitalized software.
12. PUBLIC STOCK OFFERING
On March 26, 1996, the Company's Board of Directors authorized management of
the Company to file a Registration Statement with the SEC permitting the Company
to sell shares of its common stock to the public. The Company's Board of
Directors also approved the reincorporation of the Company in Delaware and a
one-for-seven reverse stock split. Common share and per share data in these
consolidated financial statements have been retroactively adjusted to reflect
the reincorporation and reverse stock split. If the offering is consummated
under the terms presently anticipated, all of the currently outstanding
preferred stock and accrued dividends will automatically convert to 2,876,136
and 690,161 shares of common stock, respectively, upon the closing of the IPO.
The conversion of the preferred stock and accrued dividends, along with the
anticipated exercise of warrants to purchase 190,459 shares of common stock,
have been reflected in the accompanying unaudited pro forma consolidated balance
sheet as of April 30, 1996.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT
RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------------
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY........................................ 3
THE COMPANY.................................... 3
RISK FACTORS................................... 5
USE OF PROCEEDS................................ 13
DIVIDEND POLICY................................ 13
CAPITALIZATION................................. 14
DILUTION....................................... 15
SELECTED CONSOLIDATED FINANCIAL DATA........... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 17
BUSINESS....................................... 26
MANAGEMENT..................................... 40
CERTAIN TRANSACTIONS........................... 46
PRINCIPAL AND SELLING STOCKHOLDERS............. 48
DESCRIPTION OF CAPITAL STOCK................... 51
SHARES ELIGIBLE FOR FUTURE SALE................ 52
UNDERWRITING................................... 53
LEGAL MATTERS.................................. 54
EXPERTS........................................ 54
ADDITIONAL INFORMATION......................... 54
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..... F-1
</TABLE>
----------------------
UNTIL JUNE , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,140,000 SHARES
[LOGO]
COMMON STOCK
------------
PROSPECTUS
------------
MONTGOMERY SECURITIES
NEEDHAM & COMPANY, INC.
BLACK & COMPANY
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, in connection with the sale of Common
Stock being registered. All amounts are estimated except the registration fee,
the NASD filing fee and the Nasdaq listing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID BY
ITEM REGISTRANT
- ----------------------------------------------------------------------------------------- -------------
<S> <C>
SEC Registration Fee..................................................................... $ 10,183
NASD Filing Fee.......................................................................... 3,454
Nasdaq Listing Fee....................................................................... 32,000
Printing and Engraving Expenses.......................................................... 100,000
Legal Fees and Expenses.................................................................. 250,000
Blue Sky Fees and Expenses............................................................... 10,000
Accounting Fees and Expenses............................................................. 375,000
Director and Officer Insurance Premium................................................... 200,000
Transfer Agent and Registrar Fees........................................................ 7,500
Miscellaneous............................................................................ 11,863
-------------
Total................................................................................ $ 1,000,000
-------------
-------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 145 of the Delaware General Corporation Law
which provides for indemnification of directors and officers.
Under its Restated Certificate of Incorporation and Bylaws the Registrant
shall, to the full extent permitted by the Delaware General Corporation Law,
indemnify each person made or threatened to be made a party to any civil,
criminal or investigative action, suit or proceeding by reason of the fact that
such person is or was a director, officer or employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The Restated
Certificate of Incorporation and Bylaws state that the indemnification provided
therein is not exclusive. The Registrant has also entered into an
Indemnification Agreement with each director and certain officers which provides
that the Registrant shall indemnify the director or officer in connection with
any such actions, suits or proceedings.
Prior to the completion of the offering, the Registrant will have in force
an insurance policy under which its directors and officers will be insured,
within the limits and subject to the limitations in the policy, against certain
expenses in connection with the defense of such actions, suit or proceedings to
which they are parties by reason of being or having been directors or officers.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 1993, the Company has sold and issued the following securities
without registration under the Securities Act of 1933, as amended (as adjusted
where appropriate for the proposed reverse stock split whereby seven outstanding
shares of Common Stock will be converted into one share of Common Stock):
(1) From May 1, 1993 to April 30, 1996, the Company issued options to
purchase an aggregate of 684,726 shares of Common Stock under the Company's
Stock Option Plan, net of cancellations, and an aggregate of 929,649 shares
of Common Stock were issued through the exercise of
II-1
<PAGE>
options granted under the Stock Option Plan. For additional information
concerning these transactions, reference is made to the information
contained under the caption "Management -- 1991 Stock Option Plan" in the
form of Prospectus included herein.
(2) In September 1993 the Company issued to Silicon Valley Bank a
warrant to purchase 7,337 shares of Series E Preferred Stock at the initial
exercise price of $10.22 per share.
(3) In March 1996 the Company issued to Montgomery Securities 13,571
shares of Common Stock for aggregate cash consideration of $47,500, pursuant
to the exercise by Montgomery Securities of a warrant dated April 26, 1991.
The sales and issuances of the securities described above were deemed to be
exempt from registration under the Securities Act in reliance upon (i) Section
4(2) thereof and Regulation D promulgated thereunder as transactions by an
issuer not involving a public offering, or (ii) Rule 701 promulgated thereunder
as transactions pursuant to a compensatory benefit plan or a written contract
relating to compensation.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement (draft dated May 17, 1996)
2.1 Agreement and Plan of Merger dated May 16, 1996, for the
reincorporation of Unify Corporation, a California Corporation,
into Unify Corporation, a Delaware corporation.
3.1** Restated Certificate of Incorporation of the Company
3.2** Bylaws of the Registrant
4.1 Form of Stock Certificate
5.1 Opinion of Baker & McKenzie as to legality of securities being
registered
10.1** Employment Agreement by and between Reza Mikailli and the Registrant
dated as of March 31, 1995
10.2** 1991 Stock Option Plan, as amended
10.3** 1996 Employee Stock Purchase Plan
10.4** Form of Indemnification Agreement
10.5** Loan and Security Agreement, dated March 5, 1996, by and between the
Registrant and Coast Business Credit
10.6** Revolving Credit Agreement dated as of November 29, 1993, as
amended, by and among the Registrant and the Lenders listed on
Exhibit A thereto.
11.1 Statement of Computation of Pro Forma Net Loss Per Share
21.1** Subsidiaries of the Registrant
23.1 Consent of Independent Auditors (See page S-1)
23.2 Consent of Counsel (contained in Exhibit 5.1)
24.1** Powers of Attorney
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
(b) Financial statement schedules for the three years ended April 30, 1996
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or the
required information is shown in the financial statements or notes thereto.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Act, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
421(b)(1) or (4) or 497(b) under the Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective and (2) for the
purpose of determining any liability under the Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the Closing, as specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Jose, State of California, on May 22, 1996.
UNIFY CORPORATION
By: /s/ REZA MIKAILLI
-----------------------------------
Reza Mikailli, PRESIDENT
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May , 1996:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
/s/ REZA MIKAILLI
------------------------------------------- Chief Executive Officer and Director (Principal Executive
Reza Mikailli Officer)
/s/ SUSAN SALVESEN Vice President, Finance and Administration and Chief
------------------------------------------- Financial Officer (Principal Financial and Accounting
Susan Salvesen Officer)
*
------------------------------------------- Director
D. Kirkwood Bowman
*
------------------------------------------- Director
Gerard Langeler
*
------------------------------------------- Director
Arthur Patterson
* By /s/ REZA MIKAILLI
---------------------------------------
Reza Mikailli, ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
CONSENT AND INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors of
Unify Corporation:
The audits referred to in our report dated May 17, 1996, included the
related financial statement schedule for each of the years in the three-year
period ended April 30, 1996 included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
San Jose, California
May 20, 1996
S-1
<PAGE>
SCHEDULE II
UNIFY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
ADDITIONS (DEDUCTIONS):
BALANCE AT CHARGED TO DEDUCTIONS: TRANSFERS BALANCE AT
BEGINNING OPERATING WRITE-OFFS OF BETWEEN END OF
OF PERIOD EXPENSES ACCOUNTS ACCOUNTS PERIOD
---------- ---------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts receivable
Year ended April 30, 1994....................... $1,421 $149 $(581) $ 59 $1,048
Year ended April 30, 1995....................... 1,048 35 (293) 253 1,043
Year ended April 30, 1996....................... 1,043 (43) (231) (286) 483
Allowance for amounts due from minority interest
stockholders
Year ended April 30, 1994....................... 804 -- -- (59) 745
Year ended April 30, 1995....................... 745 -- -- (253) 492
Year ended April 30, 1996....................... 492 -- -- (110) 382
Allowance for long-term accounts receivable
Year ended April 30, 1996....................... -- -- -- 396 396
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBERS DESCRIPTION PAGE NUMBER
- ---------- ---------------------------------------------------------------------------------- -------------
<C> <S> <C>
1.1 Form of Underwriting Agreement (draft dated May 17, 1996).........................
2.1 Agreement and Plan of Merger dated May 16, 1996, for the reincorporation of Unify
Corporation, a California Corporation, into Unify Corporation, a Delaware
corporation......................................................................
3.1** Restated Certificate of Incorporation of the Company..............................
3.2** Bylaws of the Registrant..........................................................
4.1 Form of Stock Certificate.........................................................
5.1 Opinion of Baker & McKenzie as to legality of securities being registered.........
10.1** Employment Agreement by and between Reza Mikailli and the Registrant dated as of
March 31, 1995...................................................................
10.2** 1991 Stock Option Plan, as amended................................................
10.3** 1996 Employee Stock Purchase Plan.................................................
10.4** Form of Indemnification Agreement.................................................
10.5** Loan and Security Agreement, dated March 5, 1996, by and between the Registrant
and Coast Business Credit........................................................
10.6** Revolving Credit Agreement dated as of November 29, 1993, as amended, by and among
the Registrant and the Lenders listed on Exhibit A thereto.......................
11.1 Statement of Computation of Pro Forma Net Loss Per Share..........................
21.1** Subsidiaries of the Registrant....................................................
23.1 Consent of Independent Auditors (See page S-1)....................................
23.2 Consent of Counsel (contained in Exhibit 5.1).....................................
24.1** Powers of Attorney................................................................
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
[LOGO]
UNIFY CORPORATION
(Exact Name of Registrant as specified in its charter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
2,140,000 Shares
Unify Corporation
Common Stock
UNDERWRITING AGREEMENT
May __, 1996
MONTGOMERY SECURITIES
NEEDHAM & COMPANY, INC.
