<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1996
REGISTRATION NO. 333-11947
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO.2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
AURUM SOFTWARE, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
---------------
CALIFORNIA (PRIOR TO 7372 77-0292260
REINCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
DELAWARE (AFTER CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
REINCORPORATION)
(STATE OR OTHER
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
---------------
AURUM SOFTWARE, INC.
3385 SCOTT BOULEVARD
SANTA CLARA, CA 95054
(408) 986-8100
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND
PRINCIPAL PLACE OF BUSINESS)
---------------
MARY E. COLEMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AURUM SOFTWARE, INC.
3385 SCOTT BOULEVARD
SANTA CLARA, CA 95054
(408) 986-8100
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE OF PROCESS)
---------------
COPIES TO:
DOUGLAS H. COLLOM, ESQ. SCOTT T. SMITH, ESQ.
ROBERT F. KORNEGAY, ESQ. MICHAEL J. SULLIVAN, ESQ.
MARK A. CLAWSON, ESQ. DAVINA K. KAILE, ESQ.
WILSON SONSINI GOODRICH & ROSATI PILLSBURY MADISON & SUTRO LLP
PROFESSIONAL CORPORATION 2700 SAND HILL ROAD
650 PAGE MILL ROAD MENLO PARK, CA 94025
PALO ALTO, CA 94304 (415) 233-4500
(415) 493-9300
---------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
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
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value............... $33,200,000 $11,450
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee. The estimate is made pursuant to Rule 457(o) of the
Securities Act of 1933, as amended.
---------------
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
OCTOBER 18, 1996
2,650,000 Shares
[AURUM SOFTWARE LOGO APPEARS HERE]
Common Stock
--------
Of the 2,650,000 shares of Common Stock offered hereby, 2,500,000 are being
sold by Aurum Software, Inc. ("Aurum" or the "Company") and 150,000 shares are
being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of shares by the 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 will be between $9.00 and $11.00 per
share. See "Underwriting" for the factors to be considered in determining the
initial public offering price. The Company's Common Stock has been approved for
listing on the Nasdaq National Market under the symbol "AURM."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
--------
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>
PRICE UNDERWRITING PROCEEDS TO
TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
- ----------------------------------------------------------------------------------------------
Total(3)........................ $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses of the offering, estimated at $1 million.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
397,500 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent the option is exercised, the Underwriters will offer
the additional shares at the Price to Public shown above. If the option is
exercised in full, the Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $ , $ , $ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1996.
Alex. Brown & Sons
INCORPORATED
Cowen & Company
Wessels, Arnold & Henderson
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
AURUM CUSTOMER ENTERPRISE
THE AURUM CUSTOMER ENTERPRISE IS AN INTEGRATED SUITE OF APPLICATIONS WHICH
HELPS AUTOMATE
THE FIELD SALES, TELEMARKETING, TELESALES AND CUSTOMER SUPPORT FUNCTIONS OF THE
BUSINESS.
FIELD SALES TELEMARKETING SUPPORT
SALESTRAK TELETRACK SUPPORTTRAK
BUSINESS INTELLIGENCE SYSTEM
(OLAP, REPORTING AND ANALYSIS)
SMART ENCYCLOPEDIA
(INTERNET/INTRANET MARKETING AND SALES INFORMATION)
CUSTOMER ENTERPRISE SERVER
.Pricing .Proposals .Quotes .Forecasts .Methodology
.Lists .Products .Campaigns .Partners .Competitors
DBSYNC WEBTRAK EVENTTRAK CTI TRAK
Patent Pending On-Line Sales Workflow Computer-
Mobile and Marketing Notification Telephone
Synchronization Lead Qualification and Escalation Integration
Internet, LAN/WAN Self-Service
Connectivity
OTHER ENTERPRISE
APPLICATIONS
AURUM
SOFTWARE
TURNS YOUR CUSTOMERS INTO GOLD
HTTP://WWW.AURUM.COM*
*INFORMATION CONTAINED IN THE COMPANY'S WEBSITE SHOULD NOT BE DEEMED TO BE PART
OF THIS PROSPECTUS.
[collage graphic/photos]
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 STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
Improved Customer Retention and Repeat Sales
Shortened Sales Cycle and Reduced Training Costs
Improved Forecasting and Visibility
Faster and More Timely Access to Information
Improved Customer Interaction
SALES AND MARKETING
INFORMATION PROCESS
[Collage graphic/photo depicting enterprise server linked to internet and
intranet clients, superimposed over depiction of globe]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Prospective investors should consider carefully the
information discussed under "Risk Factors."
THE COMPANY
Aurum Software, Inc. ("Aurum" or the "Company") is a leading provider of
enterprise-wide sales and marketing information software. The Company develops,
markets and supports the Aurum Customer Enterprise, an integrated suite of
applications which helps automate the field sales, telemarketing, telesales and
customer support functions of a business. The Company's products are based on
advanced client/server and Internet/Intranet technologies and provide
businesses with integrated, adaptable and mobile software solutions to meet
their competitive business goals. The Aurum Customer Enterprise is designed to
address the requirements of businesses ranging from medium-sized enterprises to
large multinational corporations and has been installed to date in deployments
consisting of as many as 3,400 users. The Company's products are designed to
enable customers to increase revenues, shorten sales cycles, increase repeat
sales, improve forecasting accuracy and visibility, decrease sales and
marketing costs, increase customer satisfaction, obtain timely market
intelligence and gain a strategic competitive advantage.
Many companies have effectively applied client/server technologies to
automate "back office" operations, including manufacturing, finance, order
entry and human resources, to streamline corporate operations and to reduce
operating costs. The automation of these back office operations has not
addressed the competitive challenges of increasing revenue generation and
improving customer satisfaction through automation of the "front office" sales
and marketing functions. Companies are increasingly focusing on their front
office sales and marketing operations, often their largest operating expense
category, as the next major business function to be automated and are also
recognizing the importance of integrating them with their back office
applications. In a May 1996 research report, Aberdeen Group, Inc., an
independent market research firm, projected that the market for packaged sales
and marketing application software will grow at an average annual compounded
rate of 50%, from $140 million in 1995 to $700 million in 1999.
The Company's objective is to become the market leader in sales and marketing
information systems. Aurum's products enable businesses to improve customer
acquisition and retention processes by integrating, automating and managing
sales and marketing operations among customers, headquarters, branch offices,
field-based employees and distribution partners. The Company's applications
permit companies to leverage the latest available technologies, including the
Internet, thereby providing immediate access to external sources of information
to generate and qualify leads and to obtain market intelligence about potential
customers and competitors. The Company's patent-pending database
synchronization technology, dbSync, provides real-time access to customer
information for all users. Aurum's object-oriented open architecture enables
integration with other enterprise applications and offers an interface that may
be adapted to company-specific sales and marketing models and changing business
requirements.
The Company markets its products through a direct sales force in North
America and through indirect sales channels outside of North America. The
Company has developed a comprehensive methodology for rapid implementation of
its sales and marketing applications and provides an extensive array of
services to its customers including business consulting, requirements
definition, installation, consulting, training and customer support. Aurum's
system integration partners include Cambridge Technology Partners, Deloitte &
Touche LLP, Ernst & Young LLP, IBM and KPMG Peat Marwick LLP, and the Company's
technology partners include Business Objects, Centura, Informix, Microsoft,
Netscape, Oracle, Sybase, Trilogy and XcelleNet.
The Company has over 100 customers and has deployed its applications in a
diverse set of industries including financial services, chemicals, high
technology, health care, information services, manufacturing, publishing,
telecommunications and utilities. The Company's customers include A.C. Nielsen,
Eastman Chemical, Fleet Bank, GE Capital, Hewlett-Packard Company, Hilti,
Lanier Worldwide, MCI Communications, Netscape, Sprint Spectrum L.P. and Sun
Microsystems.
The Company was incorporated in California in 1991 and will reincorporate in
Delaware in 1996. Unless the context otherwise requires, references in this
Prospectus to "Aurum" and the "Company" refer to Aurum Software, Inc., a
Delaware corporation, and its predecessor, Aurum Software, Inc., a California
corporation. The Company's principal executive offices are located at 3385
Scott Boulevard, Santa Clara, California 95054, and its telephone number is
(408) 986-8100.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the 2,500,000 shares
Company...........................
Common Stock offered by the Selling 150,000 shares
Stockholders......................
Common Stock to be outstanding
after the offering................ 11,127,877 shares(1)(2)
Use of proceeds.................... For working capital and other general
corporate purposes, including repayment of
debt. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................ AURM
</TABLE>
SUMMARY FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------
1992 1993 1994 1995 1995 1996
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues......... $3,180 $ 4,901 $ 5,912 $10,475 $ 6,707 $18,252
Income (loss) from
operations............ (610) (4,258) (4,305) (4,358) (3,170) (357)
Net income (loss)...... (624) (4,262) (4,388) (4,452) (3,247) (447)
Pro forma net income
(loss) per share(2)... $ (0.67) $ (0.05)
Pro forma shares used
in per share
calculation(2)........ 6,640 8,739
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1995 1996 1996 1996
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total revenues......... $1,919 $ 2,922 $ 3,768 $ 4,883 $ 6,055 $ 7,314
Income (loss) from
operations............ (1,417) (872) (1,188) (650) 81 212
Net income (loss)...... (1,445) (898) (1,205) (663) 56 160
Pro forma net income
(loss) per share(2)... $(0.25) $ (0.12) $ (0.14) $ (0.08) $ 0.01 $ 0.02
Pro forma shares used
in calculation(2)..... 5,861 7,411 8,430 8,677 8,902 8,924
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------
AS
ACTUAL PRO FORMA(2) ADJUSTED(3)
------- ------------ -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 1,683 $ 1,683 $22,433
Working capital............................... 2,605 2,605 24,855
Total assets.................................. 14,418 14,418 35,168
Borrowings under line of credit............... 1,500 1,500 --
Stockholders' equity.......................... 4,373 4,373 26,623
</TABLE>
- --------
(1) Based on shares outstanding as of September 30, 1996. Excludes, as of
September 30, 1996, 584,481 shares of Common Stock issuable upon exercise
of options outstanding under the Company's 1995 Stock Plan at a weighted
average exercise price of $3.02. See "Management--Stock Plans," "Certain
Transactions," "Description of Capital Stock" and Note 7 of Notes to
Financial Statements. Also excludes, as of September 30, 1996, 2,685,950
shares reserved for future grant under the 1995 Stock Plan, the 1996
Director Option Plan and the 1996 Employee Stock Purchase Plan.
(2) Reflects the conversion of the Company's outstanding Preferred Stock into
4,958,853 shares of Common Stock upon completion of this offering. See Note
2 of Notes to Financial Statements for an explanation of shares used to
calculate pro forma net income per share and pro forma shares.
(3) Adjusted to give effect to the estimated net proceeds of this offering
based upon an assumed initial public offering price of $10.00 per share.
See "Use of Proceeds" and "Capitalization."
----------------
Except as otherwise specified, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting." Except
as otherwise noted, all information in this Prospectus has been adjusted to
give effect to a one-for-four reverse split of the Company's Common Stock and
reincorporation of the Company in the State of Delaware to be effected prior to
the completion of this offering, and the automatic conversion of the Preferred
Stock into Common Stock and certain changes to the authorized capital stock of
the Company upon completion of this offering. See "Description of Capital
Stock" and Note 6 of Notes to Financial Statements.
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. This Prospectus contains
forward-looking statements and the Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of numerous factors, including those set forth in the following risk
factors and elsewhere in this Prospectus.
Limited Operating History. The Company was incorporated in October 1991 and
did not begin shipping its software products until January 1992. Although the
Company has experienced significant growth in revenues during the past two
years, the Company does not believe that prior growth rates are sustainable or
indicative of future operating results. The Company has incurred losses in
each year since inception and, as of September 30, 1996, had an accumulated
deficit of $14.2 million. The Company's limited operating history makes the
prediction of future operating results difficult, if not impossible. Although
the Company achieved limited profitability during the second and third
quarters of 1996, there can be no assurance that the Company will be able to
sustain profitability on a quarterly basis or achieve profitability on an
annual basis. See "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Potential Fluctuations in Quarterly Results; Seasonality. The Company's
quarterly operating results have varied significantly in the past and may vary
significantly in the future depending upon a number of factors, many of which
are beyond the Company's control. These factors include, among others, the
ability of the Company to develop, introduce and market new and enhanced
versions of its software on a timely basis; the demand for the Company's
software; the size, timing and contractual terms of significant orders; the
timing and significance of software product enhancements and new software
product announcements by the Company or its competitors; changes in pricing
policies by the Company or its competitors; changes in the Company's business
strategies; budgeting cycles of its potential customers; customer order
deferrals in anticipation of enhancements or new software products; changes in
the mix of software products and services sold; changes in the mix of revenue
attributable to domestic and international sales; the impact of acquisitions
of competitors; seasonal trends; the cancellations of licenses or maintenance
agreements; product life cycles; software defects and other product quality
problems; personnel changes; the ability of the Company to identify, recruit
and retain qualified sales, consulting, technical, marketing and management
personnel; investments to develop sales distribution channels; changes in the
level of operating expenses; and general domestic and international economic
and political trends. In particular, the timing of revenue recognition can be
affected by many factors, including the timing of contract execution and
delivery, and customer acceptance, if applicable. From time to time, the
Company enters into contracts with its customers which include certain post-
delivery obligations of the Company relating to the installation and
deployment of its software. In such situations, the Company may be required to
defer revenue recognition until such installation is complete. The timing
between initial customer contact and fulfillment of criteria for revenue
recognition can be lengthy and unpredictable, and revenues in any given
quarter can be adversely affected as a result of such unpredictability. In
addition, the Company's customers may decide not to honor contractual
obligations for license fees for various reasons, including changes in
business levels or business plans or implementation difficulties. While the
Company provides reserves and allowances for such instances, there can be no
assurance that such reserves and allowances will be adequate. In the event one
or more customers failed to honor such contractual obligations and the
Company's reserves and allowances proved inadequate, such failure could have a
material adverse effect on the Company's business, operating results and
financial condition. Software revenues are also difficult to forecast because
the market for client/server and sales and marketing software products is
rapidly evolving, and the Company's sales cycle, from initial contact to
purchase and implementation, varies substantially from customer to customer.
In the event of any downturn in potential customers' businesses or the economy
in general, planned purchases of the Company's products may be deferred or
canceled, which could have a material adverse effect on the Company's
business, operating results and financial condition. See "--Lengthy Sales and
Implementation Cycles."
5
<PAGE>
The Company has limited backlog. To achieve its quarterly revenue
objectives, the Company is dependent upon obtaining orders in any given
quarter for shipment in that quarter. Furthermore, the Company has often
recognized a substantial portion of its revenues in the last month or weeks of
a quarter. As a result, software revenues in any quarter are substantially
dependent on orders booked and shipped in that quarter. Due to the foregoing
factors, quarterly revenue and operating results are not predictable with any
significant degree of accuracy. 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 are below
expectations, the Company's business, operating results, including net income,
and financial condition are likely to be materially and adversely affected. As
a result, the Company believes that period-to-period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance. There can be no assurance that the
Company will be able to sustain profitability on a quarterly basis or achieve
profitability on an annual basis in the future. Due to all the foregoing
factors, it is likely that in some future quarter the Company's total revenues
or operating results will be below the expectations of public market analysts
and investors. In such event, or in the event that adverse conditions prevail
or are perceived to prevail generally or with respect to the Company's
business, the price of the Company's Common Stock would likely be materially
and adversely affected.
The Company's business has experienced and is expected to continue to
experience seasonality, in part due to customer buying patterns. In recent
years, the Company has generally had stronger demand for its software products
during the quarters ending in June and December and weaker demand in the
quarters ending in March and September. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Lengthy Sales and Implementation Cycles. The Company's business includes
large, complex installations of its software products. The license and
implementation of the Company's software generally involves a significant
commitment of resources by its prospective customers and often requires the
Company to provide a significant level of education to prospective customers
regarding the use and benefits of the Company's software. In addition, the
implementation of the Company's software may involve substantial reengineering
efforts which may be performed by the customer or third-party system
integrators. The cost to the customer of the Company's software is typically
only a portion of the overall hardware, software, development, training and
integration costs of implementing a large-scale sales and marketing
information system. For these and other reasons, the period between initial
contact and the implementation of the Company's software is often lengthy
(ranging to date from between three and twelve months) and is subject to a
number of significant delays over which the Company has little or no control.
Because of the complexity of the Company's software products, larger
implementations can take multiple quarters. Increases in the size and
complexity of the Company's license transactions and delays in its customers'
implementation of client/server computing environments could serve to further
lengthen the implementation cycles. Delays in the sale or implementation of a
limited number of license transactions could have a material adverse effect on
the Company's business, operating results and financial condition and cause
the Company's operating results to vary significantly from quarter to quarter.
Therefore, the Company believes that its quarterly operating results are
likely to vary significantly in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business--Sales
and Marketing" and "--Consulting Services, Training and Support."
Emerging Market for Sales and Marketing Information Systems; Market
Acceptance. The market for sales and marketing information systems is
relatively new and is characterized by ongoing technological developments,
frequent new product announcements and introductions, evolving industry
standards and changing customer requirements. The Company's future financial
performance will depend in large part on continued growth in the number of
organizations adopting sales and marketing software products on an enterprise-
wide basis and in the number of applications developed for use. There can be
no assurance that the sales and marketing information system market will
continue to grow. If the sales
6
<PAGE>
and marketing information system 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. In
addition, the Company believes that market acceptance of sales and marketing
software depends on the ability to provide mobile sales representatives with
access to enterprise-wide information and the willingness of sales
professionals to utilize software-based solutions such as the Company's.
Certain of the Company's larger customers have adopted the Company's software
on an incremental basis. There can be no assurance that the Company's
customers will expand usage of the Company's software on an enterprise-wide
basis or implement new software products introduced by the Company. The
failure of the Company's software to perform according to customer
expectations or otherwise to be deployed on an enterprise-wide basis would
have a material adverse effect on the ability of the Company to increase
revenues from new as well as existing customers. In addition, the failure of
the Company's software to achieve market acceptance for any reason would have
a material adverse effect on the Company's business, operating results and
financial condition. See "Business--Industry Background" and "--Strategy."
Rapid Technological Change; New Versions and New Products. The software
market in which the Company competes is characterized by rapid technological
change, frequent introductions of new 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. For example, the Company's customers have
adopted a wide variety of hardware, software, database and networking
platforms, and as a result, to gain broad market acceptance, the Company must
continue to support and maintain its products on a variety of such platforms.
The Company's future success will depend on 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 its products and new products on a
timely basis that keep pace with technological developments, evolving industry
standards and changing customer requirements. The success of the Company's
products may also depend, in part, on the Company's ability to introduce
products which are compatible with the Internet and on the broad acceptance of
the Internet and World Wide Web as a viable commercial marketplace. It is
difficult to predict with any assurance whether the Internet will prove to be
a viable commercial marketplace or whether the demand for Internet-related
products and services will increase or decrease in the future. There can be no
assurance that the Company will be successful in developing and marketing
enhancements to its products that respond to technological developments,
evolving industry standards or changing customer requirements, or that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and sale of such enhancements or that
such enhancements will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. If release dates of any
future product enhancements or new products are delayed or if these products
or enhancements fail to achieve market acceptance when released, the Company's
business, operating results and financial condition could be materially and
adversely affected. In addition, the introduction or announcement of new
product offerings or enhancements by the Company or the Company's competitors
or major hardware, systems or software vendors may cause customers to defer or
forgo purchases of the Company's products, which could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business--Strategy," "--Software Products," "--Product Architecture" and
"--Research and Development."
Management of Growth; Dependence on Key Personnel. The Company's business
has grown rapidly in recent periods, with revenues increasing from $5.9
million in 1994 to $10.5 million in 1995 and $18.2 million in the first nine
months of 1996. At the same time, the Company has experienced significant
growth in the number of employees, in the geographic scope of its operations
as well as its target customers, and in the scope of the operating and
financial systems required to support a growing organization. The Company's
growth has challenged and in some instances strained the Company's personnel
resources. The Company's future results of operations will depend in part on
the ability of its
7
<PAGE>
officers and other key employees to implement and expand operational, customer
support and financial control systems and to expand, train and manage its
employee base. The Company's future performance will also depend to a
significant extent on its ability to identify, attract, train and retain
highly skilled sales, consulting, technical, marketing and management
personnel. Competition for such personnel is intense, and the Company expects
that such competition will continue for the foreseeable future. The Company
has from time to time experienced difficulty in locating candidates with
appropriate qualifications. There can be no assurance that the Company will be
successful in identifying, attracting or retaining such personnel, and the
failure to identify, attract or retain such personnel could have a material
adverse effect on the Company's business, operating results and financial
condition. In order to manage future growth, if any, the Company will be
required to hire additional general and administrative personnel and to
augment or replace its existing financial and management systems. In this
regard, the Company's Chief Financial Officer joined the Company in July 1996.
There can be no assurance that the Company's existing management or any new
members of management will be able to augment or implement such systems
efficiently or on a timely basis or that they will otherwise be able to manage
any future growth or business expansion successfully. The failure to do so
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the Company's future performance
will depend in significant part upon the continued service of its key
technical, sales and senior management personnel, none of whom is bound by an
employment agreement other than the Company's President and Chief Executive
Officer and its Chief Financial Officer, each of whose employment is
nonetheless at-will. None of the Company's employees is bound by a non-
competition agreement. The loss of the services of one or more of the
Company's executive officers or the decision of one or more of such officers
to join a competitor or otherwise compete directly or indirectly with the
Company could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Sales and Marketing"
and "Management."
Competition. The market for the Company's client/server applications is
highly competitive, fragmented and subject to rapid technological change and
frequent new product introductions and enhancements. The Company has a large
number of competitors which range from internally developed custom application
development efforts to packaged application vendors. The Company offers a
suite of applications which can be used as part of an integrated customer
management application suite or on a stand-alone basis. The Company competes
with packaged application vendors that provide tactical departmental solutions
in specific market segments as well as with competitors that provide a broader
suite of integrated customer management applications. Many of these
competitors have longer operating histories, significantly greater financial,
technical, product development, marketing and other resources, greater name
recognition or a larger installed base of customers than the Company. As a
result, these competitors may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements or to devote
greater resources to the development, promotion and sale of their products
than can the Company.
The Company's principal competitors in the sales force automation market
include Brock Control Systems, Inc., Metropolis Software, Inc. (recently
acquired by Clarify Inc.), SalesBook Systems, Sales Kit Software Corporation,
SaleSoft, Inc., Saratoga Systems, Inc. and Siebel Systems, Inc. The Company
also depends for the marketing and implementation of its products upon a
number of third party systems integrators, including Cambridge Technology
Partners, Deloitte & Touche LLP, Ernst & Young LLP, IBM and KPMG Peat Marwick
LLP. Many of these firms also have established relationships with the
Company's competitors. There can be no assurance that these third parties,
many of which have significantly greater financial resources than the Company,
will not in the future compete directly with the Company or otherwise
discontinue their support of the Company's products. The Company also faces
competition from customer support application vendors, which are attempting to
expand from their customer support market into the sales automation area
either through internal product development or through acquisitions. These
customer support competitors include Astea International, Inc., Clarify Inc.,
Scopus Technology, Inc. and The Vantive Corporation. Over time, the Company
expects large enterprise software vendors such as Oracle Corporation and SAP
AG to extend their enterprise application suites by offering sales force
automation, telemarketing and customer support, with the appropriate
integration to leading
8
<PAGE>
financial, order entry and manufacturing applications. In addition, because
the barriers to entry in the software market are relatively low, additional
competitors may emerge as the sales and marketing software market continues to
develop and expand. It is also possible that acquisitions of competitors by
large software companies or alliances among competitors could occur. The
Company expects that significant consolidation in its industry will occur over
the next few years and increased competition from new entrants or through
strategic acquisitions or alliances could result in price erosion, reduced
gross margins or loss of market share, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--Competition."
Product Concentration. Since the beginning of 1995, the majority of the
Company's revenues have been attributable to sales of SalesTrak, which is
typically the first of the Company's software products to be deployed within a
customer's organization, with the greatest number of users and which often
serves as a foundation for other applications. The Company currently expects
SalesTrak to account for a significant portion of the Company's future
revenues. As a result, factors adversely affecting the pricing of or demand
for the SalesTrak product, such as competition or technological change, could
have a material adverse effect on the Company's business, operating results
and financial condition. A decline in sales of SalesTrak could also have a
material adverse effect on sales of other Company products that may be sold to
SalesTrak customers. 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 the Company's SalesTrak product and
other software products. There can be no assurance that the Company will
continue to be successful in marketing SalesTrak or any new or enhanced
software products. See "Business--Software Products" and "--Competition."
Expansion of Distribution Channels. To date, the Company has sold its
products primarily through its direct sales organization and has supported its
customers with its technical and customer support staff. The Company has a
relatively small direct sales staff, and the Company's ability to achieve
revenue growth in the future will depend in large part on its success in
recruiting and training sufficient direct sales, technical and customer
support personnel and establishing and maintaining relationships with its
strategic partners. The Company's ability to achieve revenue growth in the
future will also depend on the establishment of relationships with
distributors in Europe and the Pacific Rim. The competition for qualified
international distributors is intense, and there can be no assurance that the
Company can attract and retain qualified distributors. Although the Company is
currently investing, and plans to continue to invest, significant resources to
expand its domestic direct sales force and its technical and customer support
staff and to develop international distribution relationships with strategic
partners, the Company has at times experienced and continues to experience
difficulty in recruiting qualified personnel and in establishing necessary
third-party relationships. There can be no assurance that the Company will be
able to expand successfully its direct sales force or other distribution
channels or that any such expansion will result in an increase in revenues.
The Company believes the complexity of its products and the large-scale
deployments anticipated by its customers will require a number of highly
trained consultants and customer support personnel. There can be no assurance
that the Company will successfully expand its technical and customer support
staff to meet customer demands. Any failure by the Company to expand its
direct sales force or other distribution channels, or to expand its technical
and customer support staff, could materially and adversely affect the
Company's business, operating results and financial condition. See "--
Management of Growth; Dependence on Key Personnel," "--International
Operations," "Business--Strategy," "--Sales and Marketing," and "--Consulting
Services, Training and Support."
International Operations. International sales have been insignificant to
date. The Company believes that its continued growth and profitability will
require expansion of its international operations. Accordingly, the Company
intends to expand its international operations and enter additional
international markets, which will require significant management attention and
financial resources and which could adversely affect the Company's operating
margins and earnings, if any. The Company's international sales are currently
denominated in U.S. dollars. An increase in the value of the U.S. dollar
relative to foreign
9
<PAGE>
currencies could make the Company's software products more expensive and,
therefore, potentially less competitive in those markets. Risks inherent in
the Company's international revenues generally include the impact of longer
payment cycles, greater difficulty in accounts receivable collection,
seasonality due to the slow-down in European business activity during the
Company's third fiscal quarter, cultural differences in the conduct of
business, tariffs and other trade barriers and other factors. There can be no
assurance that these factors will not have a material adverse effect on the
Company's business, operating results and financial condition. To date, the
Company has marketed its products outside North America through distribution
arrangements with strategic partners. As of September 30, 1996, the Company
had distribution agreements in place with Aurum France, Aurum Software UK
Limited and IBM EMEA (Europe, Middle East and Africa). The Company has also
identified the Pacific Rim as an important international market for the
Company's products but has not yet identified suitable distribution partners.
Competition for qualified distributors is intense in many markets outside
North America, including Europe and Asia, and there can be no assurance that
the Company will be successful in attracting and retaining qualified
distributors. If the Company is unable to obtain such distributors or is
otherwise unable to penetrate strategically important international markets,
the Company's business, operating results and financial condition could be
materially and adversely affected. See "--Expansion of Distribution Channels"
and "Business--Sales and Marketing."
Reliance on Third-Party Vendors. The Company incorporates into its products
certain software and other technologies licensed to it by third-party
developers. Among the principal developers of these licensed technologies are
Business Objects, Inc., which licenses an On-Line Analytical Processing
("OLAP") tool that enables the analysis of sales and customer data at both the
server and client sites of a user's network; Centura Corporation, which
licenses a SQL-based laptop database that is used principally in the Company's
SalesTrak product; and First Floor Software, Inc., which licenses an
intelligent agent that monitors changes in sales and customer data accessed
through the World Wide Web. The Company's license agreements with these
developers are for a specified term, and there is no assurance that any of
these agreements will be renewed following expiration. Because the Company's
products incorporate software developed and maintained by third parties, the
Company is to a certain extent dependent upon such third parties' abilities to
maintain or enhance their current products, to develop new products on a
timely and cost-effective basis and to respond to emerging industry standards
and other technological changes. In the event that the Company's agreements
with its third-party vendors should fail to be renewed or the products
licensed from such vendors should fail to address the requirements of the
Company's software products, the Company would be required to find alternative
software products or technologies of equal performance or functionality. There
can be no assurance that the Company would be able to replace such
functionality provided by the third-party software currently offered in
conjunction with the Company's products in the event that such software
becomes obsolete or incompatible with future versions of the Company's
products or is otherwise not adequately maintained or updated. The absence of
or any significant delay in the replacement of that functionality could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business--Software Products."