BLACK & COMPANY
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies & Gentlemen:
SECTION 1
INTRODUCTORY
Unify Corporation, a Delaware corporation (the "Company"), proposes to
issue and sell 1,850,000 shares of its authorized but unissued Common Stock (the
"Common Stock") and certain stockholders of the Company named in SCHEDULE B
annexed hereto (the "Selling Stockholders") propose to sell an aggregate of
290,000 shares of the Company's issued and outstanding Common Stock to the
several underwriters named in SCHEDULE A annexed hereto (the "Underwriters"),
for whom you are acting as Representatives. Said aggregate of 2,140,000 shares
are herein called the "Firm Common Shares." In addition, the Company proposes
to grant to the Underwriters an option to purchase up to 321,000 additional
shares of Common Stock (the "Optional Common Shares"), as provided in Section 5
hereof. The Firm Common Shares and, to the extent such option is exercised, the
Optional Common Shares are hereinafter collectively referred to as the "Common
Shares." For all purposes hereunder, the term Selling Stockholders shall
include the Insider Selling Stockholders (as defined below).
You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
<PAGE>
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-3834) with respect
to the Common Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The Company has prepared and has filed or proposes to file prior to
the effective date of such registration statement an amendment or amendments to
such registration statement, which amendment or amendments have been or will be
similarly prepared. There have been delivered to you two signed copies of such
registration statement and amendments, together with two copies of each exhibit
filed therewith. Conformed copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each of
the Underwriters. The Company will next file with the Commission one of the
following: (i) prior to effectiveness of such registration statement, a further
amendment thereto, including the form of final prospectus, or (ii) a final
prospectus in accordance with Rules 430A and 424(b) of the Rules and
Regulations. As filed, such amendment and form of final prospectus, or such
final prospectus, shall include all Rule 430A Information and, except to the
extent that you shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the date and time
that this Agreement was executed and delivered by the parties hereto, or, to the
extent not completed at such date and time, shall contain only such specific
additional information and other changes (beyond that contained in the latest
Preliminary prospectus) as the Company shall have previously advised you in
writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement at the time such registration statement becomes effective
and, in the event any post-effective amendment thereto becomes effective prior
to the First Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended; provided, however, that such term shall
also include (i) all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes effective
as provided by Rule 430A of the Rules and Regulations and (ii) a registration
statement, if any, filed pursuant to Rule 462(b) of the Rules and Regulations
relating to the Common Shares. The term "Preliminary Prospectus" shall mean any
preliminary prospectus referred to in the preceding paragraph and any
preliminary prospectus included in the Registration Statement at the time it
becomes effective that omits Rule 430A Information. The term "Prospectus" as
used in this Agreement shall mean the prospectus relating to the Common Shares
in the form in which it is first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations or, if no filing pursuant to
Rule 424(b) of the Rules and Regulations is required, shall mean the form of
final prospectus included in the Registration Statement at the time such
registration statement becomes effective. The term "Rule 430A Information"
means information with respect to the Common Shares and the offering thereof
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and each Preliminary Prospectus has conformed
in all material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to and including each Closing
Date hereinafter mentioned, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, will contain all material statements and
information required to be included therein by the Act
-2-
<PAGE>
and the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, no representation or warranty
contained in this subsection 2(b) shall be applicable to information contained
in or omitted from any Preliminary Prospectus, the Registration Statement, the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Underwriter, directly or through the Representatives, specifically for use
in the preparation thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed in
Exhibit 22 to the Registration Statement. The Company and each of its
subsidiaries have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective jurisdictions
of incorporation, with full corporate power and authority to own and lease their
properties and conduct their respective businesses as described in the
Prospectus; the Company owns all of the outstanding capital stock of its
subsidiaries free and clear of all claims, liens, charges and encumbrances,
except as described in the Registration Statement; the Company and each of its
subsidiaries are in possession of and operating in material compliance with all
authorizations, licenses, permits, consents, certificates and orders material to
the conduct of their respective businesses, all of which are valid and in full
force and effect; the Company and each of its subsidiaries are duly qualified to
do business and in good standing as foreign corporations in each jurisdiction in
which the ownership or leasing of properties or the conduct of their respective
businesses requires such qualification, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect upon the Company
or the subsidiary; and no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.
(d) The execution and delivery of the Agreement and Plan of Merger
dated as of May 16, 1996 (the "Merger Agreement") between Unify Corporation,
a California corporation (the "California Corporation"), and the Company,
effecting the reincorporation of the California Corporation under the laws of
the State of Delaware, was duly authorized by all necessary corporate action
on the part of each of the California Corporation and the Company. Each of
the California Corporation and the Company had all corporate power and
authority to execute and deliver the Merger Agreement, to file the Merger
Agreement with the Secretary of State of California and the Secretary of
State of Delaware and to consummate the reincorporation contemplated by the
Merger Agreement, and the Merger Agreement at the time of execution and
filing constituted a valid and binding obligation of each of the California
Corporation and the Company, enforceable in accordance with its terms.
(e) The Company has authorized and outstanding capital stock as set forth
under the heading "Capitalization" in the Prospectus; the issued and outstanding
shares of Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities, and
conform to the description thereof contained in the Prospectus. All issued and
outstanding shares of capital stock of each subsidiary of the Company have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as disclosed in or contemplated by the Prospectus and the financial statements
of the Company, and the related notes thereto, included in the Prospectus,
neither the Company nor any subsidiary has outstanding any options to purchase,
or any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
-3-
<PAGE>
(f) The Common Shares to be sold by the Company have been duly authorized
and, when issued, delivered and paid for in the manner set forth in this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Common Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right which
has not been waived to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the transfer and sale of
the Common Shares to be sold by the Selling Stockholders or the issuance and
sale of the Common Shares to be sold by the Company as contemplated herein.
(g) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company in accordance with its terms. The
making and performance of this Agreement by the Company and the consummation of
the transactions herein contemplated will not violate any provisions of the
certificate of incorporation or bylaws, or other organizational documents, of
the Company or any of its subsidiaries, and will not conflict with, result in
the breach or violation of, or constitute, either by itself or upon notice or
the passage of time or both, a default under any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument to which
the Company or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries or any of its respective properties may be bound or
affected, any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its subsidiaries or any of
their respective properties. No consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental body
is required for the execution and delivery of this Agreement or the consummation
of the transactions contemplated by this Agreement, except for compliance with
the Act, the Blue Sky laws applicable to the public offering of the Common
Shares by the several Underwriters and the clearance of such offering with the
National Association of Securities Dealers, Inc. (the "NASD").
(h) KPMG Peat Marwick, LLP, who have expressed their opinion with respect
to the financial statements and schedules filed with the Commission as a part of
the Registration Statement and included in the Prospectus and in the
Registration Statement, are independent accountants as required by the Act and
the Rules and Regulations.
(i) The consolidated financial statements and schedules of the Company and
its subsidiaries, and the related notes thereto, included in the Registration
Statement and the Prospectus present fairly the financial position of the
Company and its subsidiaries as of the respective dates of such financial
statements and schedules, and the results of operations and changes in financial
position of the Company and its subsidiaries for the respective periods covered
thereby. Such statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis as certified by the independent accountants named in subsection 2(g). No
other financial statements or schedules are required to be included in the
Registration Statement. The selected financial data set forth in the Prospectus
under the captions "Capitalization" and "Selected Consolidated Financial Data"
fairly present the information set forth therein on the basis stated in the
Registration Statement.
(j) Except as to defaults which individually or in the aggregate would not
be material to the Company, neither the Company nor any of its subsidiaries is
in violation or default of any provision of its certificate of incorporation or
bylaws, or other organizational documents, or is in breach of or default with
respect to any provision of any material agreement, judgment, decree, order,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties are
bound; and there does not exist any state of facts known to the Company which
constitutes an event of default on the part of the Company or any such
subsidiary as defined in such documents or which, with notice or lapse of time
or both, would constitute such an event of default.
-4-
<PAGE>
(k) There are no contracts or other documents required to be described in
the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
described or filed as required. The contracts so described in the Prospectus
are in full force and effect on the date hereof; and neither the Company nor any
of its subsidiaries, nor to the best of the Company's knowledge, any other party
is in breach of or default under any of such contracts.
(l) There are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened to which the
Company or any of its subsidiaries is or may be a party or of which property
owned or leased by the Company or any of its subsidiaries is or may be the
subject, or related to environmental or discrimination matters, which actions,
suits or proceedings might, individually or in the aggregate, prevent or
adversely affect the transactions contemplated by this Agreement or result in a
material adverse change in the condition (financial or otherwise), properties,
business, results of operations or prospects of the Company and its
subsidiaries; and no labor disturbance by the employees of the Company or any of
its subsidiaries exists or is imminent which might be expected to affect
adversely such condition, properties, business, results of operations or
prospects. Neither the Company nor any of its subsidiaries is a party or
subject to the provisions of any material injunction, judgment, decree or order
of any court, regulatory body, administrative agency or other governmental body.
(m) The Company or the applicable subsidiary has good and marketable title
to all the properties and assets reflected as owned in the financial statements
hereinabove described (or elsewhere in the Prospectus), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except (i) those, if any,
reflected in such financial statements (or elsewhere in the Prospectus), or
(ii) those which are not material in amount and do not adversely affect the use
made and proposed to be made of such property by the Company and its
subsidiaries. The Company or the applicable subsidiary holds its leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company. Except as
disclosed in the Prospectus, the Company owns or leases all such properties as
are necessary to its operations as now conducted or as proposed to be conducted.
(n) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not incurred any material liabilities or obligations,
indirect, direct or contingent, or entered into any material verbal or written
agreement or other transaction which is not in the ordinary course of business
or which could result in a material reduction in the future earnings of the
Company and its subsidiaries; (ii) the Company and its subsidiaries have not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock and the
Company and its subsidiaries are not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been any change
in the capital stock (other than upon the sale of the Common Shares hereunder
and upon the exercise of options described in the Registration Statement) or
indebtedness material to the Company and its subsidiaries (other than in the
ordinary course of business); and (v) there has not been any material adverse
change in the condition (financial or otherwise), business, properties, results
of operations or prospects of the Company and its subsidiaries.
(o) The Company and its subsidiaries have sufficient trademarks, trade
names, patent rights, mask works, copyrights, licenses, approvals and
governmental authorizations to conduct their businesses as now conducted; of any
trademarks, trade names, patent rights, mask works, copyrights, licenses,
approvals or governmental authorizations; and the Company has no knowledge of
any material infringement by it or its subsidiaries of trademark, trade name
rights, patent rights, mask works, copyrights, licenses, trade secret or other
similar rights of others, and there is no claim being made against the Company
or its subsidiaries regarding trademark, trade name, patent, mask work,
copyright, license, trade secret or other infringement which could have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company and its subsidiaries.
-5-
<PAGE>
(p) The Company has not been advised, and has no reason to believe, that
either it or any of its subsidiaries is not conducting business in compliance
with all applicable laws, rules and regulations of the jurisdictions in which it
is conducting business, including, without limitation, all applicable local,
state and federal environmental laws and regulations; except where failure to be
so in compliance would not materially adversely affect the condition (financial
or otherwise), business, results of operations or prospects of the Company and
its subsidiaries.
(q) The Company and its subsidiaries have filed all necessary federal,
state and foreign income and franchise tax returns and have paid all taxes shown
as due thereon; and the Company has no knowledge of any tax deficiency which has
been or might be asserted or threatened against the Company or its subsidiaries
which could materially and adversely affect the business, operations or
properties of the Company and its subsidiaries.
(r) The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(s) The Company has not distributed and will not distribute prior to the
First Closing Date any offering material in connection with the offering and
sale of the Common Shares other than the Prospectus, the Registration Statement
and the other materials permitted by the Act.
(t) Each of the Company and its subsidiaries maintains insurance of the
types and in the amounts customary for businesses of its type and size,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company and its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
(u) Neither the Company nor any of its subsidiaries has at any time during
the last five years (i) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States of
any jurisdiction thereof.
(v) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Common Shares.
(w) Holders of ____________ outstanding shares of Common Stock and other
securities convertible into or exercisable or exchangeable for Common Stock
(collectively "Securities"), including each officer and director of the Company,
the Selling Stockholders and certain of the Company's stockholders, are subject
to valid, binding and enforceable agreements (collectively, the "Lock-Up
Agreements") that restrict the holders thereof from selling, making any short
sale of, granting any option for the purchase of, or otherwise transferring or
disposing of any Securities (collectively, a "Disposition") for a period of 180
days after the date of the Prospectus without the prior written consent of
Montgomery Securities.
-6-
<PAGE>
SECTION 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SELLING STOCKHOLDERS
(a) Each of the Selling Stockholders represents and warrants, severally
and not jointly, to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has, and on the First Closing Date
hereinafter mentioned will have, good and marketable title to the Common Shares
proposed to be sold by such Selling Stockholder hereunder on such Closing Date
and full right, power and authority to enter into this Agreement and to sell,
assign, transfer and deliver such Common Shares hereunder, free and clear of all
voting trust arrangements, liens, encumbrances, equities, security interests,
restrictions and claims whatsoever; and upon delivery of and payment for such
Common Shares hereunder, the Underwriters will acquire good and marketable title
thereto, free and clear of all liens, encumbrances, equities, claims,
restrictions, security interests, voting trusts or other defects of title
whatsoever.
(ii) Such Selling Stockholder has executed and delivered a Power of
Attorney and caused to be executed and delivered on his behalf a Custody
Agreement (hereinafter collectively referred to as the "Stockholders Agreement")
and in connection herewith such Selling Stockholder further represents, warrants
and agrees that such Selling Stockholder has deposited in custody, under the
Stockholders Agreement, with the agent named therein (the "Agent") as custodian,
certificates in negotiable form for the Common Shares to be sold hereunder by
such Selling Stockholder, for the purpose of further delivery pursuant to this
Agreement. Such Selling Stockholder agrees that the Common Shares (or shares
convertible into the Common Shares) to be sold by such Selling Stockholder on
deposit with the Agent are subject to the interests of the Company and the
Underwriters, that the arrangements made for such custody are to that extent
irrevocable, and that the obligations of such Selling Stockholder hereunder
shall not be terminated, except as provided in this Agreement or in the
Stockholders Agreement, by any act of such Selling Stockholder, by operation of
law, by the death or incapacity of such Selling Stockholder or by the occurrence
of any other event. If the Selling Stockholder should die or become
incapacitated, or if any other event should occur, before the delivery of the
Common Shares hereunder, the documents evidencing Common Shares then on deposit
with the Agent shall be delivered by the Agent in accordance with the terms and
conditions of this Agreement as if such death, incapacity or other event had not
occurred, regardless of whether or not the Agent shall have received notice
thereof. This Agreement and the Stockholders Agreement have been duly executed
and delivered by or on behalf of such Selling Stockholder and the form of such
Stockholders Agreement has been delivered to you.
(iii) The performance of this Agreement and the Stockholders Agreement
and the consummation of the transactions contemplated hereby and by the
Stockholders Agreement will not result in a breach or violation by such Selling
Stockholder of any of the terms or provisions of, or constitute a default by
such Selling Stockholder under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of its properties is bound, any statute, or any
judgment, decree, order, rule or regulation of any court or governmental agency
or body applicable to such Selling Stockholder or any of its properties.
(iv) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Common Shares.
(v) Each Preliminary Prospectus and the Prospectus, insofar as it has
related to such Selling Stockholder, has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and has
-7-
<PAGE>
not included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made; and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, as it
relates to such Selling Stockholder, will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(vi) Without having to determine independently, and without assuming
any responsibility for, the accuracy or completeness of either the
representations and warranties of the Company contained in Section 2 hereof,
such Selling Stockholder is not aware that any of the representatives and
warranties set forth in Section 2 above is untrue or inaccurate in any material
respect.
(b) Each of the Selling Stockholders agrees with the Company and the
Underwriters not to offer to sell, sell or contract to sell or otherwise dispose
of any shares of Common Stock or securities convertible into or exchangeable for
any shares of Common Stock, for a period of 180 days after the first date that
any of the Common Shares are released by you for sale to the public, without the
prior written consent of Montgomery Securities which consent may be withheld at
the sole discretion of Montgomery Securities.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS
The Representatives, on behalf of the several Underwriters, represent and
warrant to the Company and to the Selling Stockholders that the information set
forth (i) on the cover page of the Prospectus with respect to price,
underwriting discounts and commissions and terms of offering and (ii) under
"Underwriting" in the Prospectus was furnished to the Company by and on behalf
of the Underwriters for use in connection with the preparation of the
Registration Statement and the Prospectus and is correct in all material
respects. The Representatives represent and warrant that they have been
authorized by each of the other Underwriters as the Representatives to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
SECTION 5
PURCHASE, SALE AND DELIVERY OF COMMON SHARES
On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, (i) the
Company agrees to issue and sell to the Underwriters 1,850,000 of the Firm
Common Shares, and (ii) the Selling Stockholders agree, severally and not
jointly, to sell to the Underwriters in the respective amounts set forth in
SCHEDULE B hereto, an aggregate of 290,000 of the Firm Common Shares. The
Underwriters agree, severally and not jointly, to purchase from the Company
and the Selling Stockholders, respectively, the number of Firm Common Shares
described below. The purchase price per share to be paid by the several
Underwriters to the Company and to the Selling Stockholders, respectively,
shall be $_____ per share.
The obligation of each Underwriter to the Company shall be to purchase
from the Company that number of full shares which (as nearly as practicable,
as determined by you) bears to 1,850,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in SCHEDULE A hereto
bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Stockholders shall be to purchase from the Selling
Stockholders that number of full shares which (as nearly as practicable, as
determined by you) bears to 290,000 the
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same proportion as the number of shares set forth opposite the name of such
Underwriter in SCHEDULE A hereto bears to the total number of Firm Common
Shares.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Baker &
McKenzie, 660 Hansen Way, Palo Alto, California (or such other place as may be
agreed upon by the Company and the Representatives) at such time and date, not
later than the third (or, if the Firm Common Shares are priced as contemplated
by Rule 15c6-1(c) of the Exchange Act, after 4:30 p.m. Washington, D.C. time,
the fourth) full business day following the first date that any of the Common
Shares are released by you for sale to the public, as you shall designate by at
least 48 hours prior notice to the Company (or at such other time and date, not
later than one week after such third or fourth, as the case may be, full
business day as may be agreed upon by the Company and the Representatives) (the
"First Closing Date"); provided, however, that if the Prospectus is at any time
prior to the First Closing Date recirculated to the public, the First Closing
Date shall occur upon the later of the third or fourth, as the case may be, full
business day following the first date that any of the Common Shares are released
by you for sale to the public or the date that is 48 hours after the date that
the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company and the Selling Stockholders to you, for the respective
accounts of the Underwriters with respect to the Firm Common Shares to be sold
by the Company and by the Selling Stockholders against notification by you that
a wire transfer for payment therefore has been initiated, for the accounts of
the several Underwriters, of the purchase price therefor by federal or other
funds immediately available to the order of the Company and of the Agent in
proportion to the number of Firm Common Shares to be sold by the Company and the
Selling Stockholders, respectively. The certificates for the Firm Common Shares
shall be registered in such names and denominations as you shall have requested
at least two full business days prior to the First Closing Date, and shall be
made available for checking and packaging on the business day preceding the
First Closing Date at a location in New York, New York, as may be designated by
you. Time shall be of the essence, and delivery at the time and place specified
in this Agreement is a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 321,000 Optional
Common Shares at the purchase price per share to be paid for the Firm Common
Shares, for use solely in covering any over-allotments made by you for the
account of the Underwriters in the sale and distribution of the Firm Common
Shares. The option granted hereunder may be exercised at any time (but not more
than once) within 30 days after the first date that any of the Common Shares are
released by you for sale to the public, upon notice by you to the Company and
said Selling Stockholders setting forth the aggregate number of Optional Common
Shares as to which the Underwriters are exercising the option, the names and
denominations in which the certificates for such shares are to be registered and
the time and place at which such certificates will be delivered. Such time of
delivery (which may not be earlier than the First Closing Date), being herein
referred to as the "Second Closing Date," shall be determined by you, but if at
any time other than the First Closing Date shall not be earlier than three full
business days after delivery of such notice of exercise. The number of Optional
Common Shares to be purchased by each Underwriter shall be determined by
multiplying the number of Optional Common Shares to be sold by the Company
pursuant to such notice of exercise by a fraction, the numerator of which is the
number of Firm Common Shares to be purchased by such Underwriter as set forth
opposite its name in SCHEDULE A and the denominator of which is 2,140,000
(subject to such adjustments to eliminate any fractional share purchases as you
in your discretion may make). Certificates for the Optional Common Shares will
be made available for checking and packaging on the business day preceding the
Second Closing Date at a location in New York, New York, as may be designated by
you. The manner of payment for and delivery of the Optional Common Shares shall
be the same as for the Firm Common Shares purchased from the Company as
specified in the two preceding paragraphs. At any time before lapse of the
option, you may cancel such option by giving written notice of such cancellation
to the Company. If the
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option is cancelled or expires unexercised in whole or in part, the Company will
deregister under the Act the number of Optional Common Shares as to which the
option has not been exercised.