Limited Intellectual Property Protection. The Company relies primarily on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect its proprietary rights. The
Company seeks to protect its software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. The Company submitted a patent application for its dbSync
technology in August 1996, and such application is still pending. There can be
no assurance that any patent covering the Company's inventions will issue or
that any patent, if issued, will provide sufficiently broad protection or will
prove enforceable in actions against alleged infringers. Despite precautions
taken by the Company, it may be possible for unauthorized third parties to
copy aspects of its products or future products or to obtain and use
information that the Company regards as proprietary. In particular, the
Company provides its licensees with access to its data model and other
proprietary information underlying its licensed applications. The Company
makes source
10
<PAGE>
code available for certain of the Company's products and occasionally enters
into source code escrow agreements with certain customers for the balance of
the source code. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar or superior technology or
design around any patents owned by the Company. Litigation may be necessary in
the future to enforce the Company's intellectual property rights, to protect
the Company's trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on
the Company's business, operating results and financial condition.
Policing unauthorized use of the Company's software 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 to the same extent as do the laws of the United States. The
Company is not aware that any of its software product offerings infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to
current or future products. The Company expects that software product
developers will increasingly be subject to infringement claims as the number
of products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect on the Company's business,
operating results and financial condition. The Company also relies on certain
technology which it licenses from third parties, including software which is
integrated with internally developed software and used in the Company's
products to perform key business functions. There can be no assurance that
these third party technology licenses will continue to be available to the
Company on commercially reasonable terms. The loss or the inability of the
Company to maintain any of these technology licenses could result in delays or
reductions in product shipments until equivalent technology could be
identified, licensed and integrated. Any such delays or reductions in product
shipments could materially and adversely affect the Company's business,
operating results and financial condition. See "Business--Intellectual
Property and Other Proprietary Rights."
Risk of Product Defects; Failure to Meet Performance Criteria. The Company's
software is intended for use in enterprise-wide sales and marketing
applications that may be critical to a customer's business. As a result, the
Company's customers and potential customers typically have demanding
requirements for installation and deployment. Software products as complex as
those offered by the Company frequently contain errors or failures, especially
when first introduced or when new versions are released. Although the Company
conducts extensive product testing during product development, the Company has
at times been forced to delay commercial release of software until problems
were corrected and, in some cases, has provided enhancements to correct errors
in released software. The Company could, in the future, lose revenues as a
result of software errors or defects. There can be no assurance that, despite
testing by the Company and by current and potential customers, errors will not
be found in software or releases after commencement of commercial shipments,
resulting in loss or delay of revenue or delay in market acceptance, diversion
of development resources, damage to the Company's reputation, or increased
service and warranty costs, any of which could have a material adverse effect
upon the Company's business, operating results and financial condition. In
addition, the client/server software market is subject to rapid technological
change, changing customer needs and performance criteria and evolving industry
standards that may render existing products and services obsolete. The life
cycles of the Company's software products are difficult to estimate, and the
Company expects to continue to make substantial investments in product
development and testing. There can be no assurance that the Company will have
sufficient resources to make the necessary investments. There can be no
assurance that the Company will not experience difficulties that could delay
or prevent the successful development, introduction or marketing of new or
enhanced software products. If the Company is unable, for
11
<PAGE>
technological or other reasons, to develop and introduce new and enhanced
software products that satisfy customer performance criteria, the Company's
business, operating results and financial condition could be materially and
adversely affected. See "Business--Software Products" and "--Research and
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 under the laws of certain jurisdictions.
Although the Company has not experienced any product liability claims to date,
the sale and support of products by the Company may entail the risk of such
claims, and there can be no assurance that the Company will not be subject to
such claims in the future. A successful product liability claim brought
against the Company could have a material adverse effect on the Company's
business, operating results and financial condition.
Effect of Certain Charter Provisions; Limitation of Liability of Directors;
Antitakeover Effects of Delaware Law. Effective upon completion of this
offering, the Company will be authorized to issue 5,000,000 shares of
undesignated Preferred Stock. The Board of Directors has the authority to
issue the Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting a series or the designation of such series, without any further
vote or action by the Company's stockholders. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders and may adversely affect the market price of the Common Stock and
the voting and other rights of the holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others. The Company has no current plans to issue any shares of
Preferred Stock.
Certain provisions of the Company's Certificate of Incorporation and Bylaws
eliminate the right of stockholders to act by written consent without a
meeting, eliminate the right of stockholders to vote cumulatively in the
election of directors (subject to compliance with California corporate law)
and specify certain procedures for nominating directors and submitting
proposals for consideration at stockholder meetings. Such provisions are
intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions which may
involve an actual or threatened change of control of the Company. Such
provisions are designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal and, accordingly, could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. Such provisions are also intended to discourage certain tactics that
may be used in proxy fights but could, however, have the effect of
discouraging others from making tender offers for the Company's shares and,
consequently, may also inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
These provisions may also have the effect of preventing changes in the
management of the Company.
The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Antitakeover Law"), which regulates corporate acquisitions. The
Antitakeover Law prevents certain Delaware corporations, including those whose
securities are listed for trading on the Nasdaq National Market, from
engaging, under certain circumstances, in a "business combination" with any
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder. For purposes of the Antitakeover
Law, a "business combination" includes, among other things, a merger or
consolidation involving the Company and the interested stockholder and the
sale of more than ten percent (10%) of the Company's assets. In general, the
Antitakeover Law defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the Company
and any entity
12
<PAGE>
or person affiliated with or controlling or controlled by such entity or
person. A Delaware corporation may "opt out" of the Antitakeover Law with an
express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or bylaws resulting from
amendments approved by the holders of at least a majority of the company's
outstanding voting shares. The Company has not "opted out" of the provisions
of the Antitakeover Law. See "Description of Capital Stock."
Shares Eligible for Future Sale; Registration Rights. Sales of a substantial
number of shares of Common Stock in the public market following this offering
could adversely affect the market price for the Company's Common Stock. The
number of shares of Common Stock available for sale in the public market is
limited by restrictions under the Securities Act of 1933, as amended (the
"Securities Act"), and lockup agreements under which the holders of such
shares have agreed not to sell or otherwise dispose of any of their shares for
a period of 180 days after the date of this Prospectus without the prior
written consent of Alex. Brown & Sons Incorporated. However, Alex. Brown &
Sons Incorporated may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lockup agreements. As
a result of these restrictions, based on shares outstanding and options
granted as of September 30, 1996, no shares other than the 2,650,000 shares
offered hereby will be eligible for sale on the date of this Prospectus,
approximately 4,898,282 shares will become eligible for sale 180 days after
the date of this Prospectus (the "Release Date"), and an additional 3,579,595
shares will become available at various times after the Release Date pursuant
to Rules 144 and 144(k) under the Securities Act. Of the 4,898,282 shares of
Common Stock that will become available for sale on the Release Date,
approximately 2,336,744 represent shares held by employees and consultants of
the Company that will be registered on a registration statement on Form S-8 on
or prior to the Release Date. The remaining shares represent shares issued to
the Company's venture capital investors that will become available on or at
various times after the Release Date in accordance with the holding period
requirements of Rule 144. Of the 2,336,744 shares held by employees and
consultants that will be registered on the Form S-8, approximately 439,969
shares will be unvested as of the Release Date and will be subject to a
repurchase option which the Company may exercise in the event of a termination
of the holder's employment or consulting relationship. In addition to the
2,336,744 issued shares that the Company intends to register on the Form S-8,
it also intends to register an additional 3,270,431 shares of Common Stock
reserved for issuance under the Company's 1995 Stock Plan, 1996 Employee Stock
Purchase Plan and 1996 Director Option Plan. Notwithstanding the timing of the
filing of the Form S-8, all shares registered thereunder will be subject to
lock-up agreements expiring on the Release Date. Following the Release Date,
holders of approximately 3,600,113 shares of Common Stock will be entitled to
registration rights with respect to such shares. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, the sale of such shares could have a
material adverse effect on the market price for the Company's Common Stock.
See "Shares Eligible for Future Sale."
The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule
changes will be enacted. If enacted, such modifications will have a material
effect on the times when shares of the Company's Common Stock become eligible
for resale.
Immediate and Substantial Dilution. The initial public offering price is
substantially higher than the book value per share of Common Stock. Investors
purchasing Common Stock in this offering will, therefore, incur immediate
dilution of $7.61 in net tangible book value per share of Common Stock (based
upon an assumed initial public offering price of $10.00 per share and after
deducting estimated underwriting discounts and commissions and offering
expenses) from the initial public offering price and will incur additional
dilution upon the exercise of outstanding stock options.
Control by Existing Stockholders. Upon completion of this offering, the
Company's officers, directors and venture capital investors together will
beneficially own approximately 70.2% of the outstanding shares of Common Stock
(69.3% if the Underwriters' over-allotment option is exercised in full). As a
result, these stockholders, if acting together, would be able to control most
matters requiring stockholder approval, including the election of directors,
and the approval of mergers, consolidations and
13
<PAGE>
sales of all or substantially all of the assets of the Company. This may
prevent or discourage tender offers for the Company's Common Stock unless the
terms are approved by such stockholders. See "Principal and Selling
Stockholders."
No Prior Market; Possible Volatility of Stock Price. Prior to this offering
there has been no public market for the Common Stock of the Company. The
initial public offering price will be determined by negotiations between the
Company and the representatives of the Underwriters. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. There can be no assurance that an active public market will
develop or be sustained after this offering or that the market price of the
Common Stock will not decline below the initial public offering price. Future
announcements concerning the Company or its competitors, quarterly or annual
variations in results of operations, announcements of technological
innovations, the introduction of new products or changes in pricing policies
by the Company or its competitors, proprietary rights or other litigation,
changes in earnings estimates by analysts, the Company's failure to meet
analysts' estimates or other factors could cause the market price of the
Common Stock to fluctuate substantially. In addition, stock prices for many
technology companies fluctuate widely for reasons which may be unrelated to
results of operations. These fluctuations, as well as general economic, market
and political conditions such as recessions or military conflicts, may
materially and adversely affect the market price of the Company's Common
Stock.
Discretion as to Use of Proceeds. The primary purposes of this offering are
to create a public market for the Company's Common Stock, to facilitate future
access to public markets and to obtain additional working capital. As of the
date of this Prospectus, the Company has no specific plans to use the net
proceeds from this offering other than for working capital and general
corporate purposes, including repayment of bank debt. Accordingly, the
Company's management will retain broad discretion as to the allocation of the
net proceeds from this offering. Pending any such uses, the Company plans to
invest the net proceeds in investment grade, interest-bearing securities. See
"Use of Proceeds."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $10.00 are estimated to be approximately $22.3 million
(approximately $25.9 million if the Underwriters' over-allotment option is
exercised in full), after deducting estimated underwriting discounts and
commissions and offering expenses.
The primary purposes of this offering are to create a public market for the
Common Stock, to facilitate future access to public markets and to obtain
additional working capital. The Company expects to use the net proceeds of
this offering for working capital and other general corporate purposes,
including the repayment of its outstanding bank debt, which was $1,500,000 at
September 30, 1996. A portion of the net proceeds may also be used for the
acquisition of businesses, products and technologies that are complementary to
those of the Company. The Company has no present plans, agreements or
commitments and is not currently engaged in any negotiations with respect to
any such transactions. In addition, the Company has not budgeted any portion
of the net proceeds for any such acquisition transactions and cannot determine
what portion, if any, of the net proceeds may be used for such transactions.
Pending such uses, the net proceeds of this offering will be invested in
investment grade, interest-bearing securities.
The Company will not receive any proceeds from the sale of the shares of
Common Stock offered by the Selling Stockholders hereby.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently expects to retain future earnings, if any, for use in
the operation and expansion of its business and does not anticipate paying any
cash dividends in the foreseeable future. The Company's bank line of credit
agreement contains a restrictive covenant which limits the Company's ability
to pay cash dividends or make stock repurchases without the prior written
consent of the lender. See Note 4 of Notes to Financial Statements.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 after giving effect to a one-for-four reverse stock split
and reincorporation in the State of Delaware to be effected prior to the
completion of this offering, the pro forma conversion of all outstanding
shares of Preferred Stock into Common Stock and certain changes to the
authorized capital stock of the Company upon completion of this offering, and
as adjusted to reflect the receipt of net proceeds from the sale of 2,500,000
shares of Common Stock pursuant to this offering at an assumed initial public
offering price of $10.00 per share. The capitalization information set forth
in the table below is qualified by the more detailed Financial Statements and
Notes thereto appearing elsewhere in this Prospectus and should be read in
conjunction with such Financial Statements and Notes.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Borrowings under line of credit(1)............. $ 1,500 $1,500 $ --
======== ======== ========
Notes payable and capital lease obligations,
net of current portion(1)..................... $ 1,089 $ 1,089 $ 1,089
-------- -------- --------
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000
shares authorized, no shares issued and
outstanding, pro forma and as adjusted...... -- -- --
Convertible preferred stock, no par value,
24,000,000 shares authorized; 21,905,398
shares issued and outstanding, actual; no
pro forma and as adjusted shares............ $ 18,356 -- --
Common Stock, $.001 par value; 10,000,000
shares authorized, 3,669,024 shares issued
and outstanding, actual; 8,627,877 shares
issued and outstanding, pro forma;
25,000,000 shares authorized, 11,127,877
shares issued and outstanding, as
adjusted(2)................................. 1,256 9 11
Additional paid-in capital................... -- 19,603 41,851
Notes receivable from stockholders........... (1,066) (1,066) (1,066)
Accumulated deficit.......................... (14,173) (14,173) (14,173)
-------- -------- --------
Total stockholders' equity.................. 4,373 4,373 26,623
-------- -------- --------
Total capitalization....................... $ 5,462 $ 5,462 $ 27,712
======== ======== ========
</TABLE>
- --------
(1) See Note 4 of Notes to Financial Statements.
(2) Based on shares outstanding as of September 30, 1996 (assuming conversion
of all outstanding shares of Preferred Stock into Common Stock upon the
completion of this offering). Excludes, as of September 30, 1996, 584,481
shares of Common Stock issuable upon exercise of options outstanding under
the Company's 1995 Stock Plan at a weighted average exercise price of
$3.02. See "Management--Stock Plans," "Certain Transactions," "Description
of Capital Stock" and Note 7 of Notes to Financial Statements. Also
excludes, as of September 30, 1996, 2,685,950 shares reserved for future
grant under the 1995 Stock Plan, the 1996 Director Option Plan and the
1996 Employee Stock Purchase Plan.
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1996 was $4.4 million or $0.51 per share of Common Stock. Pro forma tangible
book value per share is determined by dividing the amount of total tangible
assets of the Company less total liabilities by the number of shares of Common
Stock outstanding at that date, assuming the conversion of all outstanding
shares of Preferred Stock. After giving effect to the sale of the 2,500,000
shares of Common Stock offered by the Company hereby (at an assumed initial
public offering price of $10.00 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses), the pro forma net
tangible book value of the Company as of September 30, 1996 would have been
$26.6 million or $2.39 per share. This represents an immediate increase in pro
forma net tangible book value of $1.88 per share to existing stockholders and
an immediate dilution of $7.61 per share to new investors purchasing shares at
the assumed initial public offering price. The following table illustrates the
per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $10.00
Pro forma net tangible book value per share at September 30,
1996........................................................... $0.51
Increase in pro forma net tangible book value per share
attributable to new investors.................................. 1.88
-----
Pro forma net tangible book value per share after the offering.... 2.39
------
Pro forma net tangible book value dilution per share to new
investors........................................................ $ 7.61
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996, the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid by the existing
stockholders and by the new investors purchasing shares in this offering
(before deducting the underwriting discounts and commissions and estimated
offering expenses), based upon the assumed initial public offering price of
$10.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)...... 8,627,877 77.5% $19,612,000 44.0% $ 2.27
New investors................. 2,500,000 22.5 25,000,000 56.0% $10.00
---------- ----- ----------- -----
Total....................... 11,127,877 100.0% $44,612,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares of Common Stock held by existing stockholders to 8,477,877 or
approximately 76.2% (8,477,877 shares, or approximately 73.6%, if the
Underwriters' over-allotment option is exercised in full) and will
increase the number of shares held by new investors to 2,650,000 or
approximately 23.8% (3,047,500 shares, or approximately 26.4%, if the
Underwriters over-allotment option is exercised in full) of the total
number of shares of Common Stock outstanding after this offering. See
"Principal and Selling Stockholders."
The foregoing computations assume no exercise of stock options after
September 30, 1996. As of September 30, 1996, there were outstanding options
to purchase 584,481 shares of Common Stock under the Company's 1995 Stock Plan
at a weighted average exercise price of $3.02 per share and 2,685,950 reserved
for issuance under the Company's 1995 Stock Plan, 1996 Director Option Plan
and 1996 Employee Stock Purchase Plan. To the extent that any shares are
issued upon exercise of options, warrants or rights that are presently
outstanding or granted in the future, or reserved for future issuance under
the Company's stock plans, there will be further dilution to new public
investors. See "Management--Stock Plans," "Description of Capital Stock" and
Note 7 to Notes to Financial Statements.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements and Notes thereto and other financial
information included elsewhere in this Prospectus. The statement of operations
data set forth below for the years ended December 31, 1993, 1994, 1995, and
the nine months ended September 30, 1996 and the balance sheet data as of
December 31, 1994 and 1995, and September 30, 1996 have been derived from and
are qualified by reference to the audited Financial Statements of the Company
included elsewhere in this Prospectus. The statement of operations data for
the nine months ended September 30, 1995 have been prepared on the same basis
as the annual audited financial statements and, in the opinion of management,
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the operating results for such periods.
The operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for any other interim
period or any future fiscal year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ----------------
1992 1993 1994 1995 1995 1996
------ ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Licenses.............. $2,169 $ 3,475 $ 3,356 $ 5,928 $ 3,555 $10,320
Services.............. 1,011 1,426 2,556 4,547 3,152 7,932
------ ------- ------- -------- ------- -------
Total revenues...... 3,180 4,901 5,912 10,475 6,707 18,252
------ ------- ------- -------- ------- -------
Cost of Revenues:
Licenses.............. 461 331 365 979 722 899
Services.............. 623 1,609 2,586 3,919 2,469 7,011
------ ------- ------- -------- ------- -------
Total cost of
revenues........... 1,084 1,940 2,951 4,898 3,191 7,910
------ ------- ------- -------- ------- -------
Gross profit........... 2,096 2,961 2,961 5,577 3,516 10,342
------ ------- ------- -------- ------- -------
Operating expenses:
Sales and marketing... 1,021 3,107 3,240 6,626 4,276 7,258
Research and
development.......... 763 2,251 2,246 2,286 1,712 2,353
General and
administrative....... 922 1,861 1,780 1,023 698 1,088
------ ------- ------- -------- ------- -------
Total operating
expenses........... 2,706 7,219 7,266 9,935 6,686 10,699
------ ------- ------- -------- ------- -------
Loss from operations... (610) (4,258) (4,305) (4,358) (3,170) (357)
Other income (expense),
net................... -- 38 5 63 47 53
Interest expense....... (14) (42) (88) (157) (124) (143)
------ ------- ------- -------- ------- -------
Net loss............... $ (624) $(4,262) $(4,388) $ (4,452) $(3,247) $ (447)
====== ======= ======= ======== ======= =======
Pro forma net loss per
share(1).............. $ (0.67) $ (0.05)
======== =======
Pro forma shares used
in per share
calculation(1)........ 6,640 8,739
======== =======
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------- ----------------
1992 1993 1994 1995 1995 1996
------ ------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............. $ (900) $ 3,348 $ 1,034 $ 2,205 $ 4,854 $ 2,605
Total assets........... 1,169 6,188 5,744 9,795 9,475 14,418
Notes payable and
capital lease
obligations less
current portion....... -- 341 370 237 569 1,089
Mandatorily redeemable
convertible preferred
stock................. -- 8,845 11,302 17,356 17,276 -- (2)
Accumulated deficit.... (624) (4,886) (9,274) (13,726) (12,251) (14,173)
Stockholders' equity
(deficit)............. (452) (4,706) (9,080) (13,528) (12,323) 4,373
</TABLE>
- --------
(1) Reflects the conversion of the Company's outstanding Preferred Stock into
shares of Common Stock upon completion of this offering. See Note 2 of
Notes to Financial Statements.
(2) In September 1996, the Company's Board of Directors and stockholders
approved an amendment to the Company's Articles of Incorporation to remove
the mandatory redemption feature of the Preferred Stock.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Financial
Statements and related notes thereto included elsewhere in this Prospectus.
The following discussion contains forward-looking statements and the Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors," "Business" and elsewhere in this Prospectus.
OVERVIEW
The Company, which commenced operations in 1991, develops application
software for automating enterprise-wide sales, marketing and customer support
functions. From its inception through 1991, the Company was engaged
principally in research and development and in developing custom software
products. The Company commenced commercial shipments of its TeleTrak and
SupportTrak software products in 1992 and delivered consulting services for
implementation of its products. The SalesTrak software product began
commercial shipment in September 1994. In recent years, the Company has
focused primarily on its sales and marketing software products and, as a
result of greater market acceptance of these products, the Company's revenues
have grown rapidly, increasing from $3.2 million in 1992 to $10.5 million in
1995 and $18.2 million for the first nine months of 1996. Service revenues
totaled $1.4 million, $2.6 million, $4.5 million and $7.9 million in each of
1993, 1994, 1995 and the first nine months of 1996, respectively. Service
revenues include revenues from consulting services, which the Company believes
facilitate more rapid implementation and successful deployment of the
Company's software products. The Company realized operating losses from 1992
through the first quarter of 1996, and the Company achieved limited
profitability in the second and third quarters of 1996. The losses from 1992
through 1994 primarily reflect the Company's investment in research and
development, in particular the transition of its products from an early
character-based technology to a Windows user interface-based technology. In
addition, in 1993 and 1994, the Company made a substantial investment in the
development of its SalesTrak software product and database synchronization
technology. The losses in 1995 and the first quarter of 1996 primarily reflect
the Company's continued investment in research and development of its software
and an increased investment in sales and marketing to increase revenues and
expand market share.
The Company has experienced significant fluctuations in its gross margins on
both a yearly and quarterly basis, due principally to changes in the mix of
license and service revenues and in the costs associated with each type of
revenue. The Company's margins have been favorably impacted in part by an
improvement in the mix of license revenues to service revenues, and in more
recent periods by the reduced cost of license revenues due to the reduction in
the sales of third party database applications and the reduced cost of service
revenues resulting from the Company's decreased use of outside contractors.
The Company's gross margins may continue to vary significantly in the future.
Revenues consist of license revenues and service revenues. License revenues
for the Company's products consist of server fees for one or more servers and
software license fees based on the number of named users. The Company also
derives license revenues from sublicensing third party software products.
License revenues are recognized upon execution of a license agreement and
delivery of software if there are no significant post-delivery vendor
obligations and collection of the receivable is deemed probable. If
significant post-delivery obligations exist or if a product is subject to
customer acceptance, revenues are deferred until no significant obligations
remain or acceptance has occurred. Revenues from services consist primarily of
consulting services, including implementation and adaptation of licensed
software and training, maintenance and support. Consulting and training
revenues are generally recognized as services are performed, except for
revenues from certain fixed-price contracts or milestone deliverables, which
are recognized on a percentage-of-completion basis or upon milestone delivery.
Post-contract support
19
<PAGE>
revenues are recognized ratably over the term of the support period, which is
typically one year. For all periods presented, the Company has recognized
revenue in accordance with the Statement of Position 91-1 on "Software Revenue
Recognition" dated December 12, 1991, issued by the American Institute of
Certified Public Accountants.
The Company's software products may be sold individually or as an integrated
suite. Since the beginning of 1995, most of the Company's revenues have come
from SalesTrak. The Company anticipates that this trend will continue for the
foreseeable future.
The Company markets its products primarily through a direct sales force in
North America. The Company has also sold to large European and multinational
firms, resulting in international deployments of its software products. In
order to provide these large international customers with local country
support, the Company entered into agreements with distributors in the United
Kingdom in November 1995 and in France in February 1996. The Company also
entered into a reseller agreement with IBM EMEA (Europe, Middle East and
Africa) in April 1996 to distribute its products in these geographic areas.
The Company has also signed a reseller agreement with IBM in the United
States. Revenues from these international and domestic distributors have been
insignificant to date. The Company plans to increase its international
distribution in the future.
Although the Company has experienced significant growth in revenues during
the past two years, the Company does not believe that prior growth rates are
sustainable or indicative of future operating results. In addition, the
Company expects increased competition and, as a result, intends to invest
significantly in its business. There can be no assurance that the Company will
be able to sustain profitability on a quarterly basis or achieve profitability
on an annual basis. The Company's limited operating history makes the
prediction of future results difficult, if not impossible. The Company's
future operating results will depend on many factors, including, among others,
the ability of the Company to develop, introduce and market new and enhanced
versions of its software on a timely basis; the demand for the Company's
software; the size, timing and contractual terms of significant orders; the
timing and significance of software product enhancements and new software
product announcements by the Company or its competitors; changes in pricing
policies by the Company or its competitors; changes in the Company's business
strategies; budgeting cycles of its potential customers; customer order
deferrals in anticipation of enhancements or new software products; changes in
the mix of software products and services sold; changes in the mix of revenue
attributable to domestic and international sales; the impact of acquisitions
of competitors; seasonal trends; the cancellations of licenses or maintenance
agreements; product life cycles; software defects and other product quality
problems; personnel changes; the ability of the Company to identify, recruit
and retain qualified sales, consulting, technical, marketing and management
personnel; investments to develop sales distribution channels; changes in the
level of operating expenses; and general domestic and international economic
and political trends.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
Revenues
The Company's revenues are derived primarily from fees for software licenses
and to a lesser extent from services. The Company's revenues were $6.7 million
and $18.2 million for the nine months ended September 30, 1995 and 1996,
respectively.
Licenses. Software license revenues were $3.6 million and $10.3 million for
the nine months ended September 30, 1995 and 1996, respectively, representing
53% and 57% of total revenues in the respective periods. The increase in
dollar amount was primarily due to increased market acceptance of the
Company's products and the expansion of its direct sales force.
20
<PAGE>
Services. Service revenues are primarily comprised of fees for consulting
services, training and maintenance. Service revenues were $3.1 million and
$7.9 million for the nine months ended September 30, 1995 and 1996,
respectively, representing 47% and 43% of total revenues in the respective
periods. The increase in dollar amount was due primarily to the increase in
consulting, training, maintenance and maintenance renewals associated with
increased sales of the Company's applications. As the Company implements its
strategy of encouraging third party systems integrators to provide consulting,
training and implementation services for its products, consulting and training
revenues could decline as a percentage of total revenues in the future.
Cost of Revenues
Cost of Licenses. Cost of licenses consists primarily of license fees and
royalties paid to third party software providers and, to a lesser extent,
product media, product duplication and shipping. Cost of license fees was
approximately $722,000 and $899,000 for the nine months ended September 30,
1995 and 1996, respectively, representing 20% and 9% of total license fees and
11% and 5% of total revenues for each period, respectively. The increase in
the dollar amount of cost of licenses during the nine months ended September
30, 1996 was due primarily to the increased sales of the Company's products.
Gross margins on licenses improved in the first nine months of 1996 due
primarily to a reduction in the sales of third party database applications as
a percentage of total sales.
Cost of Services. Cost of services consists primarily of personnel-related
costs incurred in providing consulting services, training and maintenance to
customers. Cost of services were $2.5 million and $7.0 million for the nine
month periods ended September 30, 1995 and 1996, respectively, representing
78% and 88% of total service revenues and 37% and 38% of total revenues for
each period, respectively. The increase in costs as a percentage of related
service revenues in the first nine months of 1996 over the same period in 1995
is primarily the result of making a significant investment in the Company's
services organization, which included the hiring of additional regional and
project managers, the retention of a consulting firm to assist the Company in
developing a comprehensive services delivery methodology, and extensive
training of the Company's services personnel. These actions were undertaken to
enable the Company to respond to an anticipated increase in the number of
customers. During this period, the Company also made an investment in creating
a Consultant Development Program to train recent computer science college
graduates in the Company's products, which the Company believes will help
reduce its dependence on expensive outside contractors and improve margins.
The Company has also invested substantial resources to develop, train and
support its third party systems integrator partners. The Company will continue
to make investments in its services organization on an as-needed basis to
manage growth, improve customer service and improve overall service margins.
Operating Expenses
Sales and Marketing. Sales and marketing expenses include salaries,
commissions, advertising, direct mail, seminars, public relations, trade
shows, travel and other related selling and marketing expenses. Sales and
marketing costs were $4.3 million and $7.3 million for the nine month periods
ended September 30, 1995 and 1996, respectively, representing 64% and 40% of
total revenues for each period, respectively. The increase in absolute dollar
amount was attributed to expansion of the Company's direct sales force and an
increase in marketing activities. The decrease in sales and marketing expenses
as a percentage of total revenues was primarily due to the rapid growth of
revenues. The Company believes that such expenses will continue to increase in
absolute dollar amounts as the Company expands its sales and marketing staff.
Research and Development. Research and development expenses relate primarily
to engineering personnel. Costs related to research and development of
products are charged to research and development expenses as incurred.
Research and development costs were $1.7 million and $2.4 million for the nine
month periods ended September 30, 1995 and 1996, respectively, representing
26% and 13%
21
<PAGE>
of total revenues for each period, respectively. The increase in dollar amount
was attributed to an increase in personnel and related expenses. The decrease
in research and development expenses as a percentage of total revenues was
primarily due to the rapid growth of revenues. The Company expects that
research and development expenses will continue to increase in absolute dollar
amounts as the Company continues to commit substantial resources to product
development and engineering in future periods.
General and Administrative. General and administrative expenses include
personnel costs for administration, finance, human resources and general
management, along with legal and accounting expenses and other professional
services. General and administrative expenses were approximately $698,000 and
$1,088,000 for the nine month periods ended September 30, 1995 and 1996,
respectively, representing 10% and 6% of total revenues for each period,
respectively. The increase in absolute dollar amount was attributed to
expansion of the Company's general and administrative staff and associated
expenses necessary to manage and support the Company's growth. The decrease in
general and administrative expenses as a percentage of total revenues was
primarily due to the rapid growth of revenues. The Company believes that its
general and administrative expenses will continue to increase in absolute
dollars in the future as the Company expands its staffing and experiences
higher costs associated with being a public company.
Provision for Income Taxes. The Company experienced operating losses for the
nine month periods ended September 30, 1995 and 1996 and paid no income taxes.
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Revenues
Total revenues were $4.9 million, $5.9 million and $10.5 million in 1993,
1994 and 1995, respectively, representing year-to-year increases of 21%
between 1993 and 1994 and 77% between 1994 and 1995.
Licenses. License revenues were $3.5 million, $3.4 million and $5.9 million
in 1993, 1994 and 1995, respectively, representing 71%, 57% and 57% of total
revenues in the respective periods. The decrease in license fees between 1993
and 1994 was due to a transition from the Company's original character-
oriented product technology to a newer Windows-based technology. The increase
in license fees from 1994 to 1995 was due to increased market acceptance of
the Company's Windows-based products, the introduction of SalesTrak and the
expansion of the Company's direct sales force.
Services. Service revenues were $1.4 million, $2.6 million and $4.5 million
in 1993, 1994 and 1995, respectively, representing 29%, 43% and 43% of total
revenues in the respective periods. The dollar increase in service revenues is
primarily the result of an increase in demand for consulting and systems
integration services and, to a lesser extent, from an increase in maintenance
revenues from a larger, installed base.
Cost of Revenues
Cost of Licenses. Cost of licenses were $331,000, $365,000, and $979,000 in
1993, 1994 and 1995, respectively, representing 10%, 11% and 17% of the
related license revenues for each year, respectively. The increase in the
dollar amount of the cost of licenses in each successive year reflects the
higher volume of applications sold each year. Cost of licenses increased as a
percentage of related revenues from 1994 to 1995 due to increased third party
database sales which have a lower product margin than the Company's
applications.
22
<PAGE>
Cost of Services. Cost of services were $1.6 million, $2.6 million and $3.9
million in 1993, 1994 and 1995, respectively, representing 113%, 101% and 86%
of the related services revenues for each year, respectively. The increase in
the dollar amount of cost of services in each successive year reflects the
higher volumes of services and maintenance provided each year. Cost of
services decreased as a percentage of related service revenues from 1993 to
1995 due to improved operational efficiency.
Operating Expenses
Sales and Marketing. Sales and marketing expenses were $3.1 million, $3.2
million and $6.6 million in 1993, 1994 and 1995, respectively, representing
63%, 55% and 63% of total revenues for each year, respectively. The increase
in sales and marketing expenses as a percentage of total revenues from 1994 to
1995 was principally due to a significant increase in the number of sales and
marketing personnel in 1995.
Research and Development. Research and development expenses were $2.3
million, $2.2 million and $2.3 million in 1993, 1994 and 1995, respectively,
representing 46%, 38% and 22% of total revenues for each year, respectively.
The decrease in research and development expenses as a percentage of total
revenues is a result of increasing revenues over the relevant periods.
General and Administrative. General and administrative expenses were $1.9
million, $1.8 million and $1.0 million in 1993, 1994 and 1995, respectively,
representing 38%, 30% and 10% of total revenues for each year, respectively.
The decrease in general and administrative expenses in absolute dollars and as
a percentage of total revenues was primarily due to increased economies of
scale, and improved operational efficiencies resulting principally from better
receivables collections and the reallocation of certain corporate overhead
expenses to other operating departments within the Company.
Provision for Income Taxes. The Company experienced operating losses for
1993, 1994 and 1995 and paid no income taxes. As of December 31, 1995, the
Company had for federal and state purposes net operating loss carry-forwards
of approximately $8.0 million and $3.8 million, respectively, and research and
development credits of $270,000 and $100,000, respectively. These federal and
state carryforwards and research and development credits expire in the years
2007 through 2010 and 1996 through 2000, respectively. Utilization of the net
operating losses and credits may be subject to a substantial annual limitation
due to ownership change limitations provided by the Internal Revenue Code of
1986 and similar state provisions. The annual limitation may result in the
expiration of the net operating losses and credits before utilization. See
Note 9 of Notes to Financial Statements.
23
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth statement of operations data for the seven
quarters ended September 30, 1996, both in dollar amounts and as a percentage
of revenues. This information has been derived from the Company's unaudited
financial statements. The unaudited financial statements have been prepared on
the same basis as the audited financial statements contained elsewhere in this
Prospectus and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such information. Such information should be read in
conjunction with the Company's audited financial statements and notes thereto
appearing elsewhere in this Prospectus. The Company's quarterly results are
subject to fluctuations. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
-------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Licenses............... $ 783 $ 1,037 $1,735 $ 2,373 $2,871 $3,346 $4,103
Services............... 1,083 882 1,187 1,395 2,012 2,709 3,211
------ ------- ------ ------- ------ ------ ------
Total revenues......... 1,866 1,919 2,922 3,768 4,883 6,055 7,314
------ ------- ------ ------- ------ ------ ------
Cost of revenues:
Licenses............... 198 369 155 257 407 216 276
Services............... 780 748 941 1,450 1,986 2,270 2,755
------ ------- ------ ------- ------ ------ ------
Total cost of reve-
nues.................. 978 1,117 1,096 1,707 2,393 2,486 3,031
------ ------- ------ ------- ------ ------ ------
Gross profit............ 888 802 1,826 2,061 2,490 3,569 4,283
------ ------- ------ ------- ------ ------ ------
Operating expenses:
Sales and marketing.... 947 1,379 1,950 2,350 2,201 2,326 2,731
Research and develop-
ment.................. 611 593 508 574 626 761 966
General and administra-
tive.................. 211 247 240 325 313 401 374
------ ------- ------ ------- ------ ------ ------
Total operating ex-
penses................ 1,769 2,219 2,698 3,249 3,140 3,488 4,071
------ ------- ------ ------- ------ ------ ------
Income (loss) from oper-
ations................. (881) (1,417) (872) (1,188) (650) 81 212
Other income, net....... 16 11 20 16 12 11 30
Interest expense........ (39) (39) (46) (33) (25) (36) (82)
------ ------- ------ ------- ------ ------ ------
Net income (loss)....... $ (904) $(1,445) $ (898) $(1,205) $ (663) $ 56 $ 160
====== ======= ====== ======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
-------- -------- --------- -------- -------- -------- ---------
AS A PERCENTAGE OF TOTAL REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Licenses............... 42.0% 54.0% 59.4% 63.0% 58.8% 55.3% 56.1%
Services............... 58.0 46.0 40.6 37.0 41.2 44.7 43.9
----- ----- ----- ----- ----- ----- -----
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Licenses............... 10.6 19.2 5.3 6.8 8.3 3.6 3.7
Services............... 41.8 39.0 32.2 38.5 40.7 37.5 37.7
----- ----- ----- ----- ----- ----- -----
Total cost of reve-
nues.................. 52.4 58.2 37.5 45.3 49.0 41.1 41.4
----- ----- ----- ----- ----- ----- -----
Gross profit............ 47.6 41.8 62.5 54.7 51.0 58.9 58.6
----- ----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing.... 50.8 71.8 66.7 62.4 45.1 38.4 37.3
Research and develop-
ment.................. 32.7 30.9 17.4 15.2 12.8 12.6 13.2
General and administra-
tive.................. 11.3 12.9 8.2 8.6 6.4 6.6 5.2
----- ----- ----- ----- ----- ----- -----
Total operating
expenses.............. 94.8 115.6 92.3 86.2 64.3 57.6 55.7
----- ----- ----- ----- ----- ----- -----
Income (loss) from oper-
ations................. (47.2) (73.8) (29.8) (31.5) (13.3) 1.3 2.9
Other income, net....... 0.9 0.5 0.7 0.4 0.2 0.2 0.4
Interest expense........ (2.1) (2.0) (1.6) (0.9) (0.5) (0.6) (1.1)
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (48.4)% (75.3)% (30.7)% (32.0)% (13.6)% 0.9% 2.2%
===== ===== ===== ===== ===== ===== =====
</TABLE>
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Any decline in the demand for or market acceptance of the Company's software
products or services would have a material adverse effect on the Company's
business, financial condition and results of operations. Although the Company
has experienced significant growth in revenues in recent quarters, there can
be no assurance that the Company will sustain such growth in revenues. The
Company only became profitable in the quarter ended June 30, 1996, and there
can be no assurances that the Company will be able to sustain consistent
profitability on a quarterly basis or achieve profitability on an annual basis
in the future, if at all. The license of the Company's software generally
requires the Company to engage in a sales cycle of three to twelve months or
longer and to provide a significant level of education to prospective
customers regarding the use and benefits of the Company's software. For these
reasons, sales cycles are subject to a number of potentially significant
delays over which the Company has little or no control. Further, the Company
believes that the purchase of its software is relatively discretionary and
generally involves a substantial commitment of capital. Therefore, in the
event of any general downturn in the economy or in any potential customer's
business, these events could result in the deferral or cancellation of the
purchase of the Company's products. Accordingly, such deferrals could have a
material adverse effect on the Company's business, financial condition and
results of operations and cause the Company's operating results to vary
significantly from quarter to quarter.
The Company's business has experienced and is expected to continue to
experience seasonality, in part due to customer purchasing patterns. In recent
years, the Company has generally had stronger demand for its software products
during the quarters ending in June and December and weaker demand in the
quarters ending in March and September.
Quarterly software license revenues are difficult to forecast because the
market for client/server applications is rapidly evolving, and the Company's
sales cycle, from initial trial to purchase and the provision of consulting
and support services, varies substantially from customer to customer. The
Company typically receives a substantial portion of its software license
orders in the last month or weeks of a quarter. In addition, quarterly
software license revenues are also heavily dependent on the timing of revenue
recognition, which can be affected by many factors, including the timing of
contract execution and delivery and customer acceptance, if applicable. The
Company has limited backlog in that it typically ships its software products
shortly after an order is received. Therefore, the Company has limited
visibility on software license revenues for future quarters. Despite the
uncertainties in its quarterly revenue patterns, the Company's operating
expenses are based upon anticipated revenue levels and are relatively fixed in
the short term. If revenue levels fall below expectations, the Company's
operating and net income results would be adversely affected. Due to the
foregoing factors, quarterly revenue and operating results are not predictable
with any significant degree of accuracy. As a result, it is likely that in
some future period the Company's results of operations could fail to meet the
expectations of public market analysts or investors. In such event, or in the
event that adverse conditions prevail generally or with respect to the
Company's business, the price of the Company's Common Stock would likely be
materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
equity financings in which it has raised approximately $17.5 million,
financing under its equipment lease lines and a revolving bank line of credit.
In 1993, 1994, 1995 and the nine months ended September 30, 1996,
approximately $3.5 million, $4.2 million, $4.1 million and $2.9 million,
respectively, of cash were used in operations. In 1995 and the nine months
ended September 30, 1996, the Company experienced significant growth in
accounts receivable accompanying the Company's increased sales volume, which
was partially offset by increases in accounts payable and other current
liabilities.
In 1993, 1994, 1995 and the nine months ended September 30, 1996, the
Company's investing activities consisted primarily of purchases of property
and equipment. In these periods, the Company used approximately $228,000,
$427,000, $933,000 and $1.9 million, respectively, of cash to purchase
property
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and equipment, primarily for personal computers and for furniture and other
office equipment. The Company expects that the rate of purchases of property
and equipment will increase as the Company's employee base grows. As of
September 30, 1996, the Company's principal commitments consisted primarily of
lease lines of credit for equipment and software purchases and leases for
office facilities. See Notes 3 and 4 of Notes to Financial Statements.
At September 30, 1996, the Company had $1.7 million in cash and cash
equivalents and $2.6 million of working capital. The Company had available a
revolving bank line of credit agreement under which the Company had borrowed
$1.5 million at September 30, 1996. Under the line of credit, the Company had
the ability to borrow up to 75% of eligible receivables or a maximum of $3
million. The line of credit is collateralized by the assets of the Company and
certain financial covenants are required to be maintained. The line of credit
also contains a restrictive covenant that limits the Company's ability to pay
cash dividends or make stock repurchases in excess of $350,000 without the
prior written consent of the lender. The line of credit expires on July 15,
1997 and will automatically increase to $4 million upon completion of this
offering. On July 15, 1996, the Company also obtained an equipment term loan
of $1.3 million from its bank under which the Company had borrowed $590,000 at
September 30, 1996. The Company currently has no significant capital spending
or purchase commitments other than normal purchase agreements and commitments
under facilities, line of credit and capital leases. See Note 4 of Notes to
Financial Statements.
The Company believes that the net proceeds from the sale of Common Stock
offered hereby, together with its current cash balances, cash available under
its lines of credit and cash from operations will be sufficient to meet its
working capital and capital expenditure requirements for at least the next 12
months. Although operating activities may provide cash in certain periods, to
the extent that the Company experiences growth in the future, the Company
anticipates that its operating and investing activities may use cash.
Consequently, any such growth may require the Company to obtain additional
equity or debt financing. There can be no assurances that any necessary
additional financing will be available to the Company on commercially
reasonable terms, if at all. In addition, although there are no present
understandings, commitments or agreements with respect to any acquisition of
businesses, products or technologies, the Company, from time to time,
evaluates potential acquisitions of other businesses, products and
technologies that are complementary to those of the Company, and may in the
future require additional equity or debt financings to consummate such
acquisitions.
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BUSINESS
The following Business section contains forward-looking statements and the
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
Aurum Software, Inc. is a leading provider of enterprise-wide sales and
marketing information software. The Company provides the Aurum Customer
Enterprise suite of applications which helps automate the field sales,
telemarketing, telesales and customer support functions of a business. The
Company's products are based on advanced client/server and Internet/Intranet
technologies and are designed to address the sales and marketing requirements
of businesses ranging from medium-sized enterprises to large multinational
corporations. The Aurum Customer Enterprise has been installed to date in
deployments consisting of as many as 3,400 users. The Company provides
businesses with integrated, adaptable and mobile software solutions to meet
their competitive business goals. The Company's products are designed to
enable customers to increase revenues, shorten sales cycles, increase repeat
sales, improve forecasting accuracy and visibility, decrease sales and
marketing costs, increase customer satisfaction, obtain timely market
intelligence and gain a strategic competitive advantage. The Company has
deployed its applications in a diverse set of industries including financial
services, chemicals, high technology, health care, information services,
manufacturing, publishing, telecommunications and utilities. The Company's
customers include A.C. Nielsen Company, CUC International, Eastman Chemical,
Fleet Bank, GE Capital, Hewlett-Packard Company, Hilti, Lanier Worldwide, MCI
Communications, Netscape Communications Corporation, Sprint Spectrum L.P. and
Sun Microsystems.
INDUSTRY BACKGROUND
The market dynamics of the current business environment are forcing
companies across a wide range of industries to find new ways to improve their
organizational efficiency, increase revenues and reduce costs. Many companies
have effectively applied client/server technologies to automate "back office"
operations, including manufacturing, finance, order entry and human resources,
to streamline corporate operations and to reduce operating costs. The
automation of these back office operations has not, however, addressed the
competitive challenges of increasing revenue generation and improving customer
satisfaction through automation of the "front office" sales and marketing
functions. Automation solutions to these front office functions have been much
slower to develop due, in part, to the complex dynamics and highly
individualized nature of sales and marketing business processes within
organizations. Companies are, however, increasingly focusing on their front
office sales and marketing operations, often their largest operating expense
category, as the next major business function to be automated and are
recognizing the importance of integrating them with their back office
applications. In a May 1996 research report, Aberdeen Group, Inc., an
independent market research firm, projected that the market for packaged sales
and marketing application software will grow at an average annual compounded
rate of 50%, from $140 million in 1995 to $700 million in 1999.
The demands of the current market environment have resulted in fundamental
changes in the sales and marketing strategies traditionally used by
businesses. To improve the productivity of their direct sales forces,
companies must be able to implement team selling models comprising separate
but integrated telemarketing, telesales and direct sales functions. Companies
must also be able to augment direct sales strategies with multi-tiered
distribution strategies that utilize OEMs, VARs, distributors and other
channel partners. Further, as businesses have expanded internationally, this
multi-tiered distribution strategy must be adapted to the different cultures
and business practices of geographically dispersed markets. The need to
improve sales productivity also requires companies to develop more effective
methodologies for customer lead generation and qualification, collection and
internal distribution of product and competitive information, determination of
customer requirements and market trends, improvement in visibility and
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accuracy of product and revenue forecasts, and management and training of
sales and marketing personnel. In addition, companies must be able to
effectively manage and distribute relevant customer and market information on
a real-time basis between the marketing and back office operations of the home
office and the remote field sales force to ensure that the selling and
customer retention effort is fully coordinated and to formulate intelligent
and timely marketing strategies. Sales and marketing information solutions
that address these requirements must offer a combination of automation of
business processes, information collection and sharing, decision support and
management reporting.
The need to transform front office sales and marketing operations to meet
the challenges of an increasingly competitive marketplace is converging with
the availability of a new generation of enabling technologies. Distributed
client/server computing environments have become increasingly commonplace,
built upon a foundation of relational database platforms, object-oriented
technology, wide deployment of LAN/WAN solutions and high-speed modem
technology. In addition, new generation operating systems, a more powerful and
easier to use graphical Windows interface and powerful Pentium-based laptop
computers are available to support the information and computing requirements
of a growing population of mobile sales and marketing professionals. These
technologies have been further leveraged by the capabilities of the Internet
and corporate-based Intranets, which may fundamentally change the way
businesses deliver products and services to their customers. In addition, the
ability of companies to instantly access and distribute a broad range of up-
to-date information about their customers and competitors through the Internet
and corporate-based Intranets also offers significant new automation
opportunities to the sales and marketing function.
The Company believes that sales and marketing automation efforts developed
to date have been mostly inadequate because the sales and marketing process of
a company is highly individualized and requires applications that can be
readily adapted to the dynamics of rapidly changing business environments as
well as changes in the company's business processes. In response, companies
have often attempted custom, in-house software development but have been
frustrated by the time and expense required to provide complete functionality,
the difficulty of solving the complex database synchronization problem of
linking intermittently connected mobile sales representatives with a central
customer database and the difficulty encountered in supporting and upgrading
software in response to continually changing organizational and market
requirements. As an alternative to custom software development, many companies
have selected packaged applications offered by independent software vendors.
Although these packaged products effectively manage time-related activities
and customer contacts, they have largely been implemented for individual
contact management or departmental use, creating "islands" of automation that
fail to deliver a "closed-loop" method of acquiring, developing and retaining
customers across the enterprise. In addition, these products have generally
failed to address the needs of companies seeking automated solutions that can
be tailored to the process-specific requirements of the sales and marketing
operation. Specifically, sales force automation products generally have not
permitted front office and back office operations to share and integrate up-
to-date information and have not provided the robust and scalable database
synchronization necessary to link diverse and geographically dispersed sales
organizations on a real-time basis. The Company believes that the lack of
robust database synchronization is the single most important technical
impediment to the successful automation of sales and marketing operations.
As a result, many companies are looking for packaged application software
that has the flexibility and adaptability to map to their exact business
processes, support multi-tiered distribution channels, interface with back
office applications, adapt to emerging technologies such as the Internet and
provide powerful, scalable synchronization capabilities to coordinate customer
information among thousands of mobile users on a global basis. As sales and
marketing information products are developed that provide the integrated
solutions necessary to address these challenges, the Company believes that
companies that implement these sales and marketing systems will improve their
organizational efficiency, increase revenues and reduce costs. Today, leading-
edge companies are implementing sales and marketing information systems
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to increase sales productivity and to obtain a competitive advantage. In the
future, the Company believes these sales and marketing information systems
will become a competitive necessity and companies that fail to improve their
customer acquisition and retention processes by implementing these systems
will be at a fundamental competitive disadvantage.
THE AURUM SOLUTION
The Company provides an integrated suite of client/server and Internet-based
applications designed to automate sales and marketing operations. Leveraging a
patent-pending database synchronization technology that provides real-time
access to customer information for all users, the Company's applications
enable businesses to implement improved customer acquisition and retention
processes by integrating, automating and managing sales and marketing
operations among customers, headquarters, branch offices, field-based
employees and distribution partners. Aurum's dbSync technology employs a real-
time scanning approach to provide database synchronization that is fast,
scalable, recoverable, extensible and configurable. The Company believes that
its dbSync technology is unique in the industry and has played a critical role
in winning large-scale sales force automation opportunities.
The Aurum Customer Enterprise can be implemented as an enterprise solution
for large organizations and has been installed to date in deployments
consisting of as many as 3,400 users. The Company's applications permit
companies to leverage the latest available technologies, including the
Internet, thereby providing immediate access to external sources of
information to generate and qualify leads and to obtain market intelligence
about potential customers and competitors. An object-oriented open
architecture enables integration with other enterprise applications and offers
an interface that may be configured to company-specific sales and marketing
models and that may be adapted over time to accommodate a company's changing
business requirements.
The Company believes that its software products provide the following
benefits to its customers:
Closed-Loop Sales and Marketing Process. The Company's software automates
the collection of customer and marketing information, permitting users to
evaluate the effectiveness of specific marketing programs, obtain timely and
accurate profiles of customer purchasing patterns and improve coordination
between internal sales and marketing and field sales personnel.
Faster and More Timely Access to Information. Leveraging the Company's
synchronization and Internet/Intranet technologies, the Company's software
links diverse functions and delivers critical information on a real-time basis
internally to marketing, finance and sales management personnel and externally
to remote sales teams.
Improved Customer Interaction. The Company's software provides rapid access
to information, allowing sales personnel to efficiently sort, qualify and
focus on prospective sales leads and spend more time selling to qualified
prospects.
Improved Forecasting and Visibility. The Company's software provides
marketing and finance staffs with real-time access to current and accurate
information about the sales pipeline.
Shortened Sales Cycle and Reduced Training Costs. By accumulating customer
and market information relevant to the business model of a company, the
Company's software products reduce training time for new sales representatives
and reduce the time required to source, qualify and research prospective
customers and to close sales.
Improved Customer Retention and Repeat Sales. Access to historic customer
information permits a consistent sales interface, even where multiple sales
representatives or different departments or divisions are involved, enabling
better customer relationships and increased repeat sales.
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STRATEGY
The Company's objective is to become the market leader in sales and
marketing information systems. To achieve this objective, the Company is
pursuing the following strategies:
Maintain and Expand Technology Leadership in Sales and Marketing
Applications. The Company's strategy is to continue to develop its advanced
technology and enhance the functionality of its software. The Company's sales
and marketing software provides a comprehensive selling platform designed to
integrate with back office applications and provide real-time access to large
data stores across wide and local area networks to thousands of connected and
intermittently connected mobile users. This platform includes a suite of
applications that support the range of sales and marketing functions, object-
oriented tools that enable customization of the application suite to a
company's process-specific business model and a user-friendly, Windows-based
interface. The Company believes that the functionality of its software, its
ability to integrate with other enterprise applications, its database
synchronization technology and its ability to scale to the growth requirements
of large multinational organizations will be key factors in the Company's
ability to achieve broad market acceptance for its products.
Focus on Rapid Deployment and Enable Large-Scale Implementations. The
Company believes that the successful deployment of its software in a diverse
set of industries and in a wide variety of customer environments ranging to
thousands of users is due, in part, to its ability to rapidly adapt its
applications to map to the specific sales and marketing processes of its
customers. To date, the Company has installed its software products in
deployments consisting of as many as 3,400 users, and the Company intends to
leverage this large-scale implementation experience to penetrate large
multinational organizations. The Company believes that the strength of its
back-end server and database synchronization technology provides the product
scalability necessary to accommodate the requirements of thousands of
connected and mobile users and represents a significant competitive advantage.
The Company also believes it has gained competitive advantage because of its
ability to implement and deploy its application solutions quickly through the
use of its internal consulting services organization and through partnering
with certified systems integrators.
Leverage Strategic Business and Technology Partnerships. The Company's
strategy is to work with consulting and technology companies to increase
market acceptance of its software. The Company has established a number of
strategic business and technology partnerships with industry leaders in
consulting and implementation, including Cambridge Technology Partners,
Deloitte & Touche LLP, Ernst & Young LLP, IBM and KPMG Peat Marwick LLP.
Through these partnerships, the Company seeks to effectively leverage its
resources in marketing its software to a broad range of businesses and
industries. The Company has also established strategic technology partnerships
with database/tools companies such as Business Objects, Centura, Informix,
Microsoft, Oracle and Sybase, and other technology companies including
MediaShare, Netscape, Trilogy and XcelleNet. The Company intends to continue
to work with consulting and technology companies to address new markets and
initiatives.
Expand Global Market Presence. The Company's strategy is to extend
distribution by increasing its sales force in North America and by adding
additional distributors in Europe, the Pacific Rim and other parts of the
world. The Company believes that there are significant international market
opportunities for its products and intends to pursue these opportunities by
leveraging the resources and market presence of international distributors.
The Company intends to enhance the appeal of its software in international
markets by localizing its sales and marketing applications for implementation
in several foreign languages and in multiple foreign currencies. As market
acceptance for the Company's software increases, the Company will also
consider the use of direct sales strategies and joint ventures to enhance its
pursuit of international markets.
Leverage Internet and Intranet Technologies. The Company believes that the
Internet and corporate-based Intranets offer significant opportunities to
automate sales and marketing operations and
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has designed its products to exploit the potential of these technologies.
Through the implementation of WebTrak, its Internet integration software, the
Company's software products enhance the ability of its customers to collect
leads and integrate those leads into their sales and marketing process. The
Aurum Smart Encyclopedia, an Intranet-based marketing encyclopedia system,
employs intelligent agents to browse the Internet to collect targeted
competitor information for integration into an organization's sales and
marketing system database. This information can then be immediately accessed
by all users across the enterprise. The Company believes that the
informational power of the Web will become a significant factor in the
effectiveness of the Company's software in enhancing sales productivity, and
the Company intends to continue to develop additional means by which the
Company's applications can leverage this power.
Extend Product Line into Related Customer Management Application Areas. The
Company has focused to date on establishing its presence in the market for
sales and marketing applications through the development and sale of its
integrated suite of sales and marketing software products. The Company intends
to leverage these products to achieve a more significant presence in other
customer management-related applications in the customer interaction market.
SOFTWARE PRODUCTS
Aurum Customer Enterprise is a suite of applications that addresses the
functional needs of sales, marketing and support organizations involved in the
management of customer relationships. These integrated client/server and
Internet-enabled applications manage information describing sales
opportunities, customer relationships, forecasts and quoting, sales
methodologies and sales cycles and customer support throughout global
organizations. These applications enable a complex, multi-tier team selling
model through the sharing of customer and prospect information, product
information, pricing, forecasting, competitive intelligence, sales metrics and
best selling practices. These applications can also provide better customer
support by providing current information on customer issues to all members of
the sales and support team. Aurum's software can be interfaced with customers'
other enterprise applications for financial, order entry or inventory
information vital to the sales and marketing process.
The Aurum Customer Enterprise application suite utilizes common
administrative modules and a central customer database that contains key
information about active and historical marketing campaigns, customer contacts
and relationships, account strategy, task and activity history, the account
sales team and the business accomplishments necessary to move each customer to
the next phase in the sales process. Customer support history is instantly
available and relevant financial, order history and shipment data can also be
supplied to the sales force when the sales and marketing applications are
linked to other enterprise applications.
The applications operate on a UNIX or NT based server with an Oracle,
Sybase, Informix or Microsoft SQL Server database accessed through Windows
3.1, Windows NT or Windows 95 clients. Further, mobile, detached users may
operate on a laptop database and perform on-demand real-time database
synchronization to a corporate or local database server using Aurum's dbSync
product through a LAN/WAN, dial-up, RAS, XcelleNet, wireless or Internet
connection. These applications may be used individually or as part of an
integrated customer management solution.
List prices for each of Aurum's Customer Enterprise applications are based
on a license fee per server as well as license fees based on named users. The
list prices for the Aurum Customer Enterprise applications range from $15,000
to $30,000 per server and from $1,500 to $3,000 per user.
Business Applications
Aurum SalesTrak. SalesTrak is an enterprise-wide sales force automation
application designed to enable mobile and connected sales professionals to
manage leads, opportunities, customer relationships,
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contact information, account activities, calendars, literature fulfillment,
price lists, quotes and forecasts. To support team selling, SalesTrak helps
the mobile sales professional manage all of the key milestone events and
assign team responsibilities throughout a sales cycle, including key contact
information, account information, account strategy, key influencers and team
tasks. SalesTrak can support different sales methodologies and can be used by
companies to reinforce defined sales processes. SalesTrak provides companies
with increased visibility and early intelligence about changes in the
composition and quality of leads in the sales funnel at a marketing level, at
a regional level and at an individual sales representative's level. It also
provides valuable metrics on the length of the sales cycle, success ratios,
win/loss data and other key business metrics which can help improve the sales
and marketing process.