You have advised the Company and the Selling Stockholders that each
Underwriter has authorized you to accept delivery of its Common Shares, to make
payment and to receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Common Shares as soon
after the effective date of the Registration Statement as in the judgment of the
Representatives is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the Prospectus.
SECTION 6
COVENANTS OF THE COMPANY
The Company covenants and agrees that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed, pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such timely
filing. The Company will promptly advise you in writing (i) of the receipt of
any comments of the Commission, (ii) of any request of the Commission for
amendment of or supplement to the Registration Statement (either before or after
it becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have become
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose. If the Commission shall enter any such
stop order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either before or
after it becomes effective), any Preliminary Prospectus or the Prospectus of
which you have not been furnished with a copy a reasonable time prior to such
filing or to which you reasonably object or which is not in compliance with the
Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly upon
your request, a registration statement pursuant to Rule 462(b) of the Rules and
Regulations related to the Common Shares and any amendments or supplements to
the Registration Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several Underwriters to continue the
distribution of the Common Shares and will use its best efforts to cause the
same to become effective as promptly as possible. The Company will fully and
completely comply with the provisions of Rule 430A of the Rules and Regulations
with respect to information omitted from the Registration Statement in reliance
upon such Rule.
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(c) If at any time within the nine-month period referred to in
Section 10(a)(3) of the Act during which a prospectus relating to the Common
Shares is required to be delivered under the Act any event occurs, as a result
of which the Prospectus, including any amendments or supplements, would include
an untrue statement of a material fact, or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or if it is necessary at any time to amend the Prospectus, including
any amendments or supplements, to comply with the Act or the Rules and
Regulations, the Company will promptly advise you thereof and will promptly
prepare and file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission or an amendment or
supplement which will effect such compliance and will use its best efforts to
cause the same to become effective as soon as possible; and, in case any
Underwriter is required to deliver a prospectus after such nine-month period,
the Company upon request, but at the expense of such Underwriter, will promptly
prepare such amendment or amendments to the Registration Statement and such
Prospectus or Prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days after the end of
the first quarter ending after one year following the "effective date of the
Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security holders
an earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the Registration
Statement which will satisfy the provisions of the last paragraph of
Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be delivered
in connection with sales by an Underwriter or dealer, the Company, at its
expense, but only for the nine-month period referred to in Section 10(a) (3) of
the Act, will furnish to you and the Selling Stockholders or mail to your order
copies of the Registration Statement, the Prospectus, the Preliminary Prospectus
and all amendments and supplements to any such documents in each case as soon as
available and in such quantities as you and the Selling Stockholders may
request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions from
the application of) the Blue Sky laws of such jurisdictions as you designate,
will comply with such laws and will continue such qualifications, registrations
and exemptions in effect so long as reasonably required for the distribution of
the Common Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale or trading in any jurisdiction
or any initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification, registration
or exemption, the Company, with your cooperation, will use its best efforts to
obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will furnish to
the Representatives and, upon request of the Representatives, to each of the
other Underwriters: (i) as soon as practicable after the end of each fiscal
year, copies of the Annual Report of the Company containing the balance sheet of
the Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the opinion
thereon of the Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other
report filed by the Company with the Commission, the NASD or any securities
exchange; and (iii) as soon as available, copies of any report or communication
of the Company mailed generally to holders of its Common Stock.
(h) During the period of 180 days after the first date that any of the
Common Shares are released by you for sale to the public, without the prior
written consent of Montgomery Securities (which consent may be withheld at the
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sole discretion of Montgomery Securities), the Company will not other than
pursuant to outstanding stock options and warrants and pursuant to the Stock
Option Plan and Purchase Plan as defined and disclosed in the Prospectus, issue,
offer, sell, grant options to purchase or otherwise dispose of any of the
Company's equity securities or any other securities convertible into or
exchangeable with its Common Stock or other equity security.
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain exemptions
from the application of) the Blue Sky laws of the State of California (and
thereby permit market making transactions and secondary trading in the Company's
Common Stock in California), will comply with such Blue Sky laws and will
continue such qualifications, registrations and exemptions in effect for a
period of five years after the date hereof.
(k) The Company will use its best efforts to designate the Common Stock
for quotation as a national market system security on the NASD Automated
Quotation System.
[(l) During a period of ninety (90) days from the effective date of the
Registration Statement, the Company will not file a Registration Statement
registering the shares under the Stock Option Plan or other employee benefit
plan.]
You, on behalf of the Underwriters, may, in your sole discretion, waive in
writing the performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.
SECTION 7
PAYMENT OF EXPENSES
Whether or not the transactions contemplated hereunder are consummated or
this Agreement becomes effective or is terminated, the Company agrees to pay in
such all costs, fees and expenses incurred in connection with the performance of
the Company and the Selling Stockholders' obligations hereunder and in
connection with the transactions contemplated hereby, including without limiting
the generality of the foregoing, (i) all expenses incident to the issuance and
delivery of the Common Shares (including all printing and engraving costs),
(ii) all fees and expenses of the registrar and transfer agent of the Common
Stock, (iii) all necessary issue, transfer and other stamp taxes in connection
with the issuance and sale of the Common Shares to the Underwriters, (iv) all
fees and expenses of the Company's counsel and the Company's independent
accountants, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement, each Preliminary Prospectus and the Prospectus (including all
exhibits and financial statements) and all amendments and supplements provided
for herein, any registration statement filed pursuant to Rule 462(b) of the
Rules and Regulations related to the Common Shares, this Agreement, the
Agreement Among Underwriters, the Selected Dealers Agreement, the Underwriters'
Questionnaire, the Underwriters' Power of Attorney and the Blue Sky memorandum,
(vi) all filing fees, attorneys' fees and expenses reasonably incurred by the
Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the state or Canadian Blue Sky
laws, (vii) the filing fee of the National Association of Securities Dealers,
Inc., and (viii) all other fees, costs and expenses referred to in Item 13 of
the Registration Statement. The Underwriters may deem the Company to be the
primary obligor with respect to all costs, fees and expenses to be paid by the
Company and by the Selling Stockholders. Except as provided in this Section 7,
Section 9 and Section 11 hereof, the Underwriters shall pay
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all of their own expenses, including the fees and disbursements of their counsel
(excluding those relating to qualification, registration or exemption under the
Blue Sky laws and the Blue Sky memorandum referred to above). This Section 7
shall not affect any agreements relating to the payment of expenses between the
Company and the Selling Stockholders.
The Selling Stockholders will pay (directly or by reimbursement) all fees
and expenses incident to the performance of their obligations under this
Agreement which are not otherwise specifically provided for herein, including
but not limited to (i) any fees and expenses of separate counsel for such
Selling Stockholders; (ii) any fees and expenses of the Agent; and (iii) all
expenses and taxes incident to the sale and delivery of the Common Shares to be
sold by such Selling Stockholders to the Underwriters hereunder.
SECTION 8
CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS
The obligations of the several Underwriters to purchase and pay for the
Firm Common Shares on the First Closing Date and the Optional Common Shares on
the Second Closing Date shall be subject to the accuracy of the representations
and warranties on the part of the Company and the Selling Stockholders herein
set forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholders made pursuant to the provisions hereof, to
the performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
5:00 p.m.(or, in the case of a registration statement filed pursuant to
Rule 462(b) of the Rules and Regulations relating to the Common Shares, not
later than 10:00 p.m.), Washington, D.C. Time, on the date of this Agreement, or
at such later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and Regulations;
and prior to such Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company, the Selling Stockholders or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement, or otherwise, shall have been
complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i) there
shall not have been any change in the capital stock other than pursuant to the
exercise of outstanding options and warrants disclosed in the Prospectus of the
Company or any of its subsidiaries or any material change in the indebtedness
(other than in the ordinary course of business) of the Company or any of its
subsidiaries, (ii) except as set forth or contemplated by the Registration
Statement or the Prospectus, no material verbal or written agreement or other
transaction shall have been entered into by the Company or any of its
subsidiaries, which is not in the ordinary course of business, (iii) no loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries shall have been sustained which materially and adversely affects
the condition (financial or otherwise), business, results of operations or
prospects of the Company and its subsidiaries, (iv) no legal or governmental
action, suit or proceeding affecting the Company or any of its subsidiaries
which is material to the Company and its subsidiaries or which adversely affects
or may adversely affect the transactions contemplated by this
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Agreement shall have been instituted or threatened and (v) there shall not have
been any material adverse change in the condition (financial or otherwise),
business, management, results of operations or prospects of the Company and its
subsidiaries which makes it impractical or inadvisable in the reasonable
judgment of the Representatives to proceed with the public offering or purchase
the Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives of the
Underwriters, on each Closing Date, in form and substance satisfactory to you,
except as otherwise expressly provided below:
(i) An opinion of Baker & McKenzie, counsel for the Company and the
Selling Stockholders, addressed to the Underwriters and dated the First Closing
Date, or the Second Closing Date, as the case may be, to the effect that:
(1) Each of the Company and its Japanese, United Kingdom and
French subsidiaries (collectively the "Material Subsidiaries") has
been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation, is
duly qualified to do business as a foreign corporation and is in good
standing in all other jurisdictions where the ownership or leasing of
properties or the conduct of its business requires such qualification,
except for jurisdictions in which the failure to so qualify would not
have a material adverse effect on the Company and its Material
Subsidiaries taken as a whole, and has full corporate power and
authority to own its properties and conduct its business as described
in the Registration Statement;
(2) The authorized, issued and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the
Prospectus; all necessary and proper corporate proceedings have been
taken in order to authorize validly such authorized Common Stock; all
outstanding shares of Common Stock (including the Firm Common Shares
and any Optional Common Shares) have been duly and validly issued, are
fully paid and nonassessable, were not issued in violation of or
subject to any preemptive rights or, to such counsel's knowledge,
other rights to subscribe for or purchase any securities and conform
to the description thereof contained in the Prospectus; without
limiting the foregoing, there are no preemptive or, to such counsel's
knowledge, other rights to subscribe for or purchase any of the
Common Shares to be sold by the Company hereunder;
(3) All of the issued and outstanding shares of the Company's
Material Subsidiaries have been duly and validly authorized and
issued, are fully paid and nonassessable and, except as set forth in
the Registration Statement, are owned beneficially by the Company free
and clear of all liens, encumbrances, equities, claims, security
interests, voting trusts or other defects of title whatsoever;
(4) The certificates evidencing the Common Shares to be
delivered hereunder are in due and proper form under Delaware law, and
when duly countersigned by the Company's transfer agent and registrar,
and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of this
Agreement, the Common Shares represented thereby will be duly
authorized and validly issued, fully paid and nonassessable, will not
have been issued in violation of or subject to any preemptive rights
or, to such counsel's knowledge, other rights to subscribe for or
purchase securities and such shares will conform in all respects to
the description thereof contained in the Prospectus;
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(5) Except as disclosed in or specifically contemplated by the
Prospectus, to such counsel's knowledge, there are no outstanding
options, warrants or other rights calling for the issuance of, and no
commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable
for capital stock of the Company;
(6) (a) The Registration Statement has become effective under
the Act, and, to such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement or preventing the use
of the Prospectus has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated by the Commission;
any required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) of the Rules and Regulations has been made in
the manner and within the time period required by such Rule 424(b);
(b) The Registration Statement, the Prospectus and each
amendment or supplement thereto (except for the financial statements
and schedules and financial and statistical data included therein as
to which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Act and the Rules
and Regulations.