Aurum TeleTrak. TeleTrak is a comprehensive telemarketing/telesales
application designed to improve call center performance and enhance
productivity in both inbound and outbound operations. Customer inquiries enter
the process through toll-free telephone calls, the Internet, targeted
marketing campaigns or seminars and may be followed up by the pre-assigned or
next available telemarketing representative who will "work" the contact
through a series of strictly or loosely defined accomplishments to the pre-
qualified phase. Activities can include lead generation, call scripting,
activity management, follow up contact, literature fulfillment, quotes, order
generation and forecasting. Each customer contact, response or note is
recorded in the system to enable an audit trail of campaign effectiveness, as
well as individual representative productivity. A complete set of reports
assists management in running the telemarketing/telesales call center.
TeleTrak can be integrated with the latest in computer telephony technology
including automatic call directors, dialers and facsimile servers for maximum
call center productivity.
Aurum SupportTrak. SupportTrak is a call management application for customer
support call centers. SupportTrak handles customer support calls through the
Web, telephone call, e-mail or fax through call resolution. It also provides
call routing or dispatch capabilities, call management, activity tracking,
calendaring, information bulletin and literature fulfillment. SupportTrak is
designed to streamline and automate the sharing of customer support
information throughout the enterprise and is tightly integrated with the
Company's SalesTrak and TeleTrak applications. Customer support activity is
stored in the central database, providing sales professionals a complete
customer support activity profile.
Aurum Management Information System. The Management Information System
includes Aurum Explorer and Aurum Reporter and provides a comprehensive new
approach to utilizing Aurum's customer information system as a data warehouse.
It combines the latest On-Line Analytical Processing (OLAP) technology with
the Aurum Customer Enterprise and enables a variety of functions from ad-hoc
reporting to on-line analytical processing and drill down analysis of the
customer data. Built on the foundation of Business Objects, an industry-
leading enterprise level query tool, the Management Information System
includes an Aurum-specific customer object repository, a set of 35 predefined
analyses and templates and end-user tools for drill down and ad hoc analysis.
Templates include forecasting, funnel management by product/team/organization,
win/loss, competitive tracking, sales team performance and more. The
Management Information System is also open and extensible to incorporate
enterprise information from external third party sources and "back office"
customer information. This application gives managers and sales
representatives throughout the customer life cycle process the ability to do
ad hoc and comprehensive analysis in an easy to use, graphical form.
Enabling Technology
Aurum dbSync. Aurum's dbSync technology employs a patent-pending real-time
scanning approach to provide database synchronization that is fast, immediate,
scalable, recoverable, extensible and configurable. The Company believes that
its dbSync technology is unique in the industry and has played a critical role
in winning large sales force automation opportunities. dbSync is designed to
facilitate the timely exchange of information among sales team members with
fast and efficient updates because only net changes and additions are
exchanged. Its advanced design offers sophisticated collision detection and
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error recovery capabilities and transport independence with support for
multiple communications links including dial-up, LAN, WAN, RAS, XcelleNet,
wireless and the Internet. dbSync is designed to support server-to-server
synchronization so that smaller regional SalesTrak servers can be placed in
foreign countries which can provide substantial savings in telecommunications
costs. dbSync also provides Electronic Software Distribution which can be used
to electronically distribute the latest release of SalesTrak or other Windows
applications to up to thousands of mobile users. The Electronic Software
Distribution feature also supports the transfer of marketing encyclopedia
files from the Company's Intranet-based marketing encyclopedia system. The use
of dbSync is illustrated below:
Mobile Network
[ARTWORK APPEARS HERE]
Aurum EventTrak. EventTrak is an escalation and workflow engine designed to
facilitate the mapping of an individual company's business process by defining
key business rules for escalation and notification of events and issues. This
module enables a user to set up pre-defined events and business processes for
handling specific customer processes such as a type of service call, a
literature fulfillment request or an information inquiry through
telemarketing.
Aurum CTITrak. CTITrak is a computer telephony interface that connects the
Company's applications with automatic call distributors ("ACD"), interactive
voice response ("IVR"), dialers and other telephony equipment. In connection
with an incoming customer call, CTITrak enables a company representative to
access and retrieve all data related to the calling customer from the sales
and marketing database and forward both the data and the call directly to the
call center representative.
Internet/Intranet Applications
Aurum WebTrak. WebTrak is an Internet-enabled application that provides an
interface to Aurum's sales and marketing applications from the Web. WebTrak
enables the easy publishing of Aurum database application forms on a Web
server HTML home page. These forms can be directly accessed by a prospect or
customer to indicate their interest in a specific product, to register for a
seminar or to place an order directly. Once the data is entered on the Web
server, WebTrak captures this information and transfers it to the sales and
marketing database where it can be acted upon further with the aid of
intelligent agents. An inquiry or customer request can be prequalified through
the Web and automatically entered into the
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sales and marketing process, setting off a series of activities for direct
follow up. In addition, customer profile information is captured in the Aurum
customer database, enabling a company to understand and better market to
Internet visitors. WebTrak extends the reach of automated sales and marketing
solutions to include the power of the Internet by enabling Web lead generation
and one-to-one marketing through the generation of customized marketing and
sales profiling information through the Internet.
Aurum Smart Encyclopedia. The Smart Encyclopedia provides complete product,
competitive, industry and technical information and a set of monitoring agents
that can actively alert a representative to new information that affects the
sales cycle or existing customer relationships. This system enables marketing
and sales professionals to subscribe to product, company, technical and
competitive information from other Web sites on the Internet and from their
corporate Intranet server.
The Smart Encyclopedia contains intelligent agents which actively monitor
Internet Web sites and the Intranet marketing encyclopedia content for net
changes. Mobile representatives have the ability to periodically connect to
the corporate Intranet through the dbSync process to update the information
stored on their notebook computers and to download new information. The mobile
sales representatives can then use a Web browser off-line to look at the
information that was downloaded to their laptop. This approach ensures that
sales professionals are always working with the latest customer data, product
and pricing information, competitive intelligence and multimedia selling
presentations. It also minimizes the amount of time that sales professionals
need to spend searching for competitive intelligence.
PRODUCT ARCHITECTURE
The Company's software is developed using proven technologies such as 3-Tier
client/server component architecture, modern graphical user-interface designs,
object-oriented rapid application development tools, relationship modeling
tools, commercial relational databases and Web-centric development tools. In
addition, the Company's software products employ a unique patent-pending
database synchronization technology with a proven scalable architecture.
Aurum Customer Enterprise Server. The customer management database serves as
the foundation of all the Company's applications and contains information such
as leads, companies, contacts, tasks, sales cycle phases, price books, support
information, telemarketing scripts, campaign data and other related customer
information. The common database is a normalized schema that is optimized for
scalability based on the Company's experience in implementing large-scale
deployments. Data stored in the common database is distributed to mobile users
through the Company's database synchronization technology. The common database
schema is extensible and configurable to exactly model a company's business
requirements.
Adaptable and Configurable Development Environment. The Company uses an
object-oriented rapid application development environment so the software can
be easily configured to support changing field names, field labels and changes
in the user interface and layout forms. The class library objects contain key
components and business processes which can be easily adapted to match a
company's exact sales and marketing process--including the complete
application logic and flow of the application. This approach enables customers
to quickly prototype, model and implement their specific business processes
very rapidly and also gives them the ability to change their processes quickly
over time as business needs change.
3-Tier Client/Server Architecture. The Company developed a 3-Tier
client/server adaptable architecture that conceptually consists of a visual
layer, business layer and transaction layer as illustrated below. The
architecture employs Microsoft technology for ease of use and industry
compatibility and Aurum technology for high performance and remote user
support. The visual layer, which is the sales user component, provides a
Windows interface and permits the user to prioritize information views. The
business layer allows managers to easily adapt and implement management
decisions and business process
34
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rules across the enterprise. The transaction layer serves as the repository of
customer data and access point to other enterprise databases, and is designed
to manage the connections between the client and server to optimize
performance and scalability to support a large number of clients. Each layer
is designed to support rapid, easy upgrade of user-defined content to newer
versions of Aurum products that preserves the user's existing investment.
Aurum Adaptable Architecture
[ARTWORK APPEARS HERE]
Database Synchronization. The Company's database synchronization provides
on-demand database synchronization, heterogeneous database synchronization,
complex data distribution model (team selling support and other application-
specific logic), customizable business objects (business rules reside in the
database), high performance extraction of net data changes, collision
handling, full extensibility and customization, support for electronic
software distribution, transport independence (works over WAN, LAN, Xcellenet,
dial-up and the Internet) and full recoverability if the communications
session fails.
Internet Technology. The Company's WebTrak product is based on a common
gateway interface. The Company intends to evolve this interface to JavaScript
and over time to provide full support for Microsoft Active X components so
that its applications or portions of its applications (applets) may be
distributed to remote users through the Internet or through a corporate
Intranet.
STRATEGIC PARTNERS
A key part of the Company's strategy is to extend its strategic partnerships
with industry-leading firms to increase customer demand for the Aurum
solution, expand market penetration and provide complementary technology,
services and training. These partnerships are intended to provide complete
sales and marketing solutions for Aurum customers. The Company has established
strategic partnerships in three key areas: systems integration, technology and
sales methodology.
Systems Integration Partners. Projects which transform sales and marketing
operations are often large and complex, and include business process
reengineering, large-scale implementations, roll out and training for up to
thousands of users. These implementations are often global in scope.
Established systems integration firms provide both domain expertise and
trained personnel to address these challenges. Having provided business
process re-engineering, total quality management and other solutions to meet
the back
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office automation needs of Fortune 500 and other organizations, many
established systems integration firms have begun to focus on and create
dedicated front office sales and marketing solutions.
Aurum's strategy includes working closely with a selected number of
industry-leading firms with a history of delivering successful sales and
marketing information system implementations. Aurum and its systems
integration partners provide a complete solution for a customer's business
process, application implementation and roll out needs. The Company believes
that these relationships have enhanced its presence in both Fortune 500 firms
and in international markets. Aurum has established strategic system
integration partnerships with Cambridge Technology Partners, Deloitte & Touche
LLP, Ernst & Young LLP, IBM and KPMG Peat Marwick LLP.
Technology Partners. The Company's technology strategy is to focus on core
product development areas and partner with industry-leading technology vendors
to provide customers with a complete solution. The Company has worked with
leading database and tool vendors such as Business Objects, Centura, Informix,
Microsoft, Oracle and Sybase. The Company has also worked with key Internet
and communications technology vendors, including Dialogic (computer
telephony), First Floor Software (intelligent agent technology), Netscape and
XcelleNet (remote communications) as well as with complementary sales
automation vendors, including MediaShare (marketing encyclopedia), Sant &
Assoc. (proposal generator) and Trilogy (sales integrator). The Company
intends to continue working with these and other technology vendors.
Sales Methodology and Training Partners. The Company believes that an
increasing number of companies are implementing sales methodologies and
training as part of their sales and marketing automation efforts. In order to
meet these customer needs and deliver a complete solution, the Company has
established a strategic relationship with The Kappa Group, Inc., an industry-
leading consulting and sales methodology firm. The Company's SalesTrak product
incorporates, as part of this partnership, The Kappa Tools, a set of
territory, opportunity management and strategic planning tools designed to
increase the effectiveness of sales and marketing professionals. Aurum and The
Kappa Group have jointly conducted marketing and trade show activities in
order to promote their mutual solution to current and prospective customers.
The Company intends to establish similar arrangements with other sales
methodology consultants.
36
<PAGE>
CUSTOMERS
As of September 30, 1996, the Company had licensed its products to over 120
customers. The following is a representative list of the Company's customers
that have purchased more than $100,000 in software and services and had current
maintenance contracts with the Company as of September 30, 1996. In 1995, MCI
Communications Corporation accounted for approximately 11% of the Company's
total revenues.
TELECOMMUNICATIONS SOFTWARE
------------------ --------
BBN Corporation Business Objects S.A.
MCI Communications Corporation Macromedia, Inc.
Sprint Spectrum L.P. Mercury Interactive Corporation
Netscape Communications
Corporation
FINANCIAL SERVICES
------------------
MANUFACTURING
Export Development Corp. -------------
Fleet Bank
GE Capital Armstrong World Industries, Inc.
Hewlett-Packard Company Eastman Chemical
Hilti, Inc.
Lanier Worldwide, Inc.
UTILITIES S&C Electric Co.
--------- Welch Allyn
Wisconsin Tissue
Entergy Corporation
Houston Lighting & Power Company
Minnesota Power & Light Company INFORMATION/PUBLISHING/OTHER
----------------------------
TECHNOLOGY A.C. Nielsen Company, Inc.
---------- Adia S.A.
Kaiser Permanente
Catalink Direct, Inc. National Data Corporation
Dialogic Corporation Neodata Services, Inc.
Extended Systems The Atlanta Journal-
Fair, Isaac and Company, Inc. Constitution
Level One Communication Reed Reference Publishing
Maxtor Corporation
Parker Compumotor Division
Sun Microsystems, Inc.
Telogy Networks, Inc.
Tencor Instruments
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Aurum applications have been selected by organizations in a wide variety of
industries for domestic and global implementation. The following are examples
of customer implementations of Aurum applications:
MCI Communications Corporation
Situation: MCI Communications Corporation ("MCI") identified a mission-
critical need to both capitalize upon new business opportunities offered by
deregulation of the telecommunications industry and respond to the resulting
new level of competitive pressure. Specific goals included rapidly migrating
from a single line of long distance related products to a more diversified
line of information products, effectively training a 5,000 person sales force
and increasing the revenue generated by each sales representative while
reducing the overall cost of sales. After a lengthy evaluation process, MCI
chose Aurum's SalesTrak to meet its lead and opportunity management
requirements. SalesTrak was selected for its ability to scale to meet the
needs of thousands of users and provide the real-time access to product,
marketing and other enterprise data necessary to achieve identified goals.
Solution: MCI initiated a new "virtual workplace" selling paradigm designed
to increase the amount of time sales representatives spent in front of
customers and deployed a laptop-based virtual desktop solution centered on
SalesTrak. MCI sales representatives now have real-time access to new leads
and opportunities stored in a multi-gigabyte back-end database, as well as
integrated proposals, presentations and other multimedia selling tools
relating to new and existing products. Access to this wide array of corporate
data is provided on a real-time basis by Aurum's dbSync, which also implements
updates made by sales representatives located throughout the country as they
work with customers and prospects. Aurum's SalesTrak and dbSync facilitate
immediate access to new leads, pricing information, multimedia presentations,
competitive analysis, new product information and complex proposals.
Using SalesTrak and dbSync, MCI was able to prepare and execute an
enterprise-wide solution within six months from date of initiation.
Netscape Communications Corporation
Situation: Netscape Communications Corporation ("Netscape") was faced with a
mission-critical need to manage a large number of incoming business leads from
both existing and prospective customers, qualify and develop these
opportunities for multiple tiers of distribution and seamlessly integrate
Internet inquiries into this single sales and marketing process. Netscape
completed a lengthy and comprehensive evaluation of possible solutions. Aurum
was chosen in January 1996 to provide a technology and application solution
while Cambridge Technology Partners, working in conjunction with Aurum, was
selected to complete the implementation.
Solution: Aurum SalesTrak was implemented to service Netscape's Netsales
organization with lead capture for distribution to channel partners. SalesTrak
will be implemented in the field sales organization in the fall of 1996. All
incoming opportunities (e.g., telephone, facsimile, reference, Internet) are
managed using SalesTrak. Each opportunity is qualified and seamlessly
forwarded to the appropriate sales organization for further development and
closure.
Working in conjunction with Aurum's consulting services team, Cambridge
Technology Partners defined the appropriate project and completed the
implementation. Netscape commenced roll out in July 1996.
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SALES AND MARKETING
In North America, the Company markets its software primarily through its
direct sales organization. To support its sales efforts, the Company conducts
an active set of marketing programs including public relations, advertising,
direct mail, seminars, trade shows, and ongoing customer communications
including a user group council. As of September 30, 1996, the Company's sales
and marketing organization consisted of 52 full time employees.
The Company's direct sales force employs a consultative sales process,
working closely with customers to understand and define their needs to
determine how they are best addressed by both the Company's product offerings
and complementary technology and services offered by partners. Because the
implementation of sales and marketing applications is typically mission-
critical, the Company's sales and marketing efforts are generally directed to
the senior management of a prospective customer.
The direct sales force works closely with strategic systems integration,
technology and sales methodology partners to identify specific customer
opportunities and requirements. These partnerships have led to the Company's
introduction into strategic accounts, increased account penetration and
reduced sales cycle length. Joint marketing activities conducted with these
partners has increased market coverage and acceptance of the Company's
products. These activities include jointly conducted seminars, trade shows and
conferences. A key part of the Company's strategy is to expand and enhance
these marketing efforts with leading systems integration partners.
The Company markets its software outside North America through key
distribution organizations. As of September 30, 1996, distributor agreements
were in place with Aurum France, Aurum Software UK Limited and IBM EMEA
(Europe, Middle East and Africa). In addition to marketing and selling the
Company's software, these distributors provide technical support as well as
educational and consulting services.
The Company's strategy is to continue to grow its direct sales force in
North America and to expand distribution internationally. The Company intends
to increase the size of its sales force in 1996 and 1997 and to recruit
additional distribution partners. The competition for qualified sales
personnel is intense and there can be no assurance that the Company can retain
its existing sales personnel and attract, assimilate and retain qualified
personnel in the future. There is also intense competition for qualified
distributors and there can be no assurance that the Company can attract and
retain qualified distributors. If the Company is unable to hire such employees
and recruit such distributors on a timely basis, the Company's business,
operating results and financial condition could be materially and adversely
affected.
RESEARCH AND DEVELOPMENT
The Company has made a substantial investment in product development during
the last several years. The Company's growth and future financial performance
will depend in part upon its ability to enhance existing applications, develop
and introduce new applications that keep pace with technological advances,
meet changing customer requirements, respond to competitive products and
achieve market acceptance. As of September 30, 1996, there were 34 full time
employees on the Company's product development staff. The Company's research
and development expenditures in 1995 and for the nine months ended September
30, 1996 were $1.7 million and $2.4 million, respectively, and represented 26%
and 13% of revenues in these periods, respectively. The Company expects that
it will continue to commit substantial resources to product development in the
future. To date, the Company's development efforts have not resulted in any
capitalized software development costs.
The Company works closely with its customers and prospects to determine
their requirements and to design enhancements and new products to meet their
needs. The Company's current development initiatives include feature and
function enhancement of existing products, the development of new
complementary products and the development of integrated packages of its
products tailored to the requirements of certain market segments. The Company
plans to enhance its current product line, including new Internet/Intranet
capabilities as well as support for additional hardware and relational
database platforms.
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The client/server and Internet application software market is subject to
rapid technological change, changing customer needs, frequent new product
introductions and evolving industry standards that may render existing
products and services obsolete. As a result, the Company's position in its
existing markets or other markets that it may enter could be eroded rapidly by
product advancements. The life cycles of the Company's products are difficult
to estimate. The Company's product development efforts are expected to
require, from time to time, substantial investments by the Company in product
development and testing. There can be no assurance that the Company will have
sufficient resources to make the necessary investments. The Company has in the
past experienced development delays, and there can be no assurance that the
Company will not experience delays in the future. There can be no assurance
that the Company will be successful in developing and marketing enhancements
to its products that respond to technological developments, evolving industry
standards or changing customer requirements, or that the Company will not
experience difficulties that could delay or prevent the successful
development, introduction and sale of such enhancements or that such
enhancements will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. If release dates of any
future product enhancements or new products are delayed or if these products
or enhancements fail to achieve market acceptance when released, the Company's
business, operating results and financial condition could be materially and
adversely affected.
Software products as complex as those offered by the Company frequently
contain errors or failures, especially when first introduced or when new
versions are released. Although the Company conducts extensive product testing
during product development, the Company has at times been forced to delay
commercial release of software until problems were corrected and, in some
cases, has provided enhancements to correct errors in released software. The
Company could, in the future, lose revenues as a result of software errors or
defects. There can be no assurance that, despite testing by the Company and by
current and potential customers, errors will not be found in software or
releases after commencement of commercial shipments, resulting in loss or
delay of revenue or delay in market acceptance, diversion of development
resources, damage to the Company's reputation, or increased service and
warranty costs, any of which could have a material adverse effect upon the
Company's business, operating results and financial condition.
CONSULTING SERVICES, TRAINING AND SUPPORT
The Company provides an extensive array of services to its customers,
including business consulting, requirements definition, installation,
consulting, training and customer support. The Company has developed a
comprehensive methodology for rapid implementation of its sales and marketing
applications. This methodology is used by its own consulting organization and
is also available for license by its systems integration partners. Systems
integration partners include Cambridge Technology Partners, Deloitte & Touche
LLP, Ernst & Young LLP, IBM, KPMG Peat Marwick LLP and Technology Solutions
Corporation. As of September 30, 1996, the Company employed 70 full time
employees in its consulting services, training and customer support
organization. The Company provides the following services:
Consulting Services. The Company provides a comprehensive range of
professional services for its customers including business consulting, project
management, requirements definition, installation and implementation,
consulting, and roll out and deployment. The Company maintains a large
consulting services staff with extensive experience in the implementation and
deployment of complex client/server and Internet/Intranet applications.
Consulting services are based on a time and materials basis and are charged
separately from the software license and maintenance agreement.
The Company has an active certification program in place for training and
supporting large systems integration partners. The Company expects that over
time, the large systems integrators will perform more of the consulting
associated with the implementation of the Company's products as they complete
more engagements and increase the number of experienced consultants that have
been trained and certified on the Company's technology.
40
<PAGE>
Support. The Company's customer service organization provides post-sales
support, including information and assistance on installation, operation and
administration of the Company's products. The Company offers telephone support
during business hours and 24-hour on-call support. Initial product license
fees do not cover software maintenance. Customers are entitled to receive
software updates, maintenance releases and technical support for an annual
license fee which is a percentage of the Company's list price for the software
licenses.
Training. The Company offers comprehensive end user and technical training
programs for its customers and partners. The Company also offers customized
training courses to meet the specific needs of its customers. Fees are based
on a per class basis, per student basis or on a train the trainer basis. The
Company offers training at customer sites as well as at its offices in Santa
Clara, California. In addition, customers may choose to receive training from
selected systems integration partners.
COMPETITION
The market for the Company's client/server applications is highly
competitive, fragmented and subject to rapid technological change and frequent
new product introductions and enhancements. The Company has a large number of
competitors which range from internally developed custom application
development efforts to packaged application vendors. The Company offers a
suite of applications which can be used as part of an integrated customer
management application suite or can be used on a stand- alone basis. The
Company competes with packaged application vendors that provide tactical
departmental solutions in specific market segments as well as with competitors
that provide a broader suite of integrated customer management applications.
Many of these competitors have longer operating histories, significantly
greater financial, technical, product development, marketing and other
resources, greater name recognition or a larger installed base of customers
than the Company. As a result, these competitors may be able to respond more
quickly to new or emerging technologies and to changes in customer
requirements or to devote greater resources to the development, promotion and
sale of their products than can the Company.
The Company's principal competitors in the sales force automation market
include Brock Control Systems, Inc., Metropolis Software, Inc. (recently
acquired by Clarify Inc.), SalesBook Systems, SalesKit Software Corporation,
SaleSoft, Inc., Saratoga Systems, Inc. and Siebel Systems, Inc. The Company
also depends for the marketing and implementation of its products upon a
number of third party systems integrators, including Cambridge Technology
Partners, Deloitte & Touche LLP, Ernst & Young LLP, IBM and KPMG Peat Marwick
LLP. Many of these firms also have established relationships with the
Company's competitors. There can be no assurance that these third parties,
many of which have significantly greater financial resources than the Company,
will not in the future compete directly with the Company or otherwise
discontinue their support of the Company's products. The Company also faces
competition from customer support application vendors which are attempting to
expand from their customer support market into the sales automation area
either through internal product development or through acquisitions. These
customer support competitors include Astea International, Inc., Clarify Inc.,
Scopus Technology, Inc. and The Vantive Corporation. Over time, the Company
expects large enterprise software vendors such as Oracle Corporation and SAP
AG to extend their enterprise application suites by offering sales force
automation, telemarketing and customer support, with the appropriate
integration to leading financial, order entry and manufacturing applications.
In addition, because the barriers to entry in the software market are
relatively low, additional competitors may emerge as the sales and marketing
software market continues to develop and expand. It is also possible that
acquisitions of competitors by large software companies or alliances among
competitors could occur. The Company expects that significant consolidation in
its industry will occur over the next few years and increased competition from
new entrants or through strategic acquisitions or alliances could result in
price erosion, reduced gross margins or loss of market share, any of which
could have a material adverse effect on the Company's business, operating
results and financial condition.
41
<PAGE>
The Company believes that it competes favorably in its marketplace based
upon its breadth and depth of application functionality, its architecture and
database synchronization technology, the scalability of its technology to
handle thousands of users on a global basis, its Internet and Intranet
capabilities, the ease of adapting its applications with its object-oriented
rapid application development tools and its ability to get large customers
into production quickly through its own consulting services organization as
well as through its partnerships with large systems integrators. Although the
Company believes that it currently competes favorably with respect to such
factors, there can be no assurance that the Company will be able to compete
successfully against current and future competitors, especially those with
greater financial, marketing, service, support, technical and other resources
than the Company, or that competitive pressures will not materially and
adversely affect the Company's business, operating results and financial
condition.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. The Company submitted a patent
application for its dbSync technology in August 1996, and such application is
still pending. There can be no assurance that any patent covering the
Company's inventions will issue or that any patent, if issued, will provide
sufficiently broad protection or will prove enforceable in actions against
alleged infringers. Despite precautions taken by the Company, it may be
possible for unauthorized third parties to copy aspects of its products or
future products or to obtain and use information that the Company regards as
proprietary. In particular, the Company provides its licensees with access to
its data model and other proprietary information underlying its licensed
applications. The Company makes source code available for certain of the
Company's products and occasionally enters into source code escrow agreements
with certain customers for the balance of the source code. There can be no
assurance that the Company's means of protecting its proprietary rights will
be adequate or that the Company's competitors will not independently develop
similar or superior technology or design around any patents owned by the
Company. Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition.
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 to the same extent as do the laws of the United States. The
Company is not aware that any of its product offerings infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to
current or future products. The Company expects that software product
developers will increasingly be subject to infringement claims as the number
of products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company also relies on certain technology which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's products to perform key business functions.
Among the principal developers of these licensed technologies are Business
Objects, Inc., which licenses an On-Line Analytical Processing ("OLAP") tool
that enables the analysis of sales and customer data at both the server and
client sites of a user's network; Centura
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Corporation, which licenses a SQL-based laptop database that is used
principally in the Company's SalesTrak product; and First Floor Software,
Inc., which licenses an intelligent agent that monitors changes in sales and
customer data accessed through the World Wide Web. The Company's license
agreements with these developers are for a specified term, and there is no
assurance that any of these agreements will be renewed following expiration.
The loss or the inability of the Company to maintain any of these technology
licenses could result in delays or reductions in product shipments until
equivalent technology could be identified, licensed and integrated. Any such
delays or reductions in product shipments could materially and adversely
affect the Company's business, operating results and financial condition.
EMPLOYEES
As of September 30, 1996, the Company had a total of 169 full time
employees, all of whom are based in the United States. Of the total, 52 were
engaged in sales and marketing, 70 in consulting services, training and
support, 34 in engineering and 13 in administration and finance. The Company's
future performance depends in significant part on its ability to identify,
attract and retain highly qualified technical, sales and management personnel.
Competition for such personnel is intense and there can be no assurance that
the Company will be able to identify, attract and retain such personnel in the
future. None of the Company's employees is represented by a labor union. The
Company has not experienced any work stoppages and considers its relations
with its employees to be good.
FACILITIES
The Company's principal administrative, sales, marketing, support and
research and development functions are located at its leased headquarters
facility in Santa Clara, California. The Company currently occupies 18,000
square feet of space in the Santa Clara facility and the lease extends through
March 1997, with an option to extend the lease through July 1997. The Company
anticipates that it will be necessary to obtain a larger facility upon the
termination of its headquarters lease but believes that suitable additional or
substitute facilities will be available in the future as needed on
commercially reasonable terms. The Company also leases domestic sales and
support offices in the metropolitan areas of Atlanta, Chicago, Dallas and
Seattle and in Salem, New Hampshire. The Company intends to add additional
sales offices as necessary.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The directors and executive officers and certain key employees of the
Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mary E. Coleman...................... 42 President, Chief Executive Officer and
Director
David D. Buchanan.................... 43 Executive Vice President and Director
Susan K. Buchanan.................... 44 Executive Vice President
Timothy E. Campbell.................. 35 Vice President, Client Services
Christopher L. Dier.................. 44 Chief Financial Officer and Secretary
Charles J. Donchess.................. 43 Vice President, Marketing
Tuoc V. Luong........................ 35 Vice President, Engineering
James W. Thanos...................... 48 Vice President, Worldwide Operations
Oliver D. Curme(1)................... 42 Director
Mark J. Leslie....................... 50 Director
Robert J. Loarie(1).................. 53 Director
Robert M. Obuch(2)................... 51 Director
Jeffrey T. Webber.................... 43 Director
Charles C. Wu(2)..................... 36 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Ms. Coleman has served as the Company's President and Chief Executive
Officer and as a Director since November 1994. From May 1993 to November 1994,
Ms. Coleman served as the Company's Vice President of Marketing and from
January 1994 to September 1994 as Vice President of Engineering. From March
1992 until April 1993, she served as Vice President of Marketing for Radius,
Inc., a manufacturer of peripherals for Apple Macintosh computers. From
October 1990 until March 1992, Ms. Coleman was Vice President of Marketing at
McData Corporation, a data center network switch supplier. Ms. Coleman studied
computer science at the University of Colorado.
Mr. Buchanan, a co-founder of the Company, is a chief architect of the
Company's products and was primary developer of the Company's original product
line. He has served as Executive Vice President and as a Director of the
Company since January 1993. From January 1992 until January 1993, Mr. Buchanan
served as Chairman of the Company's Board of Directors. From 1978 until 1984,
Mr. Buchanan served in various technical, sales and management positions at
Cincom Systems, Inc., a supplier of relational database and Fourth Generation
Language (4GL) technology. From 1984 until founding the Company in 1991, Mr.
Buchanan served in various management positions at Ungerman-Bass Networks,
Inc. and Proteon, Inc., both networking companies. Mr. Buchanan holds a B.A.
in Math and Computer Science from Principia College and an M.B.A. and an M.S.
in Management Information Science from the University of Arizona. Mr. Buchanan
is married to Susan K. Buchanan, an Executive Vice President of the Company.
Ms. Buchanan, a co-founder of the Company, has served as Executive Vice
President since January 1993. From January 1992 until January 1993, she served
as a director of the Company and from January 1992 until June 1992 as the
Company's Chief Financial Officer and Secretary. From October 1986 until
October 1991, she served as a district sales manager for Unify Corporation, a
supplier of application development products for client/server environments.
Prior to 1986, Ms. Buchanan served as a regional systems engineer at Data
General Corporation, a provider of servers, storage products and services for
information systems, and at the Hewlett-Packard Company, a diversified
electronics manufacturer. Ms. Buchanan holds a B.A. in speech therapy and an
M.S. in computer science from Kansas State University. Ms. Buchanan is married
to David D. Buchanan, an Executive Vice President and Director of the Company.
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Mr. Campbell has served as the Company's Vice President of Client Services
since September 1995. From January 1988 to September 1995, Mr. Campbell served
in engineering, consulting and management roles at Electronic Data Systems
Corporation, a provider of information services. Mr. Campbell holds degrees in
Electrical Engineering from Conestoga College of Applied Arts and Technology.
Mr. Dier has served as the Company's Chief Financial Officer and Secretary
since July 1996. From 1990 to July 1996, Mr. Dier served as Chief Financial
Officer of Veritas Software Corporation, a storage management software
company. From 1982 to 1989, Mr. Dier served as Vice President of Finance and
Chief Financial Officer of Tolerant Systems, Inc., a fault tolerant computer
company. From 1974 to 1982, Mr. Dier held various financial positions at Intel
Corporation, a semiconductor company. Mr. Dier holds a B.S. in Humanities and
an M.B.A. from Santa Clara University.
Mr. Donchess has served as the Company's Vice President of Marketing and
Business Development since May 1995. From September 1989 to December 1994, Mr.
Donchess served in various capacities, including Vice President of Business
Development, at Sybase, Inc., a relational database software company. Mr.
Donchess holds a B.A. in English and American Literature from Brown
University.
Mr. Luong has served as the Company's Vice President of Engineering since
January 1996. From March 1992 to January 1996, Mr. Luong served as a Vice
President of Borland International Inc., a manufacturer of systems and
applications software products, where he was responsible for development of
Borland's Delphi client/server software product line. From February 1990 to
February 1992, Mr. Luong served as Director of Advanced Technology at Pyramid
Technology Corp., a manufacturer of open systems servers. From 1983 to 1990,
Mr. Luong served in several research and development management positions at
Informix Software, Inc. and Oracle Corporation, relational database software
companies. Mr. Luong holds a B.S. in Computer Science from the University of
California at Berkeley and an M.S. in Engineering Management from Santa Clara
University.
Mr. Thanos has served as the Company's Vice President of Worldwide
Operations since January 1995. From May 1994 to December 1994, Mr. Thanos
served as Vice President of Sales for Digital Tools, Inc., a provider of
project management software. From January 1993 to April 1994, Mr. Thanos
served as Vice President of Sales for Harvest Software, Inc., a facsimile
forms company. From December 1988 to January 1993, Mr. Thanos served as Vice
President of Worldwide Operations at Metaphor Computer Systems, Inc., a
provider of decision support software. From 1987 to 1988, Mr. Thanos served as
Vice President of International Operations at Informix Software, Inc., a
relational database software company. Mr. Thanos holds a B.S. in International
Studies and behavioral sciences from The Johns Hopkins University.
Mr. Curme has served as a Director of the Company since January 1993. Mr.
Curme has been a general partner with Battery Ventures, a venture capital
investment firm, since January 1988. Mr. Curme also serves as a director and
member of the compensation committees of HNC Software Inc. and Infoseek
Corporation. Mr. Curme holds a B.S. in Biochemistry from Brown University and
an M.B.A. from the Harvard University Graduate School of Business.
Mr. Leslie has served as a Director of the Company since April 1996. Mr.
Leslie has served as President and Chief Executive Officer of Veritas Software
Corporation, a storage management software company, since February 1990. Mr.
Leslie also serves as a director of Veritas Software Corporation, as a
director and member of the compensation committee of Worldtalk Communications
Corporation and as chairman and a member of the compensation committee of
Versant Object Technology Corporation. Mr. Leslie holds a B.A. in Physics and
Mathematics from New York University and attended the Program for Management
Development at the Harvard University Graduate School of Business.
Mr. Loarie has served as a Director of the Company since March 1994. Since
August 1992, Mr. Loarie has been a Principal of Morgan Stanley & Co.
Incorporated, a diversified investment firm, and a general partner of Morgan
Stanley Venture Partners, L.P. and Morgan Stanley Venture Partners II, L.P.,
venture capital investment partnerships. From 1981 until August 1992, Mr.
Loarie served as a general partner of several venture capital partnerships
affiliated with Weiss, Peck & Greer, an investment management firm.
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<PAGE>
Mr. Loarie also serves as a director of Adaptec, Inc. and TelCom
Semiconductor, Inc. Mr. Loarie holds a B.S. in Electrical Engineering from the
Illinois Institute of Technology and an M.B.A. from the Harvard University
Graduate School of Business.
Mr. Obuch has served as a Director of the Company since August 1995. Mr.
Obuch has been a Principal of BankAmerica Ventures, a venture capital
investment affiliate of BankAmerica Corporation, since August 1994. From April
1994 to August 1994, Mr. Obuch worked as an independent management consultant.
From May 1992 to April 1994, Mr. Obuch served as President and Chief Executive
Officer of Computerized Lodging Systems, Inc., a hotel reservation and
registration software company. From August 1990 to May 1992, Mr. Obuch worked
as an independent management consultant. Mr. Obuch holds a B.S. in Accounting
from Seton Hall University.
Mr. Webber has served as a Director of the Company since April 1996. Since
January 1991, Mr. Webber has served as President of R.B. Webber & Company,
Inc., a management consulting firm. Mr. Webber was a partner with the
management consulting firm Edgar, Dunn & Company from 1987 to 1991. Mr. Webber
also serves as a director of Sybase, Inc. Mr. Webber holds a B.A. in American
Studies from Yale University.
Mr. Wu has served as a Director of the Company since January 1993. Mr. Wu
has been Vice President of Vertex Management, Inc., a venture capital
investment firm, since February 1991. Mr. Wu holds an S.B. in Computer Science
and Engineering from the Massachusetts Institute of Technology and an M.B.A.
from the Stanford University Graduate School of Business.
DIRECTOR COMPENSATION
The Company reimburses each member of the Company's Board of Directors for
out-of-pocket expenses incurred in connection with attending Board meetings.
No member of the Company's Board of Directors currently receives any
additional cash compensation. At the time Mr. Leslie and Mr. Webber became
members of the Board of Directors, the Company granted each of them an option
to acquire 18,750 shares of the Company's Common Stock under the Company's
1995 Stock Plan, subject to monthly vesting over four years. See "Stock
Plans--1995 Stock Plan." The Company's 1996 Director Option Plan (the
"Director Plan") provides that options will be granted to non-employee
directors of the Company pursuant to an automatic nondiscretionary grant
mechanism. Upon joining the Board of Directors, each new non-employee director
will automatically be granted an option to purchase 18,750 shares of Common
Stock. Each non-employee director will subsequently be granted an option to
purchase 18,750 shares of Common Stock at each annual meeting of stockholders
beginning with the 1997 Annual Meeting of Stockholders. Each such option will
be granted at the fair market value of the Common Stock on the date of grant.
Options granted to non-employee directors under the Director Plan will become
exercisable at a rate of 1/48th of the shares subject to such options on the
monthly anniversary of the date of grant. See "Stock Plans--1996 Director
Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee consists of directors Robert J.
Loarie and Oliver D. Curme. Mary E. Coleman, President, Chief Executive
Officer and director of the Company, participates in all discussions and
decisions regarding salaries and incentive compensation for all employees and
consultants of the Company, except that she is excluded from discussions
regarding her own salary and incentive compensation. No interlocking
relationship exists between any member of the Company's Compensation Committee
and any member of any other company's board of directors or compensation
committee.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation awarded to, earned by, or paid for services rendered to the
Company in all capacities during the fiscal year ended December 31, 1995 by
(i) the Company's Chief Executive Officer and (ii) the Company's next five
most highly compensated executive officers whose salary and bonus for such
fiscal year exceeded $100,000 and who served as an executive officer of the
Company during such fiscal year (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------------
ANNUAL COMPENSATION(1)
------------------------ SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS (#)
--------------------------- ----------- ----------- ---------------------
<S> <C> <C> <C>
Mary E. Coleman........... $ 174,996 $ 47,665(2) 309,468
President and Chief
Executive Officer
Prabhat K. Andleigh(3).... 123,460 9,838 61,894
Vice President,
Engineering
Susan K. Buchanan......... 96,000 219,379(4) 174,091
Executive Vice President
Charles J. Donchess(5).... 94,052 24,973(6) 92,841
Vice President, Marketing
James W. Thanos........... 130,000 98,693(7) 123,788
Vice President, Worldwide
Operations
Brigitte U. Wilson(8)..... 89,426 20,385(9) 30,948
Director of Finance and
Administration
</TABLE>
- --------
(1) Other than salary and bonus described herein, the Company did not pay the
persons named in the Summary Compensation Table any compensation in excess
of 10% of such executive officer's salary and bonus.
(2) Includes $10,625 of bonus compensation earned in 1995 but paid in 1996.
(3) Mr. Andleigh resigned from the Company effective September 1, 1995.
(4) Consists entirely of sales commissions of which $32,911 was earned in 1995
but paid in 1996.
(5) Reflects compensation for a partial year. Mr. Donchess joined the Company
effective May 22, 1995.
(6) Includes $15,859 of bonus compensation earned in 1995 but paid in 1996.
(7) Includes $22,500 of bonus compensation earned in 1995 but paid in 1996.
(8) Ms. Wilson served as the Company's Director of Finance and Administration
and Chief Financial Officer from April 1994 until July 1996. In July 1996,
Christopher L. Dier became Vice President of Finance and Chief Financial
Officer. Ms. Wilson continues to serve as the Company's Director of
Finance and Administration.
(9) Includes $4,309 of bonus compensation earned in 1995 but paid in 1996.
47
<PAGE>
STOCK OPTION GRANTS
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the fiscal year ended December
31, 1995. All such options were awarded under the Company's 1995 Stock Plan.
OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTIONS TERM(1)
--------------------------------------------- ---------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE VESTING
UNDERLYING GRANTED TO PRICE PER COMMENCE-
OPTIONS EMPLOYEES IN SHARE EXPIRATION MENT
NAME GRANTED FISCAL 1995 (2)(3) DATE(4) DATE(4) 5% 10%
---- ---------- ------------- --------- ---------- --------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mary E. Coleman......... 45,462 3.66% $0.12 6/15/05 05/26/93 $ 3,431 $ 8,694
2,713 * $0.12 6/15/05 12/07/93 $ 205 $ 519
3,789 * $0.12 6/15/05 01/27/94 $ 286 $ 724
42,749 3.44% $0.12 6/15/05 02/22/94 $ 3,226 $ 8,176
68,750 5.63% $0.12 6/15/05 11/23/94(6) $ 5,188 $ 13,148
146,006 11.76% $0.12 6/15/05 11/23/94(6) $ 11,019 $ 27,923
Prabhat K. Andleigh(5).. 28,414 2.29% $0.12 6/15/05 08/29/94 $ 2,144 $ 5,434
33,480 2.69% $0.12 6/15/05 12/23/94(6) $ 2,527 $ 6,403
Susan K. Buchanan....... 174,091 14.01% $0.12 6/15/05 ** (6) $ 13,138 $ 33,295
Charles J. Donchess..... 92,841 7.47% $0.12 6/15/05 05/22/95(6) $ 7,006 $ 17,756
James W. Thanos......... 123,788 9.96% $0.12 6/15/05 01/16/95(6) $ 9,342 $ 23,674
Brigitte U. Wilson...... 16,740 1.35% $0.12 6/15/05 12/23/94(6) $ 1,263 $ 3,202
3,789 * $0.12 6/15/05 01/20/93 $ 286 $ 725
10,419 * $0.12 6/15/05 04/01/94 $ 786 $ 1,992
</TABLE>
- --------
* Less than 1%.
** All shares were fully vested as of the date of grant.
(1) Potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the ten year
option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth.
(2) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock, as determined by the Board of Directors, on
the date of grant.
(3) Exercise price may be paid in cash, check, promissory note, by delivery of
already-owned shares of the Company's Common Stock subject to certain
conditions, or pursuant to a cashless exercise procedure under which the
optionee provides irrevocable instructions to a brokerage firm to sell the
purchased shares and to remit to the Company, out of the sale proceeds, an
amount equal to the exercise price plus all applicable withholding taxes.
(4) All options were granted on June 15, 1995. Except as otherwise indicated,
such options were issued in an option repricing and exchange program
whereby holders of outstanding options were offered an opportunity to
exchange outstanding options for new options under the Company's 1995
Stock Plan at an exercise price of $0.12 per share. All then-outstanding
options had exercise prices in excess of $0.12 per share, which the Board
of Directors of the Company had determined to be the fair market value of
the Company's Common Stock as of June 15, 1995. New options received under
the 1995 Stock Plan contained vesting provisions identical to the options
being exchanged such that each optionee was deemed vested in the new
option as of the date of grant to the same proportionate extent such
optionee was vested in the option being exchanged. Twenty-five percent
(25%) of the shares issuable upon exercise of options granted under the
Company's 1995 Stock Plan become vested on the first anniversary of the
date of grant (or, in the case of options granted in connection with such
option repricing, the first anniversary of the vesting commencement date
indicated) and
48
<PAGE>
vest at the rate of 1/48th of such shares for each month thereafter. Options
may be exercised prior to full vesting, subject to the optionee's entering a
restricted stock purchase agreement with the Company with respect to any
unvested shares. Under such agreement, the optionee grants the Company an
option to repurchase any unvested shares at their original purchase price in
the event the optionee's employment or consulting relationship with the
Company should terminate.
(5) Mr. Andleigh resigned from the Company effective September 1, 1995. Under
the terms of his option agreements, Mr. Andleigh had three months from the
date of termination of employment to exercise his options with respect to
any vested shares. Mr. Andleigh exercised his options with respect to 5,683
vested shares on November 1, 1995. Outstanding options held by Mr. Andleigh
terminated with respect to all unvested shares on the effective date of Mr.
Andleigh's resignation.
(6) Option grant was a new grant and not part of the option exchange program
described in footnote 4.
AGGREGATE OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the exercise of
stock options by the Named Executive Officers during the fiscal year ended
December 31, 1995 and stock options held as of December 31, 1995 by the Named
Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1995(#)(2) DECEMBER 31, 1995(1)(2)
ON VALUE -------------------------- -------------------------
NAME EXERCISE (#) REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mary E. Coleman(3)...... 45,462 $ 449,165 -- -- -- --
2,713 26,804 -- -- -- --
3,789 37,435 -- -- -- --
42,749 422,360 -- -- -- --
68,750 679,250 -- -- -- --
146,006 1,442,539 -- -- -- --
Prabhat K. Andleigh(4).. 5,683(4) 56,148 -- -- -- --
Susan K. Buchanan....... -- -- 174,091(5) -- 1,720,019 --
Charles J. Donchess..... -- -- 92,841(6) -- 917,269 --
James W. Thanos......... -- -- 123,788(7) -- 1,223,025 --
Brigitte U. Wilson...... -- -- 30,948(8) -- 305,766 --
</TABLE>
- --------
(1) Based upon an assumed initial public offering price of $10.00, minus the
exercise price.
(2) Options granted under the Company's 1995 Stock Plan (as in effect prior to
the effectiveness of the registration statement covering this offering) may
be exercised immediately upon grant and prior to full vesting, subject to
the optionee's entering a restricted stock purchase agreement with the
Company with respect to any unvested shares. Under such agreement, the
optionee grants the Company an option to repurchase any unvested shares at
their original purchase price in the event the optionee's employment or
consulting relationship with the Company should terminate. The 1995 Stock
Plan will be amended in connection with this offering such that future
grants will not include an early exercise provision.
(3) As of December 31, 1995, Ms. Coleman held no outstanding options and had
acquired an aggregate of 309,469 shares upon exercise of previous option
grants, of which 199,177 shares remained as of such date subject to the
Company's repurchase option as described in footnote 2 above.
(4) Mr. Andleigh resigned from the Company effective September 1, 1995. Under
the term of his option agreements, Mr. Andleigh had three months from the
date of termination of employment to exercise vested options. Mr. Andleigh
exercised his options with respect to 5,683 vested shares on
49
<PAGE>
November 30, 1995. Outstanding options held by Mr. Andleigh terminated with
respect to all unvested shares on the date of Mr. Andleigh's resignation.
(5) Ms. Buchanan's option was fully vested at the time of grant.
(6) As of December 31, 1995, 92,841 shares remained unvested.
(7) As of December 31, 1995, 123,788 shares remained unvested.
(8) As of December 31, 1995, 19,658 shares remained unvested.
STOCK PLANS
1995 Stock Plan. The Company's 1995 Stock Plan (the "1995 Plan") was
originally adopted by the Board of Directors and approved by the Company's
stockholders in 1995. In connection with the adoption of the 1995 Plan, the
Company terminated its 1993 Stock Option Plan (the "1993 Plan"), and all
holders of outstanding options under the 1993 Plan exchanged such options for
new options under the 1995 Plan. Prior to the termination of the 1993 Plan,
297 shares of Common Stock had been issued upon exercise of options
outstanding thereunder. A total of 2,235,950 shares of Common Stock was
reserved for issuance under the 1995 Plan as of September 30, 1996, including
an increase of 2,214,000 shares in the number of shares reserved for issuance
approved by the Board of Directors and stockholders in September 1996 to be
effective upon the completion of this offering. The 1995 Plan provides for
grants of incentive stock options to employees (including officers and
employee directors) and nonstatutory stock options to employees (including
officers and employee directors) and consultants of the Company. The purpose
of the 1995 Plan is to enable the Company to attract and retain the best
available personnel and to encourage stock ownership by employees, officers,
and consultants of the Company so as to give them a greater personal stake in
the success of the Company. The 1995 Plan is administered by the Board of
Directors or by a committee appointed by the Board which identifies optionees
and determines the terms of options granted, including the exercise price, the
number of shares subject to the option and the exercisability thereof.
The terms of options granted under the 1995 Plan generally may not exceed
ten years. The term of all incentive stock options granted to an optionee who,
at the time of grant, owns stock representing more than 10% of the voting
power of all classes of stock of the Company or a parent or subsidiary of the
Company (a "Ten Percent Stockholder"), may not exceed five years, however.
Generally, options granted under the 1995 Plan vest and become exercisable
starting one year after the date of grant, with 25% of the shares subject to
the option becoming exercisable at that time and an additional 1/48th of such
shares becoming exercisable each month thereafter. The exercise price of
incentive stock options granted under the 1995 Plan must be at least equal to
the fair market value of the shares on the date of grant. The exercise price
of nonstatutory stock options granted under the 1995 Plan is determined by the
Board of Directors. The exercise price of any incentive stock option granted
to a Ten Percent Stockholder must equal at least 110% of the fair market value
of the Common Stock on the date of grant. The consideration for exercising any
incentive stock option or any nonstatutory stock option is determined by the
Board of Directors and may consist of cash, check, promissory note, delivery
of already-owned shares of the Company's Common Stock subject to certain
conditions, delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, a
reduction in the amount of any Company liability to an optionee, or any
combination of the foregoing methods of payment or such other consideration or
method of payment to the extent permitted under applicable law. To the extent
incentive stock options granted to a participant, when aggregated with all
other incentive stock options granted to such participant, have an aggregate
fair market value in excess of $100,000 first becoming exercisable in any
calendar year, such options would be treated as nonstatutory stock options.
No option granted under the 1995 Plan may be transferred by the optionee
other than by will or the laws of descent or distribution, and each option may
be exercised, during the lifetime of the optionee, only by such optionee. An
optionee whose relationship with the Company or any related corporation ceases
for any reason (other than death or permanent and total disability) may
exercise options in the
50
<PAGE>
three-month period following such cessation (unless such options terminate or
expire sooner by their terms) or in such longer period as determined by the
Board of Directors. In the event of a proposed sale of all or substantially
all of the Company's assets or merger of the Company with or into another
corporation, either all outstanding options may be assumed or an equivalent
option may be substituted by the surviving entity. If such options are not
assumed or substituted, the Board of Directors has discretion either to permit
each optionee to exercise options as to all of the shares subject to the
option agreement, including shares as to which such options would not
otherwise be exercisable or to cause the termination of all exercisable
options that have not been exercised prior to the completion of such asset
sale or merger.
As of September 30, 1996, 1,499,264 shares of Common Stock had been issued
upon exercise of options outstanding under the 1995 Plan, of which 678,534
shares were fully vested. Options to purchase 584,481 shares of Common Stock
at a weighted average exercise price of $3.02 were also outstanding, of which
62,427 shares were fully vested.
1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
September 1996 and approved by the stockholders in September 1996. A total of
300,000 shares of Common Stock has been reserved for issuance under the
Purchase Plan. The Purchase Plan, which is intended to qualify under Section
423 of the Internal Revenue Code of 1986, as amended, is administered by the
Board of Directors or by a committee appointed by the Board. Employees
(including officers and employee directors of the Company but excluding 5% or
greater stockholders) are eligible to participate if they are customarily
employed for at least 20 hours per week and for more than five months in any
calendar year. The Purchase Plan permits eligible employees to purchase Common
Stock through payroll deductions, which may not exceed 15% of an employee's
compensation. The Purchase Plan will be implemented in a series of overlapping
twenty-four month offering periods. The initial offering period under the
Purchase Plan will begin on the effective date of this offering and subsequent
offering periods will begin on the first trading day on or after May 1 and
November 1 of each year. Each participant will be granted an option on the
first day of the offering period, and such option will be automatically
exercised on the last date of each purchase within the offering period. If the
fair market value of the Common Stock on any purchase date (other than the
final purchase date of the offering period) is lower than such fair market
value on the start date of that offering period, then all participants in that
offering period will be automatically withdrawn from such offering period and
re-enrolled in the immediately following offering period. The purchase price
of the Common Stock under the Purchase Plan will be equal to 85% of the lesser
of the fair market value per share of Common Stock on the start date of the
offering period or on the date on which the option is exercised. Employees may
end their participation in an offering period at any time during that period,
and participation ends automatically on termination of employment with the
Company. In the event of a proposed dissolution or liquidation of the Company,
the offering periods terminate immediately prior to the consummation of the
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the Company's assets or the
merger of the Company with or into another corporation, then the offering
period in progress will be shortened by setting a new exercise date that is
before the sale or merger and the offering period in progress shall end on the
new exercise date. Each participant shall be notified at least ten business
days prior to the new exercise date, and unless such participant ends his or
her participation, the option will be exercised automatically on the new
exercise date. The Purchase Plan will terminate in March 2006, unless sooner
terminated by the Board of Directors.
1996 Director Option Plan. The Company's 1996 Director Option Plan (the
"Director Plan") was adopted by the Board of Directors in September 1996 and
approved by the stockholders in September 1996. A total of 150,000 shares of
Common Stock has been reserved for issuance under the Director Plan. The
option grants under the Director Plan are automatic and non-discretionary, and
the exercise price of the options is 100% of the fair market value of the
Common Stock on the grant date. The Director Plan provides for an automatic
grant of options to purchase 18,750 shares of Common Stock to each non-
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<PAGE>
employee director of the Company (an "Outside Director") at the first meeting
of the Board of Directors following the annual meeting of stockholders in each
year beginning with the 1997 Annual Meeting of Stockholders, if on such date,
such Outside Director has served on the Board of Directors for at least six
months. The term of such options is ten years. Options granted to Outside
Directors under the Director Plan become exercisable at a rate of 1/48th of
the shares on the monthly anniversary of the date of grant, subject to the
Outside Director's continuous service on the Board of Directors. In the event
of the sale of all or substantially all the Company's assets or the merger of
the Company with or into another corporation, all outstanding options may
either be assumed or an equivalent option may be substituted by the surviving
entity or, if such options are not assumed or substituted, such options shall
become exercisable as to all of the shares subject to the options, including
shares as to which they would not otherwise be exercisable. In the event that
options become exercisable in lieu of assumption or substitution, the Board of
Directors shall notify optionees that all options shall be fully exercisable
for a period of 30 days, after which such options shall terminate. The
Director Plan will terminate in 2006 unless sooner terminated by the Board of
Directors.
401(k) Plan. The Company participates in a tax-qualified employee savings
and retirement plan (the "401(k) Plan") which covers all of the Company's
full-time employees who are at least 21 years of age. Pursuant to the 401(k)
Plan, employees may elect to reduce their current compensation by up to the
lower of 20% or the statutorily prescribed annual limit and have the amount of
such reduction contributed to the 401(k) Plan. The 401(k) Plan permits
additional discretionary matching contributions by the Company on behalf of
all participants in the 401(k) Plan in such a percentage amount as may be
determined annually by the Board of Directors. To date, the Company has made
no such matching contributions. The 401(k) Plan is intended to qualify under
Section 401 of the Internal Revenue Code of 1986, as amended, so that
contributions by employees or by the Company to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn
from the 401(k) Plan, and so that contributions by the Company, if any, will
be deductible by the Company when made. The trustee under the 401(k) Plan, at
the direction of each participant, invests the assets of the 401(k) Plan in
any of a number of investment options.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company does not currently have any employment contracts in effect with
any of the Named Executive Officers other than Mary E. Coleman, the Company's
President and Chief Executive Officer, and Christopher L. Dier, the Company's
Vice President of Finance and Chief Financial Officer.
The Company and Ms. Coleman are parties to a letter agreement dated December
22, 1994 governing her employment with the Company. The agreement sets forth
Ms. Coleman's compensation level and eligibility for salary increases,
bonuses, benefits and option grants under the 1995 Plan. Pursuant to the
agreement, Ms. Coleman is entitled to receive, in the event of the merger of
the Company into another corporation resulting in a change of control or the
sale of all or substantially all the Company's assets, an amount equal to five
percent of the total sales price paid to the Company or its shareholders as a
result of such merger or asset sale reduced by the value of any consideration
Ms. Coleman receives as a stockholder of the Company as a result of such
merger or asset sale. Ms. Coleman's right to receive such amount in the event
of a merger of the Company will terminate upon the closing of this offering.
The agreement also provides for accelerated vesting of any unvested stock
options or shares in the event of a merger or asset sale. Ms. Coleman's
employment under the letter agreement is voluntary and may be terminated by
the Company or Ms. Coleman at any time with one month's prior written notice,
provided that the Company may terminate Ms. Coleman's employment for cause on
three days' written notice.
The Company and Mr. Dier are parties to a letter agreement dated July 8,
1996 governing Mr. Dier's employment with the Company. The agreement sets
forth Mr. Dier's compensation level and eligibility for salary increases,
bonuses, benefits and option grants under the 1995 Plan. The agreement
provides for
52
<PAGE>
an initial grant of an option under the 1995 Plan to acquire 91,474 shares of
Common Stock at an exercise price per share of $6.00 subject to vesting over
four years with the first 25% of such shares vesting on the first anniversary
of Mr. Dier's employment with the Company and the remaining shares vesting
ratably over the succeeding 36 months. In the event of a change of control of
the Company as a result of a merger or acquisition, the vesting of the initial
option grant will be accelerated with respect to 24 months of vesting if Mr.
Dier is not offered a comparable position in the surviving company. Mr. Dier's
employment under the agreement may be terminated at any time by either the
Company or Mr. Dier, with or without cause.
The Compensation Committee as Plan Administrator of the 1995 Plan will have
the authority to provide for the accelerated vesting of shares of Common Stock
subject to outstanding options held by any of the Named Executive Officers or
the shares of Common Stock subject to direct issuances held by such individual
in connection with certain changes in control of the Company. See "Stock
Plans--1995 Stock Plan."
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Certificate of Incorporation that
eliminate to the fullest extent permissible under Delaware law the liability
of its directors to the Company for monetary damages. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. The Company's Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
Delaware law, including in circumstances in which indemnification is otherwise
discretionary under Delaware law. The Company has entered into indemnification
agreements with its officers and directors containing provisions which may
require the Company, among other things, to indemnify the officers and
directors against certain liabilities that may arise by reason of their status
or service as directors or officers (other than liabilities arising from
willful misconduct of a culpable nature), and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified.
There is no currently pending litigation or proceeding involving a director,
officer, employee or other agent of the Company in which indemnification would
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
53
<PAGE>
CERTAIN TRANSACTIONS
Between January 1993 and March 1996, the Company sold and issued 23,265,529
shares of its Preferred Stock for an aggregate consideration of $18,994,001.