(c) To such counsel's knowledge, there are no franchises,
leases, contracts, agreements or documents of a character required to
be disclosed in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement which are not
disclosed or filed, as required; and
(d) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened
against the Company which are required to be described in the
Prospectus which are not described as required.
(7) The Company has full corporate right, power and authority to
enter into this Agreement and to sell and deliver the Common Shares to
be sold by it to the several Underwriters; this Agreement has been
duly and validly authorized by all necessary corporate action by the
Company, has been duly and validly executed and delivered by and on
behalf of the Company, and is a valid and binding agreement of the
Company in accordance with its terms, except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and except as to those provisions relating to indemnity or
contribution for liabilities arising under the Act as to which no
opinion need be expressed; and no approval, authorization, order,
consent, registration, filing, qualification, license or permit of or
with any court, regulatory, administrative or other governmental body
is required for the execution and delivery of this Agreement by the
Company or the consummation of the transactions contemplated by this
Agreement, except such as have been obtained and are in full force and
effect under the Act and such as may be required under applicable Blue
Sky laws in connection with the purchase and distribution of the
Common Shares by the Underwriters and the clearance of such offering
with the NASD;
(8) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with, result in the material breach of, or constitute, either by
itself or upon notice or the passage of time or both, a material
default under, any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument known to
such counsel to which the Company or any of its Material Subsidiaries
is a party or by which the Company or any of its Material Subsidiaries
or any of its or their property may be bound or affected which is
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material to the Company and its Material Subsidiaries taken as a
whole, or violate any of the provisions of the certificate of
incorporation or bylaws, or other organizational documents, of the
Company or any of its Material Subsidiaries or, so far as is known to
such counsel, violate any statute, judgment, decree, order, rule or
regulation of any court or governmental body having jurisdiction over
the Company or any of its Material Subsidiaries or any of its or their
property;
(9) Neither the Company nor any Material Subsidiary is in
violation of its certificate of incorporation or bylaws, or other
organizational documents, or to such counsel's knowledge, in breach of
or default with respect to any provision of any agreement, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other
instrument known to such counsel to which the Company or any such
subsidiary is a party or by which it or any of its properties may be
bound or affected, except where such default would not materially
adversely affect the Company and its subsidiaries; and, to the best of
such counsel's knowledge, the Company and its Material Subsidiaries
are in compliance with all laws, rules, regulations, judgments,
decrees, orders and statutes of any court or jurisdiction to which
they are subject, except where noncompliance would not materially
adversely affect the Company and its Material Subsidiaries;
(10) To such counsel's knowledge, no holders of securities of the
Company have rights which have not been waived to the registration of
shares of Common Stock or other securities, because of the filing of
the Registration Statement by the Company or the offering contemplated
hereby;
(11) To such counsel's knowledge, this Agreement and the
Stockholders Agreement have been duly authorized, executed and
delivered by or on behalf of each of the Selling Stockholders; the
Agent has been duly and validly authorized to act as the custodian of
the Common Shares to be sold by each such Selling Stockholder; and the
performance of this Agreement and the Stockholders Agreement and the
consummation of the transactions herein contemplated by the Selling
Stockholders will not result in a breach of, or constitute a default
under, any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement
or instrument to which any of the Selling Stockholders is a party or
by which any of the Selling Stockholders or any of their properties
may be bound, or violate any statute, judgment, decree, order, rule or
regulation known to such counsel of any court or governmental body
having jurisdiction over any of the Selling Stockholders or any of
their properties; and to such counsel's knowledge, no approval,
authorization, order or consent of any court, regulatory body,
administrative agency or other governmental body is required for the
execution and delivery of this Agreement or the Stockholders Agreement
or the consummation by the Selling Stockholders of the transactions
contemplated by this Agreement, except such as have been obtained and
are in full force and effect under the Act and such as may be required
under the rules of the NASD and applicable Blue Sky laws;
(12) To such counsel's knowledge, the Selling Stockholders have
full right, power and authority to enter into this Agreement and the
Stockholders Agreement and to sell, transfer and deliver the Common
Shares to be sold on such Closing Date by such Selling Stockholders
hereunder and good and marketable title to such Common Shares so sold,
free and clear of all liens, encumbrances, equities, claims,
restrictions, security interests, voting trusts, or other defects of
title whatsoever;
(13) To such counsel's knowledge, this Agreement and the
Stockholders Agreement are valid and binding agreements of each of the
Selling Stockholders in accordance with their terms except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency,
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reorganization, moratorium or other laws affecting creditors' rights
generally and except with respect to those provisions relating to
indemnities or contributions for liabilities under the Act, as to
which no opinion need be expressed; and
(14) No transfer taxes are required to be paid in connection with
the sale and delivery of the Common Shares to the Underwriters
hereunder.
In rendering such opinion, such counsel may rely as to the matters set
forth in paragraphs (12), (13) and (14), on opinions of other counsel retained
by the Selling Stockholders, as to matters of local law, on opinions of local
counsel, which may be limited in scope and to form in accordance with applicable
local legal principles and practice, and as to matters of fact, on certificates
of the Selling Stockholders and of officers of the Company and of governmental
officials, in which case their opinion is to state that they are so doing and
that the Underwriters are justified in relying on such opinions or certificates
and copies of said opinions or certificates are to be attached to the opinion.
Such counsel shall also include a statement to the effect that nothing has come
to such counsel's attention that would lead such counsel to believe that either
at the effective date of the Registration Statement or at the applicable Closing
Date the Registration Statement or the Prospectus, or any such amendment or
supplement, contains any 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;
(ii) Such opinion or opinions of Wilson, Sonsini, Goodrich & Rosati,
P.C., counsel for the Underwriters dated the First Closing Date or the Second
Closing Date, as the case may be, with respect to the incorporation of the
Company, the sufficiency of all corporate proceedings and other legal matters
relating to this Agreement, the validity of the Common Shares, the Registration
Statement and the Prospectus and other related matters as you may reasonably
require, and the Company and the Selling Stockholders shall have furnished to
such counsel such documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of enabling them to pass
upon such matters. In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and governmental
officials.
(iii) A certificate of the Company executed by the President and the
chief financial or accounting officer of the Company, dated the First Closing
Date or the Second Closing Date, as the case may be, to the effect that:
(1) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of
this Agreement and as of the First Closing Date or the Second Closing
Date, as the case may be, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied on or prior to such Closing Date;
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus
filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and to the best of the
knowledge of the respective signers, no proceedings for that purpose
have been instituted or are pending or contemplated under the Act;
(3) Each of the respective signers of the certificate has
carefully examined the Registration Statement and the Prospectus; in
his opinion and to the best of his knowledge, the Registration
Statement and the Prospectus and any amendments or supplements thereto
contain all
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statements required to be stated therein regarding the Company and its
subsidiaries; and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading;
(4) Since the initial date on which the Registration Statement
was filed, no agreement, written or oral, transaction or event has
occurred which should have been set forth in an amendment to the
Registration Statement or in a supplement to or amendment of any
prospectus which has not been disclosed in such a supplement or
amendment;
(5) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been
any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the
Company and its subsidiaries; and no legal or governmental action,
suit or proceeding is pending or threatened against the Company or any
of its subsidiaries which is material to the Company and its
subsidiaries, whether or not arising from transactions in the ordinary
course of business, or which may adversely affect the transactions
contemplated by this Agreement; since such dates neither the Company
nor any of its subsidiaries has entered into any verbal or written
agreement or other transaction which is not in the ordinary course of
business or which could result in a material reduction in the future
earnings of the Company or incurred any material liability or
obligation, direct, contingent or indirect, made any change in its
capital stock, made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend,
or made any other distribution, upon its outstanding capital stock
payable to stockholders of record on a date prior to the First Closing
Date or Second Closing Date; and
(6) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, the Company and its
subsidiaries have not sustained a material loss or damage by strike,
fire, flood, windstorm, accident or other calamity (whether or not
insured).
(iv) On the First Closing Date or the Second Closing Date, as the case
may be, a certificate, dated such Closing Date and addressed to you, signed
by or on behalf of each of the Selling Stockholders to the effect that the
representations and warranties of such Selling Stockholder in this
Agreement are true and correct, as if made at and as of the First Closing
Date or the Second Closing Date, as the case may be, and such Selling
Stockholder has complied with all the agreements and satisfied all the
conditions on his part to be performed or satisfied prior to the First
Closing Date or the Second Closing Date, as the case may be.
(v) On the date before this Agreement is executed and also on the
First Closing Date and the Second Closing Date, a letter addressed to you,
as Representatives of the Underwriters, from KPMG Peat Marwick, LLP,
independent accountants, the first one to be dated the day before the date
of this Agreement, the second one to be dated the First Closing Date and
the third one (in the event of a Second Closing) to be dated the Second
Closing Date, in form and substance reasonably satisfactory to you.