The Company sold the Preferred Stock in series as follows: (i) 4,411,765
shares of Series A Preferred Stock in January 1993 at a sale price of $0.85
per share; (ii) 4,782,408 shares of Series B Preferred Stock in December 1993
at a sale price of $1.08 per share; (iii) 5,000,000 shares of Series C
Preferred Stock in December 1994 at a sale price of $0.50 per share and
warrants to acquire 1,382,280 shares of Common Stock at a per share exercise
price of $0.004; (iv) 7,607,719 shares of Series D Preferred Stock in August
1995 at a sale price of $0.79 per share; (v) 100,000 shares of Series D
Preferred Stock in November 1995 at a sale price of $0.79 per share; and (vi)
1,363,637 shares of Series E Preferred Stock in March 1996 at a sale price of
$1.10 per share.
The following table summarizes purchases, valued in excess of $60,000, of
shares of Preferred Stock (and in connection with the warrants issued with the
Series C Preferred Stock, of shares of Common Stock issued upon exercise of
such warrants) by directors, executive offers and 5% shareholders of the
Company:
<TABLE>
<CAPTION>
SHARES
-----------------------------------------------------------
COMMON
SERIES A(1) SERIES B(2) SERIES C(3) WARRANTS(4) SERIES D(5)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Morgan Stanley Venture
Partners, L.P.(6)...... -- 3,240,741 2,413,796 716,153 1,265,823
Vertex Management,
Inc.(7)................ 1,470,588 694,444 1,200,000 319,575 1,265,823
Battery Ventures II,
L.P.(8)................ 1,764,706 555,556 1,177,790 294,448 1,265,823
Bank America
Ventures(9)............ -- -- -- -- 3,797,469
</TABLE>
- --------
(1) The Series A Preferred Stock converts into Common Stock at the rate of
0.229 share of Common Stock for each share of Series A Preferred Stock.
(2) The Series B Preferred Stock converts into Common Stock at the rate of
0.291 share of Common Stock for each share of Series B Preferred Stock.
(3) The Series C Preferred Stock converts into Common Stock at the rate of
0.125 share of Common Stock for each share of Series C Preferred Stock.
(4) The exercise price applicable to such warrants was $0.004 per share of
Common Stock. All such warrants were exercised during 1995.
(5) The Series D Preferred Stock converts into Common Stock at the rate of
0.250 share of Common Stock for each share of Series D Preferred Stock.
(6) Includes shares purchased by Morgan Stanley Venture Capital Fund II, L.P.,
Morgan Stanley Venture Investors, L.P. and Morgan Stanley Venture Capital
Fund II, C.V., each of which is an investment partnership affiliated with
Morgan Stanley Venture Partners, L.P. Robert J. Loarie, a general partner
of Morgan Stanley Venture Partners, is a director of the Company.
(7) Includes shares held by Vertex Investments (II) Ltd. and Vertex
Investments Pte. Ltd. Charles C. Wu is a Vice President of Vertex
Management, Inc., a venture capital firm, and a director of the Company.
Vertex Investments (II) Ltd. and Vertex Investments Pte. Ltd. are
investment affiliates of Vertex Management, Inc.
(8) The general partner of Battery Ventures II, L.P., is ABF Partners, L.P.
Oliver D. Curme, a general partner of ABF Partners, is a director of the
Company.
(9) Includes shares purchased by BankAmerica Ventures and BA Venture Partners
I, an investment general partnership comprised of certain employees of
BankAmerica Ventures. Robert M. Obuch, a Principal of BankAmerica Ventures
and a general partner of BA Venture Partners I, is a director of the
Company.
The Company is a party to letter agreements with its President and Chief
Executive Officer and its Vice President of Finance and Chief Financial
Officer governing their employment with the Company. See "--Employment
Agreements and Change in Control Agreements."
54
<PAGE>
The Company's 1995 Stock Plan, as in effect prior to certain amendments
effective upon the completion of this offering, permitted holders of
outstanding options to exercise such options prior to complete vesting,
subject to their entering into a restricted stock purchase agreement granting
the Company an option to repurchase any unvested shares at their original
purchase price in the event of a termination of such optionee's employment or
consulting relationship with the Company. Effective with the completion of
this offering, the 1995 Stock Plan will be amended such that subsequent option
grants will not contain such early exercise feature. In addition, the 1995
Stock Plan permits holders of outstanding options to pay the exercise price
therefor in the form of a promissory note.
In September 1995, February 1996 and July 1996, the Company loaned Mary E.
Coleman, the Company's President and Chief Executive Officer, an aggregate
amount of $368,691 in connection with the purchase of Common Stock under the
1995 Stock Plan, evidenced by three promissory notes. The principal amounts of
the three notes are $37,136, $31,555 and $300,000, respectively, which become
due and payable in September 2000, February 2001 and July 2001, respectively.
Each of the notes bears interest at the rate of 8% per annum. In the event
that Ms. Coleman ceases to be employed by the Company prior to maturity of the
notes, such notes shall, at the option of the Company, become immediately due
and payable.
In July 1996 and August 1996, the Company loaned to Christopher L. Dier, the
Company's Vice President of Finance and Chief Financial Officer, an aggregate
amount of $157,500 in connection with the purchase of Common Stock under the
1995 Stock Plan, evidenced by two promissory notes. The principal sum of the
notes is $120,000 and $37,500, respectively, and the notes become due and
payable in July 2000 and August 2000, respectively. Both notes bear interest
at the rate of 8% per annum. In the event that Mr. Dier ceases to be employed
by the Company prior to maturity of the notes, such notes shall, at the option
of the Company, become immediately due and payable at the option of the
Company.
In September 1996, the Company loaned to Jeffrey T. Webber, a member of the
Company's Board of Directors, an aggregate amount of $112,500 in connection
with the purchase of Common Stock under the 1995 Stock Plan, evidenced by one
promissory note. The principal sum of the note becomes due and payable in
September 2000 and bears interest at the rate of 8% per annum. In the event
that Mr. Webber ceases to be a member of the Company's Board of Directors
prior to the maturity of the note, such note shall, at the option of the
Company, become immediately due and payable.
In February 1996 and July 1996, the Company loaned to Brigitte U. Wilson,
the Company's Director of Finance and Administration and, at the time of such
loan, the Company's Chief Financial Officer, an aggregate amount of $79,939 in
connection with the purchase of Common Stock under the 1995 Stock Plan,
evidenced by four promissory notes. The aggregate principal amount of the
three notes issued in February 1996 is $4,939, and each note becomes due and
payable in February 2000. The principal amount of the fourth note is $75,000
and becomes due and payable in July 2000. Each of the notes bears interest at
the rate of 8% per annum. In the event that Ms. Wilson ceases to be employed
by the Company prior to maturity of the notes, such notes shall, at the option
of the Company, become immediately due and payable.
55
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1996 (assuming the
automatic conversion of all outstanding Preferred Stock into Common Stock
effective upon the completion of this offering) and as adjusted to reflect the
sale of the shares of Common Stock offered hereby by (i) each person or entity
who is known by the Company to own beneficially 5% or more of the Company's
outstanding Common Stock; (ii) each director of the Company; (iii) each of the
Named Executive Officers; (iv) each Selling Stockholder; and (v) all directors
and executive officers of the Company as a group. In connection with sales by
the Selling Stockholders, the Company has agreed to pay the expenses
associated with the registration and sale of the Selling Stockholders' shares,
other than underwriting discounts and commissions and any applicable taxes
owed by such Selling Stockholder in connection with the profits earned on
sale.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(2) NUMBER OF AFTER OFFERING(2)
----------------------- SHARES -----------------------
NAME AND ADDRESS(1) NUMBER PERCENT OFFERED NUMBER PERCENT
------------------- ------------ ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Morgan Stanley Venture
Partners(3)............ 2,275,593 26.4% -- 2,275,593 20.4%
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Vertex Management,
Inc.(4)................ 1,323,895 15.3% -- 1,323,895 11.9%
Three Lagoon Drive,
Suite 220
Redwood City, CA 94065
Battery Ventures II,
L.P.................... 1,322,884 15.4% -- 1,322,884 11.9%
20 William Street
Wellesley, MA 02114
BankAmerica
Ventures(5)............ 949,366 11.0% -- 949,366 8.5%
950 Tower Lane, Suite
700
Foster City, CA 94404
The Buchanan Family 1991
Trust.................. 589,376 6.8% -- 589,376 5.3%
Prabhat K. Andleigh(6).. 5,683 * -- 5,683 *
David D. Buchanan(7).... 763,467 8.8% -- 763,467 6.9%
Susan K. Buchanan(8).... 888,467 10.3% 125,000 763,467 6.9%
Mary E. Coleman(9)...... 458,047 5.3% -- 458,047 4.1%
Charles J.
Donchess(10)........... 150,001 1.7% -- 150,001 1.3%
James W. Thanos(11)..... 154,735 1.8% -- 154,735 1.4%
Oliver D. Curme(12)..... 1,322,884 15.3% -- 1,322,884 11.9%
Mark J. Leslie(13)...... 29,431 * -- 29,431 *
Robert J. Loarie(14).... 2,275,593 26.4% -- 2,275,593 20.5%
Robert M. Obuch(15)..... 949,366 11.0% -- 949,366 8.5%
Jeffrey T. Webber(16)... 20,813 * -- 20,813 *
Brigitte U. Wilson(17).. 51,185 * -- 51,185 *
Charles C. Wu(18)....... 1,323,895 15.3% -- 1,323,895 11.9%
All executive officers
and directors as a
group (15
persons)(19)........... 8,114,695 91.4% 125,000 7,989,695 70.2%
<CAPTION>
OTHER SELLING
STOCKHOLDER
-------------
<S> <C> <C> <C> <C> <C>
Sales Technologies,
Inc.................... 25,000 * 25,000 -- --
</TABLE>
- --------
* Less than 1%
(1) Unless otherwise indicated, the address for each listed stockholder is
c/o Aurum Software, Inc., 3385 Scott Boulevard, Santa Clara, California
95054. Except as otherwise indicated, and subject to
56
<PAGE>
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock held by them.
(2) Applicable percentage ownership is based on 8,627,877 shares of Common
Stock outstanding as of September 30, 1996 (assuming the automatic
conversion of all outstanding shares of Preferred Stock into Common Stock
upon the completion of this offering) and 11,127,877 shares outstanding
immediately following the completion of this offering (assuming no
exercise of the Underwriters' over-allotment option), together with
applicable options for such shareholder. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect
to securities, subject to community property laws, where applicable.
Shares of Common Stock subject to options that are presently exercisable
or exercisable within 60 days of September 30, 1996 are deemed to be
beneficially owned by the person holding such options for the purpose of
computing the percentage of ownership of such person but are not treated
as outstanding for the purpose of computing any other person.
(3) Includes 1,502,379 shares of Common Stock held by Morgan Stanley Venture
Capital Fund II, L.P. ("MSVC II LP"), 432,137 shares of Common Stock held
by Morgan Stanley Venture Investors, L.P. ("MSVI") and 341,077 shares of
Common Stock held by Morgan Stanley Venture Capital Fund II, C.V. ("MSVC
II CV"). Morgan Stanley Venture Capital II, Inc. ("MSVC II") is the
managing general partner of Morgan Stanley Venture Partners II, L.P.
("MSVP II"). MSVP II is the general partner of MSVC II LP and MSVI and
the investment general partner of MSVC II CV.
(4) Includes 316,455 shares of Common Stock held by Vertex Investments (II)
Ltd. ("Vertex II") and 1,007,440 shares of Common Stock held by Vertex
Investments Pte. Ltd. ("Vertex Pte."). Vertex II and Vertex Pte. are
investment affiliates of Vertex Management, Inc., a venture capital firm.
(5) Includes 854,430 shares of Common Stock held by BankAmerica Ventures, a
venture capital investment affiliate of BankAmerica Corporation ("BA
Ventures") and 94,936 shares of Common Stock held by BA Venture Partners
I, an investment general partnership comprised of certain employees of BA
Ventures ("BA Partners").
(6) Mr. Andleigh resigned from the Company effective September 1, 1995. Under
the terms of his option agreements, Mr. Andleigh had three months from
the date of termination of employment to exercise vested options. Mr.
Andleigh exercised his options with respect to 5,683 vested shares on
November 30, 1995. Outstanding options held by Mr. Andleigh terminated
with respect to all unvested shares on the date of Mr. Andleigh's
resignation.
(7) Includes 174,091 shares of Common Stock held by Mr. Buchanan individually
and 589,376 shares of Common Stock held by The Buchanan Family 1991
Trust, for which Mr. Buchanan serves as co-trustee. Excludes 299,091
shares held by Mr. Buchanan's wife as separate property and for which Mr.
Buchanan disclaims beneficial ownership.
(8) Includes 299,091 shares of Common Stock held by Ms. Buchanan individually
and 714,376 shares of Common Stock held by The Buchanan Family 1991 Trust
for which Ms. Buchanan serves as co-trustee. Excludes 174,091 shares held
by Ms. Buchanan's husband as separate property and for which Ms. Buchanan
disclaims beneficial ownership.
(9) Includes 289,730 unvested shares of Common Stock subject to the Company's
repurchase option as of September 30, 1996 in the event of a termination
of Ms. Coleman's employment with the Company.
(10) Includes 150,001 shares of Common Stock issuable upon exercise of
outstanding options, of which 119,053 shares were not vested as of
September 30, 1996. Mr. Donchess' options may be exercised in full prior
to complete vesting subject to his entering a restricted stock purchase
agreement granting the Company an option to repurchase any unvested
shares at their original purchase price in the event of a termination of
Mr. Donchess' employment with the Company.
(11) Includes 103,156 unvested shares of Common Stock subject to the Company's
repurchase option as of September 30, 1996 in the event of a termination
of Mr. Thanos' employment with the Company.
(12) Represents shares of Common Stock held by Battery Ventures II, L.P. Mr.
Curme is a director of the Company and a general partner of ABF Partners
II, L.P., the general partner of Battery Ventures II, L.P. Mr. Curme
disclaims beneficial ownership of all such shares except to the extent of
his pecuniary interest therein.
57
<PAGE>
(13) Includes 3,826 shares of Common Stock held by Mr. Leslie's children and
18,750 shares of Common Stock issuable upon exercise of an outstanding
option, of which 16,797 shares were not vested as of September 30, 1996.
Mr. Leslie's option may be exercised in full prior to complete vesting
subject to his entering a restricted stock purchase agreement granting
the Company an option to repurchase such shares at their original
purchase price in the event of a termination of Mr. Leslie's membership
on the Company's Board of Directors.
(14) Represents 1,502,379 shares of Common Stock held by MSVC II LP, 432,137
shares of Common Stock held by MSVI and 341,077 shares of Common Stock
held by MSVC II CV. Mr. Loarie is a director of the Company, a principal
of Morgan Stanley & Co. Incorporated, a general partner of MSVP II and a
Vice President of MSVC II. Mr. Loarie disclaims beneficial ownership of
all such shares except to the extent of his beneficial interest therein.
(15) Represents 854,430 shares of Common Stock held by BA Ventures and 94,936
shares of Common Stock held by BA Partners. Mr. Obuch is a Principal of
BA Ventures, a general partner of BA Partners, and a director of the
Company. Mr. Obuch disclaims beneficial ownership of all shares held by
BA Ventures and all shares held by BA Partners except to the extent of
his proportionate general partnership interest in BA Partners.
(16) Includes 16,797 unvested shares of Common Stock subject to the Company's
repurchase option in the event of a termination of Mr. Webber's
membership on the Company's Board of Directors.
(17) Includes 34,092 unvested shares of Common Stock subject to the Company's
repurchase option as of September 30, 1996 in the event of a termination
of Ms. Wilson's employment with the Company.
(18) Includes 316,455 shares of Common Stock held by Vertex II and 1,007,440
shares of Common Stock held by Vertex Pte. Vertex II and Vertex Pte. are
investment affiliates of Vertex Management, Inc., a venture capital
investment firm. Mr Wu is a Vice President of Vertex Management, Inc. and
a director of the Company. Mr. Wu disclaims beneficial ownership of all
such shares except to the extent of his pecuniary interest therein.
(19) Includes 246,475 shares immediately issuable upon exercise of outstanding
options under the 1995 Plan, of which 213,574 shares were not vested as
of September 30, 1996. Includes 7,868,220 issued shares of Common Stock,
793,199 of which were subject to a repurchase option in favor of the
Company as of September 30, 1996.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, the Company will be authorized to
issue 25,000,000 shares of Common Stock, $0.001 par value, and 5,000,000
shares of undesignated Preferred Stock, $0.001 par value. Immediately after
the completion of this offering and assuming no exercise of the Underwriters'
over-allotment option, the Company estimates there will be an aggregate of
11,127,877 shares of Common Stock outstanding and no shares of Preferred Stock
will be issued and outstanding.
The following description of the Company's capital stock does not purport to
be complete and is subject to and qualified in its entirety by the Company's
Restated Certificate of Incorporation and Bylaws, which are included as
exhibits to the Registration Statement of which this Prospectus forms a part,
and by the provisions of applicable Delaware law.
The Restated Certificate of Incorporation and Bylaws contain certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and which may have the
effect of delaying, deferring or preventing a future takeover or change in
control of the Company unless such takeover or change in control is approved
by the Board of Directors.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of Common Stock do not have
cumulative voting rights, and, therefore, holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors.
Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of any existing or future agreements
between the Company and its debtholders. The Company has never declared or
paid cash dividends on its capital stock, expects to retain future earnings,
if any, for use in the operation and expansion of its business, and does not
anticipate paying any cash dividends in the foreseeable future. In addition,
the Company's bank line of credit agreement contains a restrictive covenant
that limits the Company's ability to pay cash dividends or make stock
repurchases without the prior written consent of the lender. See "Dividend
Policy." In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets legally available for distribution after payment of all debts and other
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding.
PREFERRED STOCK
Effective upon completion of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and
the number of shares constituting a series or the designation of such series,
without any further vote or action by the Company's stockholders. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the market price
of, and the voting and other rights of, the holders of Common Stock. The
issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. The Company has no current plans to issue any shares
of Preferred Stock.
59
<PAGE>
ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Certificate of Incorporation provides that all stockholder
actions must be effected at a duly called annual or special meeting and may
not be effected by written consent. The Certificate of Incorporation also
provides that the right of the Company's stockholders to vote cumulatively in
the election of directors will be eliminated upon completion of the offering
(except to the extent that cumulative voting may be required by the California
corporate law). At such time as cumulative voting is eliminated, stockholders
entitled to vote in the election of directors will be able to cast one vote
per share, regardless of the number of directors to be elected. The Company's
Bylaws provide that, except as otherwise required by law, special meetings of
the stockholders can only be called pursuant to a resolution adopted by a
majority of the Board of Directors, by the chief executive officer of the
Company, or by stockholders holding shares in the aggregate entitled to cast
not less than 10% of the votes at such meeting. In addition, the Company's
Bylaws establish an advance notice procedure for stockholder proposals to be
brought before an annual meeting of stockholders, including proposed
nominations of persons for election to the Board. Stockholders at an annual
meeting may only consider proposals or nominations specified in the notice of
meeting or brought before the meeting by or at the direction of the Board of
Directors or by a stockholder who was a stockholder of record on the record
date for the meeting, who is entitled to vote at the meeting and who has
delivered timely written notice in proper form to the Company's Secretary of
the stockholder's intention to bring such business before the meeting.
The foregoing provisions of the Company's Certificate of Incorporation and
Bylaws are intended to enhance the likelihood of continuity and stability in
the composition of the Board of Directors and in the policies formulated by
the Board of Directors and to discourage certain types of transactions which
may involve an actual or threatened change of control of the Company. Such
provisions are designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal and, accordingly, could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. Such provisions are also intended to discourage certain tactics that
may be used in proxy fights but could, however, have the effect of
discouraging others from making tender offers for the Company's shares and,
consequently, may also inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
These provisions may also have the effect of preventing changes in the
management of the Company. See "Risk Factors--Effect of Certain Charter
Provisions; Limitation of Liability of Directors; Antitakeover Effects of
Delaware Law."
EFFECT OF DELAWARE ANTITAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Antitakeover Law"), which regulates corporate acquisitions. The
Antitakeover Law prevents certain Delaware corporations, including those whose
securities are listed for trading on the Nasdaq National Market, from
engaging, under certain circumstances, in a "business combination" with any
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder. For purposes of the Antitakeover
Law, a "business combination" includes, among other things, a merger or
consolidation involving the Company and the interested shareholder and the
sale of more than ten percent (10%) of the Company's assets. In general, the
Antitakeover Law defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the Company
and any entity or person affiliated with or controlling or controlled by such
entity or person. A Delaware corporation may "opt out" of the Antitakeover Law
with an express provision in its original certificate of incorporation or an
express provision in its certificate of incorporation or bylaws resulting from
amendments approved by the holders of at least a majority of the Company's
outstanding voting shares. The Company has not "opted out" of the provisions
of the Antitakeover Law. See "Risk Factors--Effect of Certain Charter
Provisions; Limitation of Liability of Directors; Antitakeover Effects of
Delaware Law."
60
<PAGE>
REGISTRATION RIGHTS
After this offering, the holders of 3,600,113 shares of Common Stock will be
entitled upon expiration of lock-up agreements with the Underwriters to
certain rights with respect to the registration of such shares under the
Securities Act. Under the terms of the agreement between the Company and the
holders of such registrable securities, if the Company proposes to register
any of its securities under the Securities Act, either for its own account or
for the account of other securities holders exercising registration rights,
such holders are entitled to notice of such registration and are entitled to
include shares of such Common Stock therein. Holders of registration rights
may also require the Company to file a registration statement under the
Securities Act at the Company's expense with respect to their shares of Common
Stock, and the Company is required to use its best efforts to effect such
registration. Further, holders may require the Company to file registration
statements on Form S-3 at the Company's expense when such form becomes
available for use to the Company. All such registration rights are subject to
certain conditions and limitations, including the right of the underwriters of
an offering to limit the number of shares to be included in such registration.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is The First National
Bank of Boston.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for the Common Stock
of the Company, and no prediction can be made regarding 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. As described below, only a
limited number of shares are currently available for sale, or will be
available for sale shortly after this offering, due to certain contractual and
legal restrictions on resale. Nevertheless, sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price.
Based on the number of shares outstanding as of September 30, 1996 and
assuming the automatic conversion of all Outstanding Preferred Stock in
connection with this offering, upon completion of this offering, the Company
will have outstanding 11,127,877 shares of Common Stock. Of these shares, all
of the 2,650,000 shares of Common Stock sold in this offering will be freely
tradable (unless such shares are held by an "affiliate" of the Company as such
term is defined in the Securities Act) without restriction or registration
under the Securities Act. The remaining 8,477,877 shares were issued and sold
by the Company in private transactions ("Restricted Shares") and are eligible
for public sale only if registered under the Securities Act or sold in
accordance with Rule 144 or Rule 701 thereunder, which rules are summarized
below. As a result of the contractual restrictions described below and the
provisions of Rule 144: (i) no Restricted Shares will be available for
immediate sale in the public market on the date of this Prospectus; (ii)
approximately 4,898,282 Restricted Shares will become eligible for sale upon
expiration of lock-up agreements 180 days after the date of this Prospectus
(the "Release Date"); and (iii) an additional 3,579,595 Restricted Shares will
become available at various times after the Release Date pursuant to Rules 144
and 144(k) under the Securities Act. Of the 4,898,282 shares of Common Stock
that will become available for sale on the Release Date, approximately
2,336,744 represent Restricted Shares held by employees and consultants of the
Company that will be registered on a registration statement on Form S-8 on or
prior to the Release Date. The remaining Restricted Shares represent shares
issued to the Company's venture capital investors that will become available
on or at various times after the Release Date in accordance with the holding
period requirements of Rule 144. Of the 2,336,744 shares held by employees and
consultants that will be registered on the Form S-8, approximately 439,969
shares will be unvested as of the Release Date and will be subject to a
repurchase option which the Company may exercise in the event of a termination
of the holder's employment or consulting relationship. In addition to the
2,336,744 Restricted Shares currently outstanding that the Company intends to
register on the Form S-8, it also intends to register an additional 3,270,431
shares of Common Stock reserved for issuance under the Company's 1995 Stock
Plan, 1996 Employee Stock Purchase Plan and 1996 Director Option Plan.
Notwithstanding the timing of the filing of the Form S-8, all shares
registered thereunder will be subject to lock-up agreements expiring on the
Release Date.
The Company's executive officers, directors and certain stockholders, who
own 8,477,877 Restricted Shares, have agreed, subject to certain exceptions,
that they will not, without the prior written consent of Alex. Brown & Sons
Incorporated, offer, sell, contract to sell, grant any option to purchase, or
otherwise dispose of any shares of Common Stock or securities convertible into
or exercisable or exchangeable for Common Stock of the Company for a period of
180 days from the date of this Prospectus (the "Lockup Period"). Alex. Brown &
Sons Incorporated, in its sole discretion at any time and without notice, may
release any or all shares from the lockup agreements and permit holders of the
shares to resell all or any portion of their shares at any time prior to the
expiration of the Lockup Period.
In general, under Rule 144 as currently in effect, beginning 90 days after
the offering, a person (or persons whose shares are aggregated), who has
beneficially owned Restricted Shares for at least two years, including the
holding period of any securities that converted into Restricted Shares and
including the holding period of any prior owner except an affiliate, is
entitled to sell within any three-month period a number of shares that does
not exceed the greater of (i) 1% of the then outstanding shares of the
62
<PAGE>
Company's Common Stock or (ii) the average weekly trading volume of the
Company's Common Stock in the over the counter market during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days preceding a sale, and who owns shares
within the definition of "restricted securities" under Rule 144 that were
purchased from the Company (or any affiliate) at least three years previously,
will be entitled to sell such shares under Rule 144(k) without regard to the
volume limitations, manner of sale provisions, public information requirements
or notice requirements. The Company's transfer agent, however, may require an
opinion of counsel that a proposed sale of shares complies with Rule 144 of
the Securities Act prior to effecting a transfer of such shares. Rule 701
under the Securities Act provides that shares of Common Stock acquired on the
exercise of outstanding options may be resold by persons other than
Affiliates, beginning 90 days after the date of this Prospectus, subject only
to the manner of sale provisions of Rule 144, and by Affiliates, beginning
90 days after the date of this Prospectus, subject to all provisions of Rule
144 except its two-year minimum holding period.
The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule
changes will be enacted. If enacted, such modifications will have a material
effect on the times when shares of the Company's Common Stock become eligible
for resale.
Prior to this offering, there has been no public market for the Common Stock
of the Company and no predictions can be made of the effect, if any, that the
sale or availability for sale of shares of additional Common Stock will have
on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of such shares in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
OPTIONS
As of September 30, 1996, options to purchase a total of 584,481 shares of
Common Stock were outstanding and exercisable under the 1995 Plan, and an
additional 2,235,950 shares were reserved for future option grants, including
2,214,000 shares reserved for issuance under the 1995 Plan effective upon the
completion of this offering. The Company's Board of Directors and stockholders
approved such increase in the share reserve under the 1995 Plan in September
1996. All of the shares subject to options are subject to Lock-up Agreements.
See "--Lock-up Agreements." In addition, in September 1996, the Company
reserved 300,000 shares for issuance under the Company's 1996 Employee Stock
Purchase Plan and 150,000 shares for issuance under the Company's 1996
Director Option Plan. See "Management--1995 Stock Plan," "--1996 Employee
Stock Purchase Plan," "--1996 Director Option Plan" and Note 7 of Notes to
Financial Statements.
The Company intends to file a registration statement on Form S-8 under the
Securities Act covering approximately 824,978 shares of Common Stock issued
pursuant to stock purchase and stock option plans that are now terminated,
4,319,695 shares subject to outstanding stock options or issued or reserved
for issuance under the 1995 Plan, 12,502 shares sold to certain consultants of
the Company, 300,000 shares of Common Stock reserved for issuance under the
1996 Employee Stock Purchase Plan and 150,000 shares of Common Stock reserved
for issuance under the 1996 Director Option Plan. Such registration statement
is expected to be filed on or prior to the Release Date and will automatically
become effective upon filing. Accordingly, shares covered by such registration
statement will thereupon be eligible for sale in the public markets, subject
to the lapse of any repurchase rights the Company may have with respect to
such shares and to the Lock-up Agreements, if applicable.
63
<PAGE>
LOCK-UP AGREEMENTS
All officers and directors and certain holders of Common Stock and options
to purchase Common Stock have agreed pursuant to certain "lock-up" agreements
that they will not offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible or
exercisable or exchangeable for Common Stock, or enter into any swap or
similar agreement that transfers, in whole or in part, the economic risk of
ownership of the Common Stock for a period of 180 days after the transfer or
date of this Prospectus without the prior written consent of Alex. Brown &
Sons Incorporated. All other holders of Common Stock and options to purchase
Common Stock have agreed pursuant to existing agreements with the Company not
to sell or otherwise transfer or dispose of any Common Stock for a period of
180 days after the effective date of this offering.
64
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Cowen & Company and Wessels, Arnold &
Henderson, L.L.C., have severally agreed to purchase from the Company and the
Selling Stockholders the following respective numbers of shares of Common
Stock at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated....................................
Cowen & Company....................................................
Wessels, Arnold & Henderson, L.L.C. ...............................
---------
Total............................................................ 2,650,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may re-
allow, a concession not in excess of $ per share to certain other dealers.
After the initial public offering, the offering price and other selling terms
may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 397,500
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 2,650,000, and the Company
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of Common Stock offered hereby. If
purchased, the Underwriters will offer such additional shares on the same
terms as those on which the 2,650,000 shares are being offered.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Company and certain stockholders of the Company have agreed not to
offer, sell or otherwise dispose of any shares of Common Stock for a period of
180 days after the effective date of this offering without the prior written
consent of Alex. Brown & Sons Incorporated, except that the Company may issue,
and grant options to purchase, shares of Common Stock under its current stock
option and purchase plans and other currently outstanding options. See "Shares
Eligible for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
65
<PAGE>
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations among the Company and the
Representatives of the Underwriters. Among the factors to be considered in
such negotiations are prevailing market conditions, the results of operations
of the Company in recent periods, the market capitalizations and stages of
development of other companies which the Company and the Representatives of
the Underwriters believed to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant. See "Risk Factors--No Prior
Market; Possible Volatility of Stock Price."
The Underwriters have reserved for sale, at the initial public offering
price, approximately 5% of the shares of Common Stock offered hereby for
certain employees, customers and vendors of the Company, and certain other
individuals and entities, who have expressed an interest in purchasing such
shares of Common Stock in the offering. The number of shares available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares not so purchased will be offered by
the Underwriters to the general public on the same basis as other shares
offered hereby.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Pillsbury Madison & Sutro LLP, Menlo Park, California, is
acting as counsel for the Underwriters in connection with certain legal
matters relating to the shares of Common Stock offered hereby. As of the date
of this Prospectus, a member of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, and investment partnerships of which members of such firm are
partners, beneficially own 10,384 shares of the Company's Common Stock.
EXPERTS
The balance sheets as of December 31, 1994 and 1995, and September 30, 1996
and the statements of operations, stockholders' deficit and cash flows for
each of the three years in the period ended December 31, 1995 and for the nine
months ended September 30, 1996, included in this Prospectus and the financial
statement schedule for the aforementioned periods included in the Registration
Statement have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
66
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (the "Registration
Statement") under the Securities Act and the rules regulations promulgated
thereunder with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock, reference is made to the
Registration Statement and the exhibits and schedules filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete. In each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, and each such statement is qualified in all
respects by such reference. The Registration Statement, including exhibits and
schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the regional offices of the Commission located
at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the Commission's
Web site is http://www.sec.gov.
The Company is not currently subject to the informational requirements of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the offering of the Company's Common Stock, the Company will become
subject to the informational requirements of the Exchange Act. 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.
Aurum, Aurum SalesTrak, Aurum QualityTrak, Aurum SupportTrak and TeleTrak
are registered trademarks of the Company. Aurum EventTrak, Aurum Teletrak,
Aurum WebTrak, dbSync, Aurum Smart Encyclopedia, Aurum Management Information
System, Aurum Explorer, Aurum Reporter and Aurum CTITrak are also trademarks
of the Company. Trademarks of other companies are also referred to in this
Prospectus.
67
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
Channel Partners............... Companies that enter alliances with a product
manufacturer for the purposes of developing
and exploiting specific sales outlets and
types of selling.
Component Architecture......... Application software developed in separate
components or modules that facilitate ease of
use and enhanced performance by optimizing
each component to perform certain tasks.
Computer Telephony
Integration................... The ability to initiate calls from a computer
database or have an incoming call initiate
access to a file stored on a computer.
Configurable................... The ability to alter a product to be more
suitable to the requirements of the user.
Extensible..................... A design that readily allows for expansion by
either adding enhancements to existing fea-
tures or attaching complementary features and
functions.
Heterogeneous Database
Synchronization............... The result of a process that ensures that the
data stored on multiple database products in
different locations is consistent.
Multi-tiered Distribution...... Selling products through different types of
selling processes and organizations such as
selling through telephone solicitation, en-
gaging third party companies to resell prod-
ucts and employing field sales personnel to
sell directly to customers.
OEM............................ Original equipment manufacturer. Companies
that assemble and resell components and tech-
nology provided by other companies as well as
components designed by the equipment
manufacturer.
OLAP........................... On-Line Analytical Processing. A software
tool that enables users to perform on-line
analysis of data to create reports.
Scalable....................... A software process and design that allows
more users to be added to a computer system
without a material reduction in the time it
takes the computer to respond to user re-
quests or to perform tasks.
Schema......................... A distillation of the schematic design or or-
ganization of a process.
SQL............................ Structural Query Language. A popular method
of accessing data stored in databases that
makes queries easier to perform.
3-Tier client/server........... Application software developed to enhance
performance by distributing elements of soft-
ware to run on three different levels: the
user interface, the operating system of the
user's computer ("client"), and the network
computer where the user's files are stored
("server").
VAR............................ Value-added reseller. A company that resells
primary products developed by others and pro-
vides certain value-added extensions for spe-
cific end user markets.
</TABLE>
68
<PAGE>
AURUM SOFTWARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent Accountants................ F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity (Deficit)............................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Aurum Software, Inc.
We have audited the accompanying balance sheets of Aurum Software, Inc. as
of December 31, 1994 and 1995, and September 30, 1996, and the related
statements of operations, stockholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 1995 and the nine
months ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 financial statements referred to above present fairly,
in all material respects, the financial position of Aurum Software, Inc. as of
December 31, 1994 and 1995, and September 30, 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 and the nine months ended September 30, 1996 in conformity
with generally accepted accounting principles.
San Jose, California
October 14, 1996
----------------
The accompanying financial statements give effect to a reverse stock split
on a one-for-four basis of the Company's Common Stock and a one-for-one basis
of the Company's Preferred Stock which will occur upon reincorporation of the
Company in Delaware. The above opinion is in the form which will be signed by
Coopers & Lybrand L.L.P. upon completion of such reverse stock split described
in Note 7 of notes to financial statements and assuming that from October 14,
1996 to the date of such completion, no other material events have occurred
that would affect the accompanying financial statements or required disclosure
therein.
Coopers & Lybrand L.L.P.
San Jose, California
October 14, 1996
F-2
<PAGE>
AURUM SOFTWARE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, (NOTE 11)
----------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
------- -------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 2,517 $ 2,795 $ 1,683
Accounts receivable, net of
allowance for doubtful
accounts of $318, $340 and
$309 at December 31, 1994 and
1995 and September 30, 1996,
respectively ................ 1,374 4,702 8,856
Prepaid expenses and other
current assets............... 295 438 1,022
------- -------- -------
Total current assets......... 4,186 7,935 11,561
Property and equipment, net..... 1,151 1,559 2,633
Other assets.................... 407 301 224
------- -------- -------
Total assets................ $ 5,744 $ 9,795 $14,418
======= ======== =======
LIABILITIES, MANDATORILY
REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Notes payable................. $ 29 $ 217 $ 331
Current portion of capital
lease obligations............ 276 304 479
Borrowings under line of
credit....................... 600 1,500
Accounts payable.............. 499 1,191 1,687
Accrued compensation.......... 354 898 1,392
Other accrued liabilities..... 566 817 1,380
Deferred revenue.............. 828 2,303 2,187
------- -------- -------
Total current liabilities.... 3,152 5,730 8,956
Notes payable, less current
portion........................ 75 121 559
Capital lease obligations, less
current portion................ 295 116 530
------- -------- -------
Total liabilities............ 3,522 5,967 10,045
------- -------- -------
Commitments and contingencies
(Note 5).
Mandatorily redeemable
convertible preferred stock, no
par value:
Authorized: 24,000,000 shares
Issued and outstanding:
14,194,173 shares in 1994,
21,901,892 shares in 1995... 11,302 17,356 --
------- -------- -------
(Liquidation value: $17,504
in 1995)
Stockholders' equity (deficit):
Convertible preferred stock, no
par value:
Authorized: 24,000,000 Shares
Issued and outstanding:
21,905,398 at September 30,
1996
(no shares pro forma)......... 18,356 $ --
(Liquidation value: $17,854)
Common stock, no par value;
$0.001 pro forma:
Authorized: 10,000,000 shares;
Issued and outstanding:
831,138 shares in 1994,
2,526,159 shares in 1995 and
3,669,024 shares at September
30, 1996; 8,627,877 shares
pro forma.................... 195 236 1,256 9
Additional paid-in capital.... 19,603
Notes receivable from
stockholders.................. (1) (38) (1,066) (1,066)
Accumulated deficit............ (9,274) (13,726) (14,173) (14,173)
------- -------- ------- --------
Total stockholders' equity
(deficit)................... (9,080) (13,528) 4,373 $ 4,373
------- -------- ------- ========
Total liabilities,
mandatorily redeemable
convertible preferred stock
and stockholders' equity
(deficit).................. $ 5,744 $ 9,795 $14,418
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
AURUM SOFTWARE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses.................... $ 3,475 $ 3,356 $ 5,928 $ 3,555 $10,320
Services.................... 1,426 2,556 4,547 3,152 7,932
------- ------- ------- ------- -------
Total revenues............ 4,901 5,912 10,475 6,707 18,252
------- ------- ------- ------- -------
Cost of revenues:
Licenses.................... 331 365 979 722 899
Services.................... 1,609 2,586 3,919 2,469 7,011
------- ------- ------- ------- -------
Total cost of revenues.... 1,940 2,951 4,898 3,191 7,910
------- ------- ------- ------- -------
Gross profit.................. 2,961 2,961 5,577 3,516 10,342
------- ------- ------- ------- -------
Operating expenses:
Sales and marketing......... 3,107 3,240 6,626 4,276 7,258
Research and development.... 2,251 2,246 2,286 1,712 2,353
General and administrative.. 1,861 1,780 1,023 698 1,088
------- ------- ------- ------- -------
Total operating expenses.. 7,219 7,266 9,935 6,686 10,699
------- ------- ------- ------- -------
Loss from operations.......... (4,258) (4,305) (4,358) (3,170) (357)
Other income, net............. 38 5 63 47 53
Interest expense.............. (42) (88) (157) (124) (143)
------- ------- ------- ------- -------
Net loss.................. $(4,262) $(4,388) $(4,452) $(3,247) $ (447)
======= ======= ======= ======= =======
Pro forma net loss per share.. $ (0.67) $ (0.05)
======= =======
Pro forma shares used in per
share calculation............ 6,640 8,739
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
AURUM SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE COMMON NOTES
PREFERRED STOCK STOCK RECEIVABLE STOCKHOLDERS'
------------------ ----------------- FROM ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS DEFICIT (DEFICIT)
---------- ------- --------- ------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1992................... 972,410 $ 233 $ (61) $ (624) $ (452)
Issuance of common
stock under stock
purchase plan......... 2,563 2 2
Repurchase of common
stock................. (28,054) (7) 3 (4)
Payments on notes
receivable from
stockholders.......... 10 10
Net loss............... (4,262) (4,262)
---------- ------- --------- ------ ------- -------- -------
Balances, December 31,
1993................... 946,919 228 (48) (4,886) (4,706)
Issuance of common
stock under stock
purchase plan......... 2,688 4 4
Issuance of common
stock under incentive
stock option plan..... 297
Repurchase of common
stock................. (118,766) (37) (37)
Payments and
cancellation of notes
receivable from
stockholders.......... 47 47
Net loss............... (4,388) (4,388)
---------- ------- --------- ------ ------- -------- -------
Balances, December 31,
1994................... 831,138 195 (1) (9,274) (9,080)
Exercise of warrants by
preferred investors... 1,382,280 5 5
Issuance of common
stock under incentive
stock options plan for
cash and notes
receivable............ 317,954 38 (37) 1
Repurchase of common
stock................. (5,213) (2) (2)
Net loss............... (4,452) (4,452)
---------- ------- --------- ------ ------- -------- -------
Balances, December 31,
1995................... 2,526,159 236 (38) (13,726) (13,528)
Repurchase of common
stock................. (50,948) (118) (118)
Issuance of common
stock under incentive
stock option plan for
cash, note receivables
and services.......... 1,181,311 1,063 (1,028) 35
Issuance of common
stock under stock
purchase clause....... 12,502 75 75
Reclass due to
elimination of
mandatory redemption
provisions related to
convertible preferred
stock................. 21,905,398 $18,356 18,356
Net loss............... (447) (447)
---------- ------- --------- ------ ------- -------- -------
Balances, September 30,
1996................... 21,905,398 $18,356 3,669,024 $1,256 $(1,066) $(14,173) $ 4,373
========== ======= ========= ====== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
AURUM SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss...................... $(4,262) $(4,388) $(4,452) $(3,247) $ (447)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization................. 263 518 589 434 838
Provision for doubtful
accounts..................... 183 87 125 142
Write-off of intangibles...... 220 41
Changes in current assets and
liabilities:
Accounts receivable.......... 14 (1,050) (3,453) (939) (4,154)
Prepaid expenses and other
current assets.............. (224) (52) (10) 138 (555)
Other assets................. 5 (4) (130) (7) (46)
Accounts payable............. 3 77 692 208 496
Accrued compensation and
other liabilities........... 360 236 795 573 1,064
Deferred revenue............. 121 380 1,475 121 (116)
------- ------- ------- ------- -------
Net cash used in operating
activities................. (3,537) (4,196) (4,149) (2,536) (2,920)
------- ------- ------- ------- -------
Cash flows from investing
activities:
Purchase of short-term
investments.................. (2,889)
Sales of short-term
investments.................. 2,889
Acquisition of property and
equipment.................... (228) (427) (933) (611) (1,912)
Decrease (increase) in
restricted cash.............. (239) (104) (44) (11) 102
------- ------- ------- ------- -------
Net cash provided by (used
in) investing activities... (3,356) 2,358 (977) (622) (1,810)
------- ------- ------- ------- -------
Cash flows from financing
activities:
Proceeds from borrowings under
line of credit............... 950 1,500
Repayments of borrowings under
line of credit............... (350) (600) (600)
Repayment of notes payable to
stockholders................. (113)
Proceeds from issuance of
mandatorily redeemable
convertible preferred stock,
net of issuance costs........ 8,345 2,456 5,975 5,975 1,486
Proceeds from issuance of
common stock................. 2 6 6 95
Repurchase of mandatorily
redeemable convertible
preferred and common stock... (4) (2) (2) (604)
Proceeds from repayment of
notes receivable from
stockholders................. 10 10
Repayments of note payables
and capital lease
obligations.................. (79) (224) (431) (326) (555)
Proceeds from notes payable
and sales and leasebacks of
property
and equipment................ 150 456 240 1,696
------- ------- ------- ------- -------
Net cash provided by
financing activities....... 8,311 2,842 5,404 5,293 3,618
------- ------- ------- ------- -------
Net increase (decrease) in
cash.......................... 1,418 1,004 278 2,135 (1,112)
Cash and cash equivalents at
beginning of year............. 95 1,513 2,517 2,517 2,795
------- ------- ------- ------- -------
Cash and cash equivalents at
end of year................... 1,513 $ 2,517 $ 2,795 $ 4,652 1,683
======= ======= ======= ======= =======
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash payments for:
Interest...................... $ 42 $ 88 $ 157 $ 123 $ 143
SUPPLEMENTAL DISCLOSURE OF
NONCASH TRANSACTIONS:
Issuance of stockholders'
notes receivable in exchange
for common stock............. $ 37 $ 1,028
Cancellation of stockholder
note receivable.............. $ 3 $ 37
Property and equipment
acquired under capital lease
obligations.................. $ 434 $ 394 $ 58 $ 58
Property and equipment
purchased included in
accounts payable............. $ 50 $ 15
Common stock issued in
consideration for services
performed.................... $4 $ 15
Issuance of mandatorily
redeemable convertible
preferred stock in exchange
for technology............... $ 79
Conversion of note payable to
mandatorily redeemable
convertible preferred stock.. $ 500
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
1.Business of the Company:
Aurum Software, Inc. (the "Company") is a provider of enterprise-wide
sales and marketing information software. The Company develops, markets and
supports the Aurum Customer Enterprise suite of applications which helps
automate the field sales, telemarketing, telesales and customer support
functions of a business. The Company's products are based on advanced
client/server and Internet/Intranet technologies and are designed to
address the sales and marketing requirements of businesses ranging from
medium-sized enterprises to large multinational corporations. The Company
sells its products in North America primarily through its direct sales
force and sells its products outside of North America primarily through key
distribution organizations. In addition, the Company provides an array of
services to its customers, including business consulting, requirements
definition, installation, consulting, training and customer support. The
Company is headquartered in Santa Clara, California, with sales offices
nationwide.
2.Summary of Significant Accounting Policies:
INTERIM FINANCIAL INFORMATION (UNAUDITED):
The unaudited interim statements of operations and cash flows and related
notes for the nine months ended September 30, 1995 have been prepared on
the same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the financial position
and results of operations in accordance with generally accepted accounting
principles. Results for the interim period are not necessarily indicative
of results to be expected for the full fiscal year.
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 and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with an original or
remaining maturity of three months or less at the time of purchase to be
cash equivalents.
REVENUE RECOGNITION:
Revenues consist of license revenues and service revenues. License
revenues are recognized upon execution of a license agreement and delivery
of software if there are no significant post-delivery vendor obligations
and if collection of the receivable is deemed probable. If significant
post-delivery obligations exist or if a product is subject to customer
acceptance, revenues are deferred until no significant obligations remain
or acceptance has occurred. Upon recognition of license revenues, the
Company accrues for the cost of warranty and insignificant vendor
obligations. Revenues from services consist of fees from consulting
services, including implementation and customization of licensed software,
training and maintenance support. Consulting and training revenues are
generally recognized as services are performed, except for revenues from
certain fixed
F-7
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
2.Summary of Significant Accounting Policies, continued
price contracts or milestone deliverables, which are recognized on a
percentage-of-completion basis or upon milestone delivery. Maintenance
support revenues are recognized ratably over the term of the support
period, which is typically one year.
ENGINEERING AND SUPPORT:
Costs related to the conceptual formulation and design of software
products are charged to operations as incurred. Software development costs
are capitalized beginning when a product's technological feasibility has
been established and ending when a product is available for general release
to customers. The Company has not capitalized any software development
costs since such costs have not been significant.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is provided on a straight-line basis over
the estimated useful lives of the assets which is generally three years.
Amortization of equipment under capital leases is computed using the
straight-line method over the shorter of the remaining lease term or the
estimated useful life of the related asset.
COMPUTATION OF HISTORICAL NET LOSS PER SHARE AND PRO FORMA NET LOSS PER
SHARE:
Historical net loss per share is computed using the weighted average
number of shares of common stock outstanding during the period. Common
equivalent shares from stock options and mandatorily redeemable convertible
preferred stock are excluded from the computation of net loss per share as
their effect is antidilutive, except that, pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common and common
equivalent shares issued at prices below the public offering price during
the 12 months immediately preceding the offering date have been included in
the calculation as if they were outstanding for all periods presented
(using the treasury stock method and the anticipated initial public
offering price). Pro forma net loss per share assumes the common shares
issuable upon conversion of the outstanding convertible preferred stock
have been outstanding during such periods. Historical net loss per share is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
Net loss................... $(4,262) $(4,388) $(4,452) $ (3,247) $ (447)
======= ======= ======= ========= ========
Net loss per share......... $ (2.09) $ (2.26) $ (1.47) $ (1.15) $ (0.11)
======= ======= ======= ========= ========
Number of shares used in
per share calculation..... 2,043 1,938 3,020 2,825 4,064
======= ======= ======= ========= ========
</TABLE>
F-8
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
2.Summary of Significant Accounting Policies, continued
INCOME TAXES:
The Company accounts for income taxes under the liability method. Under
the liability method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The Company
is required to adjust its deferred tax liabilities in the period when tax
rates or the provisions of the income tax laws change. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
BUSINESS RISKS AND CREDIT CONCENTRATION:
A majority of the Company's revenues have been attributed to SalesTrak,
which is typically the first of the Company's software products to be
deployed with the greatest number of users and which often serves as a
foundation for other applications. Any factor adversely affecting the
pricing of or demand for the SalesTrak product could have a material
adverse affect on the Company's business, financial condition or results of
operations.
The Company incorporates into its products certain software and other
technologies licensed to it by third-party developers. In the event that
products licensed from the third-party vendors should fail to address the
requirements of the Company's software products, the Company would be
required to find alternative software products or technologies of equal
performance or functionality. The absence of or any significant delay in
the replacement of that functionality could have a material adverse affect
on the Company's business, financial condition, or results of operations.
As of December 31, 1994 and 1995 and September 30, 1996, the Company's
cash and cash equivalents are deposited with principally one financial
institution in the form of demand deposit and money market accounts.
The Company markets and sells its products to a broad geographic and
demographic base of customers and generally does not require collateral. At
December 31, 1994, two customers accounted for 15.4% and 13.1% of accounts
receivable. At December 31, 1995, two customers accounted for 16.9% and
12.5% of accounts receivable. At September 30, 1996, three customers
accounted for 13.4%, 13.4% and 12.2% of accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of certain of the Company's financial instruments
including cash and cash equivalents, accounts receivable, accounts payable
and other accrued liabilities approximates fair value due to their short
maturities. Based on borrowing rates currently available to the Company for
loans with similar terms, the carrying value of its notes payable, capital
lease obligations and borrowings under the Company's line of credit
approximates fair value.
LONG-LIVED ASSETS:
Effective January 1, 1996, the Company adopted Financial Accounting
Standards Board issued Statement No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires the Company to review for impairment of long-lived
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset might not be recoverable. In certain
situations, an impairment loss would be recognized. The adoption of SFAS
121 did not impact on the Company's financial condition or results of
operations.
F-9
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
STOCK BASED COMPENSATION:
Statement of Financial Accounting Standards No. 123 (SFAS 123)
"Accounting for Stock-Based Compensation," encourages, but does not
require, companies to record compensation cost for stock-based compensation
plans at fair value. The Company has chosen to continue to account for
employee stock options using the intrinsic value method prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly,
compensation cost for stock options is measured as the excess, if any, of
the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.
3.Property and Equipment:
Property and equipment, consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1994 1995 1996
------ ------- -------------
<S> <C> <C> <C>
Computer equipment.......................... $1,773 $ 2,750 $ 4,598
Furniture and fixtures...................... 184 219 283
Leasehold improvements...................... 54 32 32
------ ------- -------
2,011 3,001 4,913
Less accumulated depreciation and
amortization............................... (860) (1,442) (2,280)
------ ------- -------
$1,151 $ 1,559 $ 2,633
====== ======= =======
</TABLE>
At December 31, 1994 and 1995 and at September 30, 1996, computer
equipment in the amount of $903,000, $1,114,000 and $3,031,000,
respectively, with $318,000, $687,000 and $1,324,000, respectively, of
accumulated depreciation were capitalized under equipment lease
arrangements. These assets are pledged as collateral under the lease
arrangements.
4.Notes Payable, Capital Lease Obligations and Line of Credit:
NOTES PAYABLE:
The Company has an equipment loan for $1,250,000 with its bank.
Outstanding borrowings under the loan bear interest at prime rate plus 1.5%
(10.75% at September 30, 1996). Under the provisions of the loan, the
Company may borrow against the loan until April 30, 1997 and must pay
interest monthly on outstanding borrowings. Beginning May 30, 1997, the
outstanding balance as of April 30, 1997, will be payable monthly in thirty
even payments of principal plus interest through October 30, 1999. The
Company had outstanding borrowings under this loan of $590,000 at September
30, 1996.
The Company has outstanding a note payable with a leasing company which
bears interest at 10%, expires on February 15, 1998 at which time the
remaining balance is due, and is collateralized by an irrevocable letter of
credit. At December 31, 1994 and 1995 and at September 30, 1996, $104,000,
$75,000 and $51,000, respectively, was outstanding under this note.
In addition, the Company has outstanding two notes payable which bear
interest at 15% and are due on December 15, 1996 and July 16, 1997,
respectively. At December 31, 1995 and September 30, 1996, $263,000 and
$249,000, respectively, was outstanding under these notes.
F-10
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
4.Line of Credit, Capital Lease Obligations and Notes Payable, continued
The following table summarizes the scheduled maturities of notes payable
(in thousands):
<TABLE>
<S> <C>
October 1, 1996--December 31, 1996................................. $ 86
1997............................................................... 394
1998............................................................... 292
1999............................................................... 223
-----
995
Less amount representing interest.................................. (105)
-----
Present value of future minimum payments........................... 890
Less current portion............................................... (331)
-----
Long term portion of notes payable................................. $559
=====
CAPITAL LEASE OBLIGATIONS:
The Company leases equipment under capital lease agreements. Future
minimum lease payments on these capital lease obligations are as follows
(in thousands):
October 1, 1996--December 31, 1996................................. $ 160
1997............................................................... 527
1998............................................................... 368
1999............................................................... 84
-----
Minimum lease payments............................................. 1,139
Less amount representing interest.................................. (130)
-----
Present value of minimum lease payments............................ 1,009
Less current portion............................................... (479)
-----
Long-term portion of capital leases................................ $ 530
=====
</TABLE>
During fiscal year 1995 and the nine months ended September 30, 1996, the
Company sold certain equipment at cost less accumulated depreciation of
$132,000 and $961,000, respectively, and leased back such equipment. No
gain or loss was recognized on the sale.
LINE OF CREDIT:
At September 30, 1996, the Company had a line of credit agreement with a
bank which provides the Company the ability to borrow 75% of eligible
receivables or a maximum of $3,000,000 . The line of credit which is
collateralized by the assets of the Company matures on July 15, 1997 and
requires the Company to maintain certain financial covenants, including
among others, specified levels of working capital, net worth, quarterly
profitability and financial ratios. The line of credit agreement also
contains a restrictive covenant which limits the Company's ability to pay
cash dividends or make stock repurchases without the bank's consent.
Borrowings under the line of credit bear interest at the prime rate plus
1.5% (10.75% at September 30, 1996). At September 30, 1996, the Company had
outstanding borrowings of $1,500,000 under the line of credit.
F-11
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
5.Commitments and Contingencies:
OPERATING LEASES:
The Company leases its facilities under noncancelable operating leases
and subleases which expire in 1997 and 1998.
Future annual minimum lease payments under the lease agreements are as
follows (in thousands):
<TABLE>
<S> <C>
October 1, 1996 - December 31, 1996 ................................. $104
1997................................................................. 166
1998................................................................. 70
----
$340
====
</TABLE>
Rent expense for 1993, 1994 and 1995 and for the nine month period ended
September 30, 1996 amounted to $318,000, $315,000, $237,000 and $264,000,
respectively.
CONTINGENCIES:
The Company is engaged in certain legal and administrative proceedings
incidental to its normal business activities. While it is not possible to
determine the ultimate outcome of these actions at this time, management
believes that any liabilities resulting from such proceedings, or claims
which are pending or known to be threatened, will not have a material
adverse effect on the Company's financial position or results of
operations.
F-12
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
6.Mandatorily Redeemable Convertible Preferred Stock:
The mandatorily redeemable convertible preferred stock of the Company
comprises the series designated as follows:
<TABLE>
<CAPTION>
NUMBER OF COMMON
NUMBER OF SHARES SHARES LIQUIDATION
SHARES ISSUED AND RESERVED FOR VALUE
AUTHORIZED OUTSTANDING CONVERSION (IN THOUSANDS)
---------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Series A................ 4,411,765 3,235,294 739,565 $2,750
Series A-1.............. 1,176,471 1,176,471 172,413 1,000
Series B................ 5,092,563 4,504,630 1,308,355 4,865
Series B-1.............. 277,778 277,778 51,724 300
Series C................ 5,000,000 5,000,000 624,997 2,500
Series D................ 7,707,719 7,707,719 1,926,925 6,089
---------- --------- ------
December 31, 1995 21,901,892 4,823,979 17,504
Series A-1--repurchase.. (882,353) (882,353) (129,310) (750)
Series B-1--repurchase.. (277,778) (277,778) (51,724) (300)
Series C--repurchase.... -- (200,000) (25,000) (100)
Series E................ 1,363,637 1,363,637 340,908 1,500
---------- --------- ------
Reclass due to
elimination of
mandatory redemption
provisions related to
convertible preferred
stock.................. 21,905,398 4,958,853 17,854
---------- --------- ------
September 30, 1996 -- -- $ --
========== ========= ======
</TABLE>
In January 1996, the Company repurchased shares of Series A-1, Series B-
1, and Series C preferred stock held by one investor at prices of $.3459,
$.4394 and $.2950 per share, respectively.
In March 1996, the Company issued 1,363,637 shares of Series E preferred
stock at $1.10 per share.
The rights, preferences and privileges of the Series A, Series A-1,
Series B, Series C, Series D and Series E preferred stockholders are as
follows:
Redemption:
The Company does not have the right to call or redeem any shares of
preferred stock.
In September 1996, the Board of Directors and the stockholders approved
an amendment to the articles of incorporation to remove all of the
preferred stockholders redemption provisions related to the convertible
preferred stock. Prior to September 30, 1996, the holders of shares of
Preferred Stock could require the Company to redeem, at any time after
August 2000 (the "Redemption Date"), the then outstanding preferred stock
by paying cash in exchange for the shares of preferred stock to be
redeemed, at a sum equal to the redemption price. The redemption price
shall be an amount per share equal to all declared and unpaid dividends per
share of preferred stock, as the case may be, being redeemed plus the
greater of $0.85 in the case of the Series A preferred stock, $0.85 in the
case of the Series A-1 preferred stock, $1.08 in the case of the Series B
preferred, $0.50 in the case of the Series C preferred stock, $0.79 in the
case of the Series D and $1.10 in the case of Series E preferred stock or
the fair market value per share of the preferred stock, as the case may be,
redeemed as of the specified Redemption Date.