(vi) On or before the First Closing Date, letters from holders of
______ shares of the Company's Common Stock, including each director and
officer and certain stockholders of the Company, in form and substance
satisfactory to you, confirming that for a period of 180 days after the
first date that any of the Common Shares are released by you for sale to
the public, such person will not directly or indirectly sell or offer to
sell or otherwise dispose of any shares of Common Stock or any right to
acquire any such shares
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without the prior written consent of Montgomery Securities, which consent
may be withheld at the sole discretion of Montgomery Securities.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Wilson, Sonsini, Goodrich & Rosati, P.C., counsel for the
Underwriters. The Company shall furnish you with such manually signed or
conformed copies of such opinions, certificates, letters and documents as you
reasonably request. Any certificate signed by any officer of the Company and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to the Underwriters as
to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you as Representatives to the
Company and the Selling Stockholders without liability on the part of any
Underwriter or the Company or the Selling Stockholders except for the expenses
to be paid or reimbursed by the Company and by the Selling Stockholders pursuant
to Sections 7 and 9 hereof and except to the extent provided in Section 11
hereof.
SECTION 9
REIMBURSEMENT OF UNDERWRITERS' EXPENSES
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 8, or if the sale to the Underwriters of
the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse you and the other Underwriters upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by you and them in connection with the proposed purchase and the sale of the
Common Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, telegraph charges and telephone
charges relating directly to the offering contemplated by the Prospectus. Any
such termination shall be without liability of any party to any other party
except that the provisions of this Section, Section 7 and Section 11 shall at
all times be effective and shall apply.
SECTION 10
EFFECTIVENESS OF REGISTRATION STATEMENT
You, the Company and the Selling Stockholders will use your, its and their
best efforts to cause the Registration Statement to become effective, to prevent
the issuance of any stop order suspending the effectiveness of the Registration
Statement and, if such stop order be issued, to obtain as soon as possible the
lifting thereof.
SECTION 11
INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the Act
against any losses, claims, damages, liabilities or expenses, joint or several,
to which such Underwriter or such controlling person may become subject, under
the Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or other federal or state statutory law or regulation, or at
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common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof
as contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them not misleading, or arise out
of or are based in whole or in part on any inaccuracy in the representations and
warranties of the Company contained herein or any failure of the Company to
perform its obligations hereunder or under law; and will reimburse each
Underwriter and each such controlling person for any legal and other expenses as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the Company will be liable in any such case to the extent that any
such loss, claim, damage, liability or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto in reliance upon and in conformity with
the information furnished to the Company pursuant to Section 4 hereof. In
addition to their other obligations, under this Section 11(a), the Company
agrees that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, or any inaccuracy
in the representations and warranties of the Company herein or failure to
perform its obligations hereunder, all as described in this Section 11(a), it
will reimburse each Underwriter on a quarterly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's obligation to reimburse each Underwriter for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, each Underwriter shall
promptly return it to the Company together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) announced from time to time by Bank of
America NT&SA, San Francisco, California (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter within 30 days of a
request for reimbursement, shall bear interest at the Prime Rate from the date
of such request. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) Each of the Selling Stockholders severally agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Act against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Underwriter or such
controlling person may become subject, under the Act, the Exchange Act, or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of such Selling Stockholder), insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them not misleading, or arise out
of or are based in whole or in part on any inaccuracy in the representations and
warranties of the Selling Stockholders contained herein or any failure of the
Selling Stockholders to perform their respective obligations hereunder or under
law; and will reimburse each Underwriter and each such controlling person for
any legal and other expenses as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the Selling Stockholders
will only be liable in any such case to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto in
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reliance upon and in conformity with the information about such Selling
Stockholder furnished to the Company for use therein and, provided further that
each such Selling Stockholder shall not be liable under this paragraph in an
amount in excess of the proceeds received by such stockholder with respect to
the Common Shares sold to the Underwriters hereunder. This indemnity agreement
will be in addition to any liability which the Selling Stockholders may
otherwise have.
(c) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, the Selling Stockholders and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act, against any
losses, claims, damages, liabilities or expenses to which the Company, or any
such director, officer, Selling Stockholder or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof; and will reimburse the
Company, or any such director, officer, Selling Stockholder or controlling
person for any legal and other expense reasonably incurred by the Company, or
any such director, officer, Selling Stockholder or controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action. In addition to its other
obligations under this Section 11(c), each Underwriter severally agrees that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 11(c)
which relates to information furnished to the Company pursuant to Section 4
hereof, it will reimburse the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) on a quarterly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Underwriters' obligation to reimburse
the Company (and, to the extent applicable, each officer, director, controlling
person or Selling Stockholder) for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) shall promptly
return it to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such
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action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a material
conflict between the positions of the indemnifying party and the indemnified
party in conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are materially
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel, approved
by the Representatives in the case of paragraph (a), representing the
indemnified parties who are parties to such action) or (ii) the indemnifying
party shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after notice
of commencement of the action, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying party.
(e) If the indemnification provided for in this Section 11 is required by
its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b),
(c) or (d) in respect of any losses, claims, damages, liabilities or expenses
referred to herein, then each applicable indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Selling Stockholders and the Underwriters from the offering of the
Common Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the Selling Stockholders and the Underwriters in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company, the
Selling Stockholders and the Underwriters shall be deemed to be in the same
proportion, in the case of the Company and the Selling Stockholders as the total
price paid to the Company and to the Selling Stockholders, respectively, for the
Common Shares sold by them to the Underwriters (net of underwriting commissions
but before deducting expenses), and in the case of the Underwriters as the
underwriting commissions received by them bears to the total of such amounts
paid to the Company and to the Selling Stockholders and received by the
Underwriters as underwriting commissions. The relative fault of the Company,
the Selling Stockholders and the Underwriters 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 or
the inaccurate or the alleged inaccurate representation and/or warranty relates
to information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge, access to information
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, subject
to the limitations set forth in subparagraph (d) of this Section 11, any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
subparagraph (d) of this Section 11 with respect to notice of commencement of
any action shall apply if a claim for contribution is to be made under this
subparagraph (e); provided, however, that no additional notice shall be required
with respect to any action for which notice has been given under
subparagraph (d) for purposes of indemnification. The Company, the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 11 were determined solely by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this paragraph. Notwithstanding the
provisions of this Section 11, no Underwriter shall be required to
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contribute any amount in excess of the amount by which the total price at which
the Common Shares underwritten by it and distributed to the public were offered
to the public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 11 are several in proportion to their respective underwriting
commitments and not joint.
(f) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 11(a), 11(b) and 11(c)
hereof, including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the Board of Governors of
the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration
Procedure of the NASD. Any such arbitration must be commenced by service of a
written demand for arbitration or written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in Sections 11(a), 11(b) and
11(c) hereof and would not resolve the ultimate propriety or enforceability of
the obligation to reimburse expenses which is created by the provisions of such
Sections 11(a), 11(b) and 11(c) hereof.
(g) The Company and each of the Underwriters agrees with each of the
Selling Stockholders that any claim of such Underwriter against such Selling
Stockholder for indemnification, reimbursement or advancement or expenses or
breach of any representation or warranty shall first be sought by such
Underwriter to be satisfied in full by the Company and, subject to the
limitation on the aggregate liability of the Selling Stockholders set forth in
Section 11(b), shall be satisfied by the Selling Stockholders only to the extent
that such claim has not been satisfied in full by the Company within the sixty
(60) day period following the date requested for payment in accordance with the
terms of this Agreement.
(h) In no event shall the aggregate liability of any Selling Stockholder
under the indemnity, contribution and reimbursement of expense agreements
contained in this Section 11 and under the representations and warranties
contained in Section 3(v) of such Selling Stockholder exceed the proceeds
received by such Selling Stockholder with respect to the Common Shares sold to
the Underwriters hereunder.
(i) The Company and the Selling Stockholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to their respective amounts of such liability for which they each
shall be responsible.
SECTION 12
DEFAULT OF UNDERWRITERS
It shall be a condition to this Agreement and the obligation of the Company
and the Selling Stockholders to sell and deliver the Common Shares hereunder,
and of each Underwriter to purchase the Common Shares in the manner as described
herein, that, except as hereinafter in this paragraph provided, each of the
Underwriters shall purchase and pay for all the Common Shares agreed to be
purchased by such Underwriter hereunder upon tender to the Representatives of
all such shares in accordance with the terms hereof. If any Underwriter or
Underwriters default in their obligations to purchase Common Shares hereunder on
either the First or Second Closing Date and the aggregate number of Common
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Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase on such Closing Date does not exceed 10% of the total number of Common
Shares which the Underwriters are obligated to purchase on such Closing Date,
the non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Common Shares which such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of Common
Shares with respect to which such default occurs is more than the above
percentage and arrangements satisfactory to the Representatives and the Company
for the purchase of such Common Shares by other persons are not made within 48
hours after such default, this Agreement will terminate without liability on the
part of any non-defaulting Underwriter or the Company or the Selling
Stockholders except for the expenses to be paid by the Company and the Selling
Stockholders pursuant to Section 7 hereof and except to the extent provided in
Section 11 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13
EFFECTIVE DATE
This Agreement shall become effective immediately as to Sections 7, 9, 11,
14 and 16 and, as to all other provisions, (i) if at the time of execution of
this Agreement the Registration Statement has not become effective, at 2:00
P.M., California time, on the first full business day following the
effectiveness of the Registration Statement, or (ii) if at the time of execution
of this Agreement the Registration Statement has been declared effective, at
2:00 P.M., California time, on the first full business day following the date of
execution of this Agreement; but this Agreement shall nevertheless become
effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company or by release of
any of the Common Shares for sale to the public. For the purposes of this
Section 13, the Common Shares shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Common
Shares or upon the release by you of telegrams (i) advising Underwriters that
the Common Shares are released for public offering, or (ii) offering the Common
Shares for sale to securities dealers, whichever may occur first.
SECTION 14
TERMINATION
Without limiting the right to terminate this Agreement pursuant to any
other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you and
the Selling Stockholders or by you by notice to the Company and the Selling
Stockholders at any time prior to the time this Agreement shall become effective
as to all its provisions, and any such termination shall be without liability on
the part of the Company or the Selling Stockholders to any Underwriter (except
for the expenses to be paid or reimbursed by the Company and the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof) or of any Underwriter to the Company or the
Selling Stockholders (except to the extent provided in Section 11 hereof).
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(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
Exchange or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or California
authorities, (ii) if an outbreak of major hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in the judgment of the Representatives, to affect
adversely the marketability of the Common Shares, (iii) if any adverse event
shall have occurred or shall exist which makes untrue or incorrect in any
material respect any statement or information contained in the Registration
Statement or Prospectus or which is not reflected in the Registration Statement
or Prospectus but should be reflected therein in order to make the statements or
information contained therein not misleading in any material respect, or (iv) if
there shall be any action, suit or proceeding pending or threatened, or there
shall have been any development or prospective development involving
particularly the business or properties or securities of the Company or any of
its subsidiaries or the transactions contemplated by this Agreement, which, in
the reasonable judgment of the Representatives, may materially and adversely
affect the Company's business or earnings and makes it impracticable or
inadvisable to offer or sell the Common Shares. Any termination pursuant to this
subsection (b) shall without liability on the part of any Underwriter to the
Company or the Selling Stockholders or on the part of the Company or the Selling
Stockholders to any Underwriter (except for expenses to be paid or reimbursed by
the Company and the Selling Stockholders pursuant to Sections 7 and 9 hereof and
except to the extent provided in Section 11 hereof).
(c) This Agreement shall also terminate at 5:00 P.M., California Time, on
the tenth full business day after the Registration Statement shall have become
effective if the initial public offering price of the Common Shares shall not
then as yet have been determined as provided in Section 5 hereof. Any
termination pursuant to this subsection (c) shall without liability on the part
of any Underwriter to the Company or the Selling Stockholders or on the part of
the Company or the Selling Stockholders to any Underwriter (except for expenses
to be paid or reimbursed by the Company and the Selling Stockholders pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof).
SECTION 15
FAILURE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER
If one or more of the Selling Stockholders shall fail to sell and deliver
to the Underwriters the Common Shares to be sold and delivered by such Selling
Stockholders at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Stockholders, either (i) terminate this Agreement without any
liability on the part of any Underwriter or, except as provided in Sections 7, 9
and 11 hereof, the Company or the Selling Stockholders, or (ii) purchase the
shares which the Company and other Selling Stockholders have agreed to sell and
deliver in accordance with the terms hereof. In the event of a failure by one
or more of the Selling Stockholders to sell and deliver as referred to in this
Section, either you or the Company shall have the right to postpone the Closing
Date for a period not exceeding seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected.
-25-
<PAGE>
SECTION 16
REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY
The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers, of the Selling Stockholders
and of the several Underwriters set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 17
NOTICES
All communications hereunder shall be in writing and, if sent to the
Representatives shall be mailed, delivered or telegraphed and confirmed to you
at 600 Montgomery Street, San Francisco, California 94111, Attention: Sanford J.
Miller, with a copy to Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road,
Palo Alto, California 94304, Attention: Barry E. Taylor; and if sent to the
Company or the Selling Stockholders shall be mailed, delivered or telegraphed
and confirmed to the Company at 181 Metro Drive, 3rd Floor, San Jose, California
95110, Attention: Reza Mikailli, with a copy to Baker & McKenzie, 660 Hansen
Way, Palo Alto, California 94304, Attention: Peter M. Astiz. The Company, the
Selling Stockholders or you may change the address for receipt of communications
hereunder by giving notice to the others.
SECTION 18
SUCCESSORS
This Agreement will inure to the benefit of and be binding upon the parties
hereto, including any substitute Underwriters pursuant to Section 12 hereof, and
to the benefit of the officers and directors and controlling persons referred to
in Section 11, and in each case their respective successors, personal
representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder. The term "successors" shall not include any purchaser of
the Common Shares as such from any of the Underwriters merely by reason of such
purchase.
SECTION 19
REPRESENTATION OF UNDERWRITERS
You will act as Representatives for the several Underwriters in connection
with all dealings hereunder, and any action under or in respect of this
Agreement taken by you jointly or by Montgomery Securities, as Representatives,
will be binding upon all the Underwriters.
-26-
<PAGE>
SECTION 20
PARTIAL UNENFORCEABILITY
The invalidity or unenforceability of any Section, paragraph or provision
of this Agreement shall not affect the validity or enforceability of any other
Section, paragraph or provision hereof. If any Section, paragraph or provision
of this Agreement is for any reason determined to be invalid or unenforceable,
there shall be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and enforceable.
SECTION 21
APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with the
internal laws (and not the laws pertaining to conflicts of laws) of the State of
California.
SECTION 22
GENERAL
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in several counterparts, each one of
which shall be an original, and all of which shall constitute one and the same
document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact for
the Selling Stockholders represents by so doing that he has been duly appointed
as Attorney-in-fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-fact to take
such action. Any action taken under this Agreement by any of the Attorneys-in-
fact will be binding on all the Selling Stockholders.
-27-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company, the Selling Stockholders and the
several Underwriters including you, all in accordance with its terms.
Very truly yours,
UNIFY CORPORATION
----------------------------------------
Reza Mikailli, President
SELLING STOCKHOLDERS
By:
------------------------------------
(Attorney-in-fact)
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
NEEDHAM & COMPANY, INC.
BLACK & COMPANY
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: MONTGOMERY SECURITIES
By:
-------------------------------
Partner
-28-
<PAGE>
SCHEDULE A
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- -------------------------------------------------- ----------------------------
Montgomery Securities. . . . . . . . . . . . . . .
Needham & Company, Inc.. . . . . . . . . . . . . .
Black & Company. . . . . . . . . . . . . . . . . .
---------
TOTAL . . . . . . . . . . 2,140,000
---------
---------
A-1
<PAGE>
SCHEDULE B
Number of Firm
Common Shares to
to be Sold by Selling
Name of Selling Stockholders Stockholders
- -------------------------------------------------- ----------------------------
-------
TOTAL . . . . . . . . . . 290,000
-------
-------
B-1
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of this 16th day of May, 1996, by and between UNIFY CORPORATION, a
California corporation (the "UNIFY California"), and UNIFY CORPORATION, a
Delaware corporation ("UNIFY Delaware").
RECITALS
A. UNIFY California is a corporation duly organized and existing under
the laws of the State of California.
B. UNIFY Delaware is a corporation duly organized and existing under the
laws of the State of Delaware.
C. On the date of this Agreement, UNIFY Delaware has authority to issue
47,931,370 shares, 40,000,000 of which are of Common Stock with a par value of
$0.001 per share (the "UNIFY Delaware Common Stock") and 7,931,370 of which are
Preferred Stock with a par value of $0.001 per share (the "UNIFY Delaware
Preferred Stock"), of which 100 shares of Common Stock are issued and
outstanding and owned by UNIFY California.
D. On the date of this Agreement, UNIFY California has authority to issue
60,000,000 shares of Common Stock (the "UNIFY California Common Stock"), and
17,933,016 shares of Preferred Stock, including 1,463,416 shares of Series A
Preferred Stock, 4,000,000 shares of Series B Preferred Stock, 5,213,600 shares
of Series C Preferred Stock, 4,256,000 shares of Series D Preferred Stock, and
3,050,000 shares of Series E Preferred Stock (collectively, the "UNIFY
California Preferred Stock"), of which the 13,443,732 shares of Common Stock,
1,463,416 shares of Series A Preferred Stock, 4,000,000 shares of Series B
Preferred Stock, 5,213,600 shares of Series C Preferred Stock, 3,920,000 shares
of Series D Preferred Stock, and 3,000,000 shares of Series E Preferred Stock
are issued and outstanding.
E. Each of the respective Boards of Directors of UNIFY Delaware and UNIFY
California has determined that, for the purpose of effecting the reincorporation
of UNIFY California in the State of Delaware, it is advisable and to the
advantage of said two corporations and their shareholders that UNIFY California
merge with and into UNIFY Delaware upon the terms and conditions herein
provided.
F. The respective boards of directors of UNIFY Delaware and UNIFY
California, the shareholders of UNIFY California and the sole stockholder of
UNIFY Delaware have adopted and approved this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, UNIFY California and UNIFY Delaware hereby agree to merge as
follows:
-1-
<PAGE>
ARTICLE I. MERGER
1.1 THE MERGER. In accordance with the provisions of this Agreement, the
General Corporation Law of the State of Delaware (the "Delaware Law") and the
Corporations Code of the State of California (the "California Code"), UNIFY
California shall be merged with and into UNIFY Delaware (the "Merger"), the
separate existence of UNIFY California shall cease, and UNIFY Delaware shall be,
and is herein sometimes referred to as, the "Surviving Corporation."
1.2 EFFECTIVE TIME OF THE MERGER. Subject to the provisions herein, this
Agreement, together with required related certificates, if any, shall be duly
executed and filed in accordance with the Delaware Law and the California Code.
The Merger shall become effective at the time of the filing of an executed
counterpart of this Agreement and any other required certificates with the
Delaware Secretary of State ("Effective Time of the Merger").
1.3 EFFECTS OF THE MERGER. At the Effective Time of the Merger, the
separate existence of UNIFY California shall cease and UNIFY Delaware, as the
Surviving Corporation, shall:
(a) continue its corporate existence under the name of Unify
Corporation;
(b) succeed, without other transfer, to all rights, titles, assets,
powers and properties of UNIFY California in the manner more fully set forth in
Section 259 of the Delaware Law;
(c) continue to be subject to all of the debts, liabilities and
obligations of UNIFY Delaware as constituted immediately prior to the Effective
Time of the Merger; and
(d) succeed, without other transfer, to all of the debts, liabilities
and obligations of UNIFY California, including any obligations of UNIFY
California under employee benefit plans in effect as of said date or with
respect to which employee rights or accrued benefits are outstanding as of said
date, in the same manner as of UNIFY Delaware had itself incurred them, all as
more fully provided under the applicable provisions of the Delaware Law and the
California Code.
ARTICLE II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION. At the Effective Time of the Merger,
the Certificate of Incorporation of UNIFY Delaware shall continue in full force
and effect as the Certificate of Incorporation of the Surviving Corporation
without change or amendment until further amended in accordance with the
provisions thereof and applicable laws.
2.2 BYLAWS. The Bylaws of UNIFY Delaware as in effect immediately prior
to the Effective Time of the Merger, shall continue in full force and effect as
the Bylaws of the Surviving Corporation without change or amendment until
further amended in accordance with the provisions thereof and applicable laws.
-2-
<PAGE>
2.3 DIRECTORS AND OFFICERS. At the Effective Time of the Merger, the
directors and officers of UNIFY California shall become the directors and
officers of UNIFY Delaware and the members of each committee of the Board of
Directors of UNIFY California shall become the members of such committees for
UNIFY Delaware.
ARTICLE III. EFFECT ON CAPITAL STOCK
3.1 CONVERSION OF UNIFY CALIFORNIA CAPITAL STOCK. At the Effective Time
of the Merger, by virtue of the Merger and without any action on the part of the
holder thereof:
(a) each share of UNIFY California Common Stock outstanding
immediately prior thereto shall be changed and converted into one-seventh
(1/7th) of fully paid and nonassessable share of UNIFY Delaware Common Stock;
(b) each share of each series of UNIFY California Preferred Stock
other than Series A Preferred Stock outstanding immediately prior thereto shall
be changed and converted into one-seventh (1/7th) fully paid and nonassessable
share of UNIFY Delaware Preferred Stock of the same letter designation; and
(c) each share of UNIFY California Series A Preferred Stock
outstanding immediately prior thereto shall be changed and converted into
39/100ths of a share of Series A Preferred Stock of UNIFY Delaware.
3.2 CONVERSION OF UNIFY CALIFORNIA STOCK OPTIONS. At the Effective Time
of the Merger, by virtue of the Merger and without any action on the part of the
holder thereof, each outstanding option, warrant or other right to purchase
shares of UNIFY California Common Stock, including, but not limited to those
options granted under the 1991 Stock Option Plan (the "Option Plan"), shall be
converted into and become an option, warrant, or right to purchase one-seventh
(1/7th) of the number of shares of UNIFY Delaware Common Stock and the exercise
price of the option, warrant or right shall be correspondingly adjusted. A
number of shares of UNIFY Delaware Common Stock shall be reserved for purposes
of such options, warrants, and rights that is equal to one-seventh (1/7th) of
the number of shares of UNIFY California Common Stock so reserved immediately
prior to the Effective Time of the Merger and UNIFY Delaware shall assume all
obligations of UNIFY California under agreements pertaining to such options,
warrants, and rights, including the Option Plan.
3.3 CONVERSION OF UNIFY DELAWARE COMMON STOCK. Forthwith upon the
Effective Time of the Merger, the 100 shares of UNIFY Delaware Common Stock
presently issued and outstanding in the name of UNIFY California shall be
canceled and retired and shall resume the status of authorized and unissued
shares of UNIFY Delaware Common Stock, and no shares of UNIFY Delaware Common
Stock or other securities of UNIFY Delaware shall be issued in respect thereof.
3.4 FRACTIONAL SHARES. No fractional shares which a UNIFY Delaware
stockholder otherwise would be entitled to receive by reason of the exchange of
UNIFY California stock for UNIFY Delaware stock shall be issued. In lieu of any
fractional shares to which a holder otherwise would have been entitled
(determined on a certificate by certificate basis), UNIFY Delaware shall pay
cash equal to such fraction multiplied by the fair market
-3-
<PAGE>
value of the Common Stock and the Preferred Stock at the Effective Time of the
Merger as determined by the Board of Directors of UNIFY California.
3.5 STOCK CERTIFICATES. On and after the Effective Time of the Merger,
all of the outstanding certificates which prior to that time represented shares
of UNIFY California capital stock shall be deemed for all purposes to evidence
ownership of and to represent the shares of UNIFY Delaware stock into which the
shares of UNIFY California stock have been converted as herein provided. In
addition, on or after the Effective Time of the Merger, the records and books of
UNIFY California shall be deemed for all purposes to be the records and books of
UNIFY Delaware. The registered owner on the books and records of UNIFY Delaware
or its transfer agent of any such outstanding stock certificate shall, until
such certificate shall have been surrendered for transfer or otherwise accounted
for to UNIFY Delaware or its transfer agent, have and be entitled to exercise
any voting and other rights with respect to and to receive any dividend and
other distributions upon the shares of UNIFY Delaware stock evidenced by such
outstanding certificate as above provided.
ARTICLE IV. ADDITIONAL COVENANTS
4.1 COVENANTS OF UNIFY DELAWARE. UNIFY Delaware covenants and agrees that
it shall, on or before the Effective Time of the Merger:
(a) qualify to do business as a foreign corporation in the State of
California and in all other states in which UNIFY California is so qualified and
in which the failure so to qualify would have a material adverse impact on the
business or financial condition of the Surviving Corporation;
(b) irrevocably appoint an agent for service of process as required
under the provisions of Section 2105 of the California Corporations Code and
under applicable provisions of state law in other states in which qualification
is required hereunder; and
(c) file any and all documents with the California Franchise Tax
Board necessary to the assumption by UNIFY Delaware of all of the franchise tax
liabilities of UNIFY California.
4.2 FURTHER ASSURANCES. From time to time, as and when required by UNIFY
Delaware or by its successors and assigns, there shall be executed and delivered
on behalf of UNIFY California such deeds and other instruments, and there shall
be taken or caused to be taken by it such further and other action, as shall be
appropriate or necessary in order to vest, perfect or confirm, of record or
otherwise, in UNIFY Delaware the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of UNIFY California, and otherwise to carry out the purposes of this
Agreement and the officers and directors of UNIFY Delaware are fully authorized
in the name and on behalf of UNIFY California or otherwise to take any and all
such action and to execute and deliver any and all such deeds and other
instruments.
-4-
<PAGE>
ARTICLE V. MISCELLANEOUS PROVISIONS
5.1 AMENDMENT. Except for the terms of Article III of this Agreement, at
any time before or after approval and adoption by the shareholders of UNIFY
California, this Agreement may be amended in any manner as may be determined in
the judgment of the respective Boards of Directors of UNIFY Delaware and UNIFY
California to be necessary, desirable or expedient in order to clarify the
intention of the parties hereto or to effect or facilitate the purposes and
intent of this Agreement.
5.2 ABANDONMENT. At any time before the Effective Time of the Merger,
this Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either UNIFY California or UNIFY Delaware or both, notwithstanding
the prior approval of this Agreement by the sole stockholder of UNIFY Delaware
and by the shareholders of UNIFY California.
5.3 GOVERNING LAW. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with the laws of the State of Delaware
and, so far as applicable, the merger provisions of the California Corporations
Code.
5.4 COUNTERPARTS. In order to facilitate the filing and recording of this
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original.
IN WITNESS WHEREOF, this Agreement, having first been duly approved by
resolution of the Boards of Directors of UNIFY California and UNIFY Delaware, is
hereby executed on behalf of each of said two corporations by their respective
officers thereunto duly authorized.
UNIFY CORPORATION, UNIFY CORPORATION,
a California Corporation a Delaware Corporation
By: /s/ By: /s/
------------------------------- ----------------------------------
Reza Mikailli, President Reza Mikailli, President
-5-
<PAGE>
CERTIFICATE OF SECRETARY
OF
UNIFY CORPORATION
A DELAWARE CORPORATION
The undersigned, Reza Mikailli, the Secretary of Unify Corporation, a
Delaware corporation (the "Corporation"), hereby certifies that the Agreement
and Plan of Merger to which this Certificate is attached was duly signed on
behalf of the Corporation by its President and Treasurer under the corporate
seal of the Corporation and was duly approved and adopted by written consent of
the sole stockholder of the Corporation dated May 14, 1996.
Dated: May 14, 1996.
/s/
-------------------------------------------
Reza Mikailli, Secretary
-6-
<PAGE>
COMMON STOCK COMMON STOCK
UNIFY
THIS CERTIFICATE IS TRANSFERABLE IN SEE REVERSE FOR CERTAIN DEFINITIONS
BOSTON, MA OR NEW YORK, NY AND A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS ON SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 904743 10 1
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
IS THE OWNER OF
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE
PER SHARE, OF
UNIFY CORPORATION
transferable on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
UNIFY CORPORATION
CORPORATE
SEAL
1996
DELAWARE
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
COM PROP -- as community property
UNIF GIFT MIN ACT -- ............, Custodian...........
(Cust) (Minor)
under Uniform Gifts to Minors
Act................................
(State)
UNIF TRF MIN ACT -- ........Custodian (until age....)
(Cust)
..........under Uniform Transfers
(Minor)
to Minors Act......................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
------------------------------
X
---------------------------------------
X
---------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
----------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
[BAKER & McKENZIE LETTERHEAD]
ATTORNEYS AT LAW
660 HANSEN WAY
PALO ALTO, CALIFORNIA 94304
TELEPHONE (415) 856-2400
FACSIMILE (415) 856-9299
POSTAL OR MAILING ADDRESS
P.O. BOX 60309
PALO ALTO, CALIFORNIA 94306-0309
May 21, 1996
Unify Corporation
181 Metro Drive, 3rd Floor
San Jose, California 95110
Gentlemen:
You have requested our opinion in connection with the Registration
Statement on Form S-1 (No. 333-3834) filed by you with the Securities and
Exchange Commission on or about April 18, 1996, as amended, in connection with
the registration under the Securities Act of 1933, as amended (the "Act"), of
an aggregate of 2,461,000 shares (the "Shares") of your Common Stock. Of the
Shares, 321,000 are subject to an overallotment option to be granted by you.
As your legal counsel, we have reviewed the Registration Statement and
exhibits thereto, including the form of Underwriting Agreement included as
Exhibit 1.1 to the Registration Statement, and examined the corporate
proceedings taken with respect to the Shares, and we are familiar with the
proceedings proposed to be taken by you in connection with the sale and
issuance of the Shares. Based upon the foregoing and such other documents and
investigations as we have deemed necessary or appropriate, we are of the
opinion that the Shares, when issued and sold in the manner described in the
Registration Statement, and when payment therefor shall have been received by
you, will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to said Registration
Statement and to the reference to our firm wherever appearing in the Prospectus
included in the Registration Statement and amendments thereto. By giving such
consent we do not thereby admit that we are experts with respect to the
Registration Statement, including this exhibit, within the meaning of the term
"expert" as used in the Act, or the rules and regulations of the Commission
thereunder.
Very truly yours,
/s/ Baker & McKenzie
BAKER & McKENZIE
<PAGE>
EXHIBIT 11.1
UNIFY CORPORATION
STATEMENT OF COMPUTATION OF PRO FORMA
NET LOSS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
Net loss.................................................................................. $ (479) $ (938)
--------- ---------
Shares used in computing pro forma net loss per share:
Weighted average shares of common stock outstanding..................................... 1,328 1,297
Weighted average shares of redeemable preferred stock outstanding (1)................... 3,218 3,451
Staff Accounting Bulletin No. 83 grants and issuances................................... 1,093 579
--------- ---------
5,639 5,327
--------- ---------
Pro forma net loss per share.............................................................. $ (0.08) $ (0.18)
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Computed using the as-if-converted method.