F-13
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Dividends:
The holders of Series A, Series A-1, Series B, Series C, Series D and
Series E preferred stock are entitled to noncumulative dividends of $
0.085, $0.085, $0.108, $0.05, $0.079 and $0.11, respectively, per share per
annum, when and if declared by the Board of Directors. Such a dividend will
be declared or paid prior and in preference to any declaration or payment
of any dividend on the common stock, other than a common stock dividend
payable solely in shares of common stock.
Liquidation:
A consolidation or merger of the Company with or into any other
corporation is deemed a liquidation. Holders of Series A, Series A-1,
Series B, Series C, Series D and Series E preferred stock are entitled to
receive, prior and in preference to any distribution of any of the assets
or surplus funds of the Company to common stockholders, an amount of $0.85,
$0.85, $1.08, $ 0.50, $0.79 and $1.10, respectively, per share plus an
amount equal to any declared but unpaid dividends on such shares. If the
assets and funds distributed among the holders of the Series A, Series A-1,
Series B, Series C, Series D and Series E preferred stock are insufficient
to permit the payment to the holders of the full amount as calculated
above, then the entire assets and funds of the Company legally available
for distribution shall be distributed among the holders of the Series A,
Series A-1, Series B, Series C, Series D and Series E preferred stock in
proportion to the preferential amounts to which each holder of Series A,
Series A-1, Series B, Series C, Series D and Series E preferred stock would
otherwise be entitled. After giving effect to the above distribution,
remaining assets and funds are to be distributed among the holders of
preferred and common stock pro rata based on the number of shares of common
stock held by each (assuming conversion into common stock of all such
Series A, Series A-1, Series B, Series C, Series D and Series E preferred
stock).
Conversion and Registration:
The preferred stock is convertible at the option of the holder, at any
time, into common stock as is determined by dividing $0.85, $0.85, $1.08, $
0.50, $0.79 and $1.10 by the Series A, Series A-1, Series B, Series C,
Series D and Series E conversion prices, respectively. The Board of
Directors have authorized the Series A, Series A-1, Series B, Series C,
Series D and Series E conversion prices to be $3.7184, $5.8000, $3.7184,
$4.000, $3.1600 and $4.400, respectively, per share of common stock,
subject to the filing of the amended articles of incorporation. Conversion
is automatic upon the earlier of the closing date of a public offering of
the Company's common stock for which the aggregate proceeds equal or exceed
$10,000,000 and the per share offering price is not less than $7.00, or
upon consent of two-thirds in interest of the preferred stockholders. At
September 30, 1996, the Company has reserved 4,958,853 shares,
respectively, of common stock in the event of conversion.
F-14
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Voting:
Each share of preferred stock is entitled to vote on an "as converted"
basis along with common shareholders.
7.Stockholders' Deficit
COMMON STOCK:
At September 30, 1996, 339 shares of common stock issued under the
Company's 1992 Restricted Stock Purchase Plan were subject to repurchase by
the Company.
In May 1996, the Company's Board of Directors authorized management of
the Company to file a Registration Statement with the Securities and
Exchange Commission permitting the Company to sell its shares of common
stock to the public.
In October 1996, the Company's stockholders approved the reincorporation
of the Company from a California to a Delaware corporation, which is
expected to be effective before the completion of the Company's initial
public offering of its common stock. Upon the effective date of the
reincorporation, the California corporation's outstanding common stock will
be converted automatically into shares of common stock of the Delaware
Corporation on a four-for-one basis. In addition, the California
corporation's outstanding convertible preferred stock will automatically
convert into shares of convertible preferred stock of the Delaware
Corporation on a one-for-one basis. All references to the number of common
and common equivalent shares and to per share information in the financial
statements have been adjusted to reflect the conversion on a retroactive
basis.
1995 STOCK OPTION PLAN:
The Board of Directors has reserved 606,431 shares of common stock as of
September 30, 1996 under its 1995 Stock Option Plan (the "1995 Plan") for
issuance to employees, consultants and directors of the Company. In
September 1996, the stockholders authorized an increase in the number of
shares of common stock reserved for issuance under the 1995 Stock Option
Plan by 2,214,000 shares in conjunction with the offering.
The 1995 Plan provides for grants of incentive stock options to employees
(including officers and employee directors) and nonstatutory stock options
to employees (including officers and employee directors) and consultants of
the Company. The 1995 Plan is administered by the Board of Directors or by
a committee appointed by the Board which identifies optionees and
determines the terms of options granted, including the exercise price,
number of shares subject to the option and the exercisability thereof.
The terms of options granted under the 1995 Plan generally may not exceed
ten years. The term of all incentive stock options granted to an optionee
who, at the time of grant, owns stock representing more than 10% of the
voting power of all classes of stock of the Company or a parent or
subsidiary of the Company (a "Ten Percent Stockholder"), may not exceed
five years, however. Generally, options granted under the 1995 Plan vest
and become exercisable starting one year after the date of grant, with 25%
of the shares subject to the option becoming exercisable at that time and
F-15
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
an additional 1/48th of such shares becoming exercisable each month
thereafter. Holders of options granted under the 1995 Plan may exercise
their options prior to complete vesting of shares, subject to such holder's
entering a restricted stock purchase agreement granting the Company an
option to repurchase, in the event of a termination of the optionee's
employment or consulting relationship, any unvested shares at a price per
share equal to the original exercise price per share for the option. The
exercise price of incentive stock options granted under the 1995 Plan must
be at least equal to the fair market value of the shares on the date of
grant. The exercise price of nonstatutory stock options granted under the
1995 Plan is determined by the Board of Directors. The exercise price of
any incentive stock option granted to a Ten Percent Stockholder must equal
at least 110% of the fair market value of the Common Stock on the date of
grant. To the extent incentive stock options granted to a participant, when
aggregated with all other incentive stock options granted to such
participant, have an aggregate fair market value in excess of $100,000
first becoming exercisable in any calendar year, such options would be
treated as nonstatutory stock options.
Activity under the 1995 Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES -----------------------------------
AVAILABLE NUMBER
FOR OF EXERCISE AGGREGATE
GRANT SHARES PRICE PRICE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Shares authorized at
inception of 1995 Stock
Plan................... 1,208,921
Options granted......... (1,242,782) 1,242,782 $0.12-$0.32 $ 166,650
Options exercised....... (317,954) $0.12 (38,154)
Options canceled........ 97,441 (97,441) $0.12 (11,693)
---------- ---------- -----------
Balances, December 31,
1995..................... 63,580 827,387 $0.12-$0.32 116,803
Increase in shares
authorized............. 896,775
Options granted......... (961,143) 961,143 $0.38-$8.00 2,721,445
Options exercised....... (1,181,311) $0.12-$6.00 (1,063,654)
Options canceled........ 22,738 (22,738) $0.12-$6.00 (9,505)
---------- ---------- -----------
Balances, September 30,
1996..................... 21,950 584,481 $0.12-$8.00 $ 1,765,089
========== ========== ===========
</TABLE>
As of September 30, 1996, 62,427 outstanding options upon exercise would
not be subject to the Company's right of repurchase. In addition, as of
September 30, 1996, 820,730 shares exercised under the Plan are subject to
repurchase.
The Company has the right of first refusal in the event a stockholder
decides to sell or transfer any of the Company's common stock received upon
exercise of options under the 1995 Plan. This right of first refusal
terminates upon the Company's initial public offering.
F-16
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for
the 1995 Plan. Had compensation cost for the 1995 Plan been determined
based on the fair value at the grant date for awards in 1996 consistent
with the provisions of SFAS No. 123, the Company's net loss and net loss
per share for the nine months ended September 30, 1996 would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<S> <C>
Net loss--as reported.......................... $ (447)
======
Net loss--pro forma............................ $ (555)
======
Net loss per share--as reported................ $(0.05)
======
Net loss per share--pro forma.................. $(0.06)
======
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the minimum value method with the following weighted average
assumptions by subgroup:
<TABLE>
<CAPTION>
GROUP A GROUP B
------- -------
<S> <C> <C>
Risk-free interest rate............... 5.82% 5.20%
Expected life......................... 2.5 2.75
Expected dividends.................... $-- $--
</TABLE>
The weighted average expected life was calculated based on the vesting
period and the exercise behavior of each subgroup. Group A represents
higher paid employees who exercise prior to the vesting period to take
advantage of tax laws. Group B represents lower paid employees who have
held their stock options, but who are expected to exercise subsequent to
the initial public offering and prior to vesting years two through four.
The risk-free interest rate was calculated in accordance with the grant
date and expected life calculated for each subgroup.
The options outstanding and currently exercisable by exercise price at
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
OPTIONS CURRENTLY
OPTIONS OUTSTANDING EXERCISABLE
----------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
$0.12 - $0.12 134,849 8.71 $0.12 134,849 $0.12
$0.32 - $0.32 142,059 9.29 $0.32 142,059 $0.32
$1.20 - $1.20 34,375 9.39 $1.20 34,375 $1.20
$6.00 - $6.00 261,693 9.74 $6.00 261,693 $6.00
$8.00 - $8.00 11,505 9.95 $8.00 11,505 $8.00
</TABLE>
1996 EMPLOYEE STOCK PURCHASE PLAN:
In October 1996, the stockholders approved the 1996 Employee Stock
Purchase Plan (the "Purchase Plan"). A total of 300,000 shares are reserved
for issuance under the Purchase Plan. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions, subject to
certain limitations. The price at which stock is purchased under the
Purchase Plan is equal to 85% of the fair market value of the common stock
on the first day of the applicable offering period or the last day of the
applicable offering period, whichever is lower.
F-17
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
1996 DIRECTOR OPTION PLAN:
In September 1996, the stockholders approved the 1996 Director Option
Plan (the "Director Plan"). A total of 150,000 shares of common stock has
been reserved for issuance under the Director Plan. The option grants under
the Director Plan are automatic and non-discretionary, and the exercise
price of the option is 100% of the fair market value of the common stock on
the grant date. The Director Plan provides for the automatic grant of
options to purchase 18,750 shares of common stock to each non-employee
director of the Company (an "Outside Director") at the first meeting of the
Board of Directors following the annual meeting of stockholders in each
year beginning with the 1997 Annual Meeting of Stockholders, if on such
date, such Outside Director has served on the Board of Directors for at
least six months. The term of such options is ten years. Options granted to
Outside Directors become exercisable at a rate of 1/48th of the shares
subject to such additional options on the monthly anniversary of the date
of grant, subject to the Outside Director's continuous service on the Board
of Directors. The Director Plan will terminate in 2006 unless sooner
terminated by the Board of Directors.
8.Employee Benefit Plan:
The Company has a 401(k) Profit Sharing Plan (the Plan), which covers
substantially all employees. Each eligible employee may elect to contribute
to the Plan, through payroll deductions up to 20% of their compensation,
subject to current statutory limits. The Company, at the discretion of the
Board of Directors, may make matching contributions to the Plan, but has
not done so during the years ended December 31, 1993, 1994 or 1995 or the
nine months ended September 30, 1996.
9.Income Taxes:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets are presented below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS
---------------- ENDED
1994 1995 SEPTEMBER 30, 1996
------- ------- ------------------
<S> <C> <C> <C>
Depreciation and accrued liabilities.. $ 409 $ 323 $ 574
Capitalized research and development
costs................................ 500 1,718 938
Net operating loss carryforward....... 2,042 3,024 3,612
Research and development credit
carryforward......................... 309 366 414
Valuation allowance................... (3,260) (5,431) (5,538)
------- ------- -----------
Net deferred tax asset................ $ -- $ -- $ --
======= ======= ===========
</TABLE>
The Company has established a valuation allowance against its deferred
tax assets due to the uncertainty surrounding the realization of such
assets. Management evaluates on a quarterly basis the recoverability of the
deferred tax assets and the level of the valuation allowance. At such time
as it is determined that it is more likely than not that deferred tax
assets are realizable the valuation allowance will be reduced.
F-18
<PAGE>
AURUM SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
The Company's effective tax rate differs from the statutory federal
income tax rate as shown in the following schedule:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Income tax (benefit)
provision at statutory
rate................... (34)% (34)% (34)% (34)% (34)%
Net operating loss not
benefited.............. 34 34 34 34 34
------- ------- ------- ------ ------
Effective tax rate...... -- % -- % -- % -- % -- %
======= ======= ======= ====== ======
</TABLE>
As of September 30, 1996, the Company had approximately $9,900,000 and
$4,000,000 of net operating loss carryforwards for federal and state
purposes, respectively, and $270,000 and $144,000 of research and
development credits for federal and state purposes, respectively. These
federal and state carryforwards and research and development credits expire
in the years 2007 through 2010, and 1997 through 2000, respectively.
Utilization of the net operating losses and credits is subject to an annual
limitation of $950,000 due to ownership change.
10.Major Customers:
No single customer accounted for 10% or more of the Company's revenues in
fiscal year 1993 and 1994 or the nine months ended September 30, 1996. One
customer accounted for 11% of revenues for the year ended December 31, 1995
and one customer accounted for 15% of revenues for the nine months ended
September 30, 1995.
11.Pro Forma Financial Statement Information:
Upon the closing of the Company's initial public offering, each
outstanding share of the Company's Series A, A-1, B, C, D and E mandatorily
redeemable convertible preferred stock will be converted automatically to
common stock based on conversion rates set forth in Note 6. The pro forma
effect of the conversion has been presented as a separate column in the
Company's balance sheet assuming the conversion had occurred as of
September 30, 1996.
F-19
<PAGE>
CLOSED-LOOP
SALES AND MARKETING PROCESS
FIELD SALES
MANAGEMENT
TELEMARKETING
SUPPORT
[DEPICTION OF FOUR SOFTWARE GRAPHICAL INTERFACES REPRESENTING THE SOFTWARE
FUNCTION]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
The Company.............................................................. 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 27
Management............................................................... 44
Certain Transactions..................................................... 54
Principal and Selling Stockholders....................................... 56
Description of Capital Stock............................................. 59
Shares Eligible for Future Sale.......................................... 62
Underwriting............................................................. 65
Legal Matters............................................................ 66
Experts.................................................................. 66
Additional Information................................................... 67
Glossary................................................................. 68
Index to Financial Statements............................................ F-1
</TABLE>
-----------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,650,000 Shares
[LOGO OF AURUM SOFTWARE APPEARS HERE]
Common Stock
-----------
PROSPECTUS
-----------
Alex. Brown & Sons
INCORPORATED
Cowen & Company
Wessels, Arnold & Henderson
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has adopted provisions in its Certificate of Incorporation that
eliminate to the fullest extent permissible under Delaware law the liability
of its directors to the Company for monetary damages. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. The Company's Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
Delaware law, including in circumstances in which indemnification is otherwise
discretionary under Delaware law. The Company has entered into indemnification
agreements with its officers and directors containing provisions which may
require the Company, among other things, to indemnify the officers and
directors against certain liabilities that may arise by reason of their status
or service as directors or officers (other than liabilities arising from
willful misconduct of a culpable nature), and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified.
There is no currently pending litigation or proceeding involving a director,
officer, employee or other agent of the Company in which indemnification would
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale
of the Common Shares being registered. All of the amounts shown are estimates
except for the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC Registration Fee........................................... $ 11,450
NASD Filing Fee................................................ 3,821
The Nasdaq Stock Market Listing Fee............................ 45,270
Blue Sky Qualification Fees and Expenses....................... 15,000
Printing and Engraving Expenses................................ 115,000
Legal Fees and Expenses........................................ 250,000
Accounting Fees and Expenses................................... 200,000
Transfer Agent and Registrar Fees.............................. 15,000
Directors' and Officers' Insurance............................. 300,000
Miscellaneous.................................................. 44,459
----------
Total...................................................... $1,000,000
==========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since the Registrant's inception in October 1991, the Registrant has issued
and sold (without payment of any selling commission to any person) the
following unregistered securities.
1. From March 27, 1992 to September 30, 1996, the Registrant issued and
sold 2,336,744 shares of Common Stock to employees and consultants at
prices ranging from $0.12 to $8.00 per share, upon exercise of stock
options and stock purchase rights, pursuant to the Registrant's 1992
Restricted Stock Purchase Plan, 1993 Stock Option Plan and 1995 Stock Plan.
2. On January 13, 1993, the Registrant issued and sold 4,411,765 shares
of Series A Preferred Stock to a total of four (4) accredited investors for
an aggregate purchase price of $3,750,000.
II-1
<PAGE>
3. On December 20, 1993, the Registrant issued and sold 4,782,408 shares
of Series B Preferred Stock to a total of seven (7) accredited investors
for an aggregate purchase price of $5,165,000.
4. On December 23, 1994, the Registrant issued and sold 5,000,000 shares
of Series C Preferred Stock to a total of five (5) accredited investors for
an aggregate purchase price of $2,500,000 and issued warrants to such
investors to acquire an aggregate 5,529,110 shares of Common stock at an
aggregate exercise price of $5,529.
5. On August 20, 1995, the Registrant issued and sold 7,607,719 shares of
Series D Preferred Stock to a total of eight (8) accredited investors for
an aggregate purchase price of $6,010,097.
6. On November 17, 1995, the Registrant issued and sold 100,000 shares of
Series D Preferred Stock to Sales Technologies, Inc., a Georgia
corporation, in exchange for certain assets.
7. On March 29, 1996, the Registrant issued and sold an aggregate of
1,363,637 shares of Series E Preferred Stock to two (2) accredited
investors for an aggregate purchase price of $1,500,000.
8. On May 17, 1996, the Registrant issued and sold an aggregate of 6,250
shares of Common Stock to three (3) consultants associated with The Kappa
Group, Inc. for an aggregate purchase price of $37,500.
9. On August 20, 1996 to August 28, 1996, the Registrant issued and sold
an aggregate of 6,252 shares of Common Stock to six (6) consultants
associated with R. B. Webber & Company, Inc. for an aggregate purchase
price of $37,500.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section
3(b) of the Securities Act, as transactions by an issuer not involving a
public offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients of securities in each such transaction represented their intention
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates and instruments issued in such transactions.
All recipients had adequate access, through their relationship with the
Company, to information about the Registrant.
ITEM 27. EXHIBITS
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Form of Restated Certificate of Incorporation of the Registrant to be
filed prior to completion of the offering.
3.2** Bylaws of the Registrant.
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1** Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2** 1995 Stock Plan and form of Stock Option Agreement thereunder.
10.3** 1996 Director Option Plan and form of Director Stock Option Agreement
thereunder.
10.4** 1996 Employee Stock Purchase Plan and forms of agreement thereunder.
10.5** Lease dated March 5, 1996 between the Registrant and Cooperage-Rose
Properties II.
10.6** Letter agreement dated December 22, 1994 between the Registrant and
Mary E. Coleman, as amended.
10.7** Letter Agreement dated July 8, 1996 between the Registrant and
Christopher L. Dier.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.8+** OEM Software License Agreement, amended as of April 3, 1996, between
the Registrant and Gupta Corporation.
10.9** Line of Credit Agreement dated July 15, 1996, modifying the Business
Loan Agreement dated July 13, 1993, between the Registrant and Silicon
Valley Bank.
Promissory Note dated July 15, 1996 between the Registrant and Silicon
10.10** Valley Bank.
10.11** Loan Modification Agreement dated September 25, 1996 by and between
the Registrant and Silicon Valley Bank.
10.12 Vertical Application Reseller Agreement, dated as of March 22, 1996,
between the Registrant and Business Objects, Inc.
10.13 Software Development License and Distribution Agreement, dated as of
June 3, 1996, between the Registrant and First Floor Software, Inc.
11.1 Calculation of pro forma net loss per share.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1** Power of Attorney (see page II-4).
27.1** Financial Data Schedule.
</TABLE>
- --------
** Previously supplied.
+ Confidential treatment has been requested for portions of these agreements
pursuant to a request for confidential treatment filed with the Commission.
Omitted portions have filed separately with the Commission.
(b) Financial Statement Schedules:
Report of Independent Accountants
Schedule II--Valuation and Qualifying Accounts
All other Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
(the "Act") may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the California Corporations Law, the Articles of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance on Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Amendment No. 2 to the
Registration Statement on Form SB-2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Clara, State of
California, on the 18th day of October, 1996.
Aurum Software, Inc.
/s/ Christopher L. Dier
By: _________________________________
CHRISTOPHER L. DIER
CHIEF FINANCIAL OFFICER AND
SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES STATED.
SIGNATURE TITLE DATE
Mary E. Coleman* President and Chief
- ------------------------------------- Executive Officer October 18,
(MARY E. COLEMAN) (Principal 1996
Executive Officer)
Chief Financial
/s/ Christopher L. Dier Officer and October 18,
- ------------------------------------- Secretary 1996
(CHRISTOPHER L. DIER) (Principal
Financial and
Accounting Officer)
David D. Buchanan* Director
- ------------------------------------- October 18,
(DAVID D. BUCHANAN) 1996
II-4
<PAGE>
SIGNATURE TITLE DATE
Oliver D. Curme* Director
- ------------------------------------- October 18,
(OLIVER D. CURME) 1996
Mark J. Leslie* Director
- ------------------------------------- October 18,
(MARK J. LESLIE) 1996
Robert J. Loarie* Director
- ------------------------------------- October 18,
(ROBERT J. LOARIE) 1996
Robert M. Obuch* Director
- ------------------------------------- October 18,
(ROBERT M. OBUCH) 1996
Jeffrey T. Webber* Director
- ------------------------------------- October 18,
(JEFFREY T. WEBBER) 1996
Charles C. Wu* Director
- ------------------------------------- October 18,
(CHARLES C. WU) 1996
*By: /s/ Christopher L. Dier
-------------------------------------------
(CHRISTOPHER L. DIER, ATTORNEY-IN-FACT)
II-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Aurum Software, Inc.
In connection with our audits of the financial statements of Aurum Software,
Inc. as of December 31, 1994 and 1995, and for each of the three years in the
period ended December 31, 1995, which financial statements are included in
this Registration Statement, we have also audited the financial statement
schedule listed in Item 27(b) herein.
In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
October 14, 1996
II-6
<PAGE>
SCHEDULE II
AURUM SOFTWARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END OF
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD
----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable:
Year ended December 31, 1993... $ 67 $183 $ -- $250
==== ==== ===== ====
Year ended December 31, 1994... $250 $ 87 $ (19)(a) $318
==== ==== ===== ====
Year ended December 31, 1995... $318 $125 $(103)(a) $340
==== ==== ===== ====
</TABLE>
- --------
(a)Uncollectible accounts written-off.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE PAGE
------- ------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1** Form of Restated Certificate of Incorporation of the Registrant
to be filed prior to completion of the offering.
3.2** Bylaws of the Registrant.
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1** Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2** 1995 Stock Plan and form of Stock Option Agreement thereunder.
10.3** 1996 Director Option Plan and form of Director Stock Option
Agreement thereunder.
10.4** 1996 Employee Stock Purchase Plan and forms of agreement
thereunder.
10.5** Lease dated March 5, 1996 between the Registrant and Cooperage-
Rose Properties II.
10.6** Letter agreement dated December 22, 1994 between the Registrant
and Mary E. Coleman, as amended.
10.7** Letter Agreement dated July 8, 1996 between the Registrant and
Christopher L. Dier.
10.8+** OEM Software License Agreement, amended as of April 3, 1996,
between the Registrant and Gupta Corporation.
10.9** Line of Credit Agreement dated July 15, 1996, modifying the
Business Loan Agreement dated July 13, 1993, between the
Registrant and Silicon Valley Bank.
Promissory Note dated July 15, 1996 between the Registrant and
10.10** Silicon Valley Bank.
10.11** Loan Modification Agreement dated September 25, 1996 by and
between the Registrant and Silicon Valley Bank.
10.12 Vertical Application Reseller Agreement, dated as of March 22,
1996, between the Registrant and Business Objects, Inc.
10.13 Software Development License and Distribution Agreement, dated
as of June 3, 1996, between the Registrant and First Floor
Software, Inc.
11.1 Calculation of pro forma net loss per share.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1** Power of Attorney (see page II-4).
27.1** Financial Data Schedule.
</TABLE>
- --------
** Previously supplied.
+ Confidential treatment has been requested for portions of these agreements
pursuant to a request for confidential treatment filed with the Commission.
Omitted portions have filed separately with the Commission.
<PAGE>
EXHIBIT 1.1
[__________ Shares]
AURUM SOFTWARE, INC.
Common Stock
($0.001 Par Value)
UNDERWRITING AGREEMENT
----------------------
__________, 1996
Alex. Brown & Sons Incorporated
Cowen & Company
Wessels, Arnold & Henderson, L.L.C.
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen:
Aurum Software, Inc., a Delaware corporation (the "Company"), and certain
stockholders of the Company named in Schedule I hereto (the "Selling
Stockholders") propose to sell to the several underwriters (the "Underwriters")
named in Schedule II hereto for whom you are acting as representatives (the
"Representatives") an aggregate of __________ shares of the Company's Common
Stock, $0.001 par value (the "Firm Shares"), of which __________ shares will be
sold by the Company and __________ shares will be sold by the Selling
Stockholders. The respective amounts of the Firm Shares to be so purchased by
the several Underwriters are set forth opposite their names in Schedule II
hereto, and the respective amounts to be sold by the Selling Stockholders are
set forth opposite their names in Schedule I hereto. The Company and the
Selling Stockholders are sometimes referred to herein collectively as the
"Sellers." The Company also proposes to sell, at the Underwriters' option, an
aggregate of up to _____________ additional shares of the Company's Common Stock
(the "Option Shares") as set forth below.
As the Representatives, you have advised the Company and the Selling
Stockholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I, plus their pro rata portion
of the Option Shares if you elect to exercise the
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over-allotment option in whole or in part for the accounts of the several
Underwriters. The Firm Shares and the Option Shares (to the extent the
aforementioned option is exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company.
---------------------------------------------
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form SB-2 (File No. 333-11947) with
respect to the Shares has been carefully 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. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means (a) the form of prospectus first
filed with the Commission pursuant to Rule 424(b) or (b) the last preliminary
prospectus included in the Registration Statement filed prior to the time it
becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Shares, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary
prospectus included in the Registration Statement prior to the time it becomes
effective is herein referred to as a "Preliminary Prospectus.
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification, except for those jurisdictions where the
failure to be so qualified would not have a material adverse effect on the
Company's business, financial condition or operating results.
(iii) The outstanding shares of Common Stock of the Company, including all
shares to be sold by the Selling Stockholders, have been duly authorized and
validly issued and are fully paid and non-assessable; the portion of the Shares
to be issued and sold by the Company has been duly authorized and when issued
and paid for as contemplated herein will be validly issued, fully paid and non-
assessable; and no preemptive rights of
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stockholders exist [in the charter or bylaws of the Company or in any agreement
binding upon the Company] with respect to any of the Shares or the issue and
sale thereof. Neither the filing of the Registration Statement nor the offering
or sale of the Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any shares of Common Stock.
(iv) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct. All of the Shares conform in all material
respects to the description thereof contained in the Registration Statement.
The form of certificates for the Shares conforms to the corporate law of the
jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform to, the
requirements of the Act and the Rules and Regulations. On the date the
Registration Statement becomes effective (the "Effective Date") and when any
post-effective amendment to the Registration Statement becomes effective, the
Registration Statement and any amendment thereto did not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. At the Effective Date, the date the
Prospectus or any amendment or supplement to the Prospectus is filed with the
Commission and at the Closing Date (as such date is hereinafter defined) and, if
later, the Option Closing Date (as such date is hereinafter defined), the
Prospectus and any amendments and supplements thereto did not contain, and will
not contain, any untrue statement of material fact; and did not omit, and will
not omit, to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from the
Registration Statement or 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 through the Representatives,
specifically for use in the preparation thereof.
(vi) The financial statements of the Company, together with related notes
and schedules as set forth in the Registration Statement, present fairly the
financial position and the results of operations and cash flows of the Company,
at the indicated dates and for the indicated periods. Such financial statements
and related schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods involved,
except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data included in the Registration Statement presents fairly the
information shown therein and such data has been compiled on a basis consistent
with the financial statements presented therein and the books and records of the
Company.
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The pro forma financial statements and other pro forma financial
information included in the Registration Statement and the Prospectus present
fairly the information shown therein, have been properly compiled on the pro
forma bases described therein, and, in the opinion of the Company, the
assumptions used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions or circumstances
referred to therein.
(vii) Coopers & Lybrand L.L.P., who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company before any court or
administrative agency or otherwise which if determined adversely to the Company
might result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations or condition (financial or
otherwise) of the Company or to prevent the consummation of the transactions
contemplated hereby, except as set forth in the Registration Statement.
(ix) The Company has good and valid title to all of the properties and
assets reflected in the financial statements (or as described in the
Registration Statement) hereinabove described, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except those reflected in such
financial statements (or as described in the Registration Statement) or which
have arisen in the ordinary course of business and do not materially impair the
use by the Company of the encumbered asset. The Company occupies its leased
properties under valid and binding leases conforming in all material respects to
the description thereof set forth in the Registration Statement.
(x) The Company has filed all federal, state, local and foreign income tax
returns which have been required to be filed and have paid all taxes indicated
by said returns and all assessments received by it to the extent that such taxes
have become due. All tax liabili ties have been adequately provided for in the
financial statements of the Company.
(xi) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not been
any material adverse change or any development involving a prospective material
adverse change in or affecting the earnings, business, management, properties,
assets, rights, operations or condition (financial or otherwise) of the Company,
whether or not occurring in the ordinary course of business, and there has not
been any material transaction entered into by the Company, other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or supplemented.
The Company has no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement.
(xii) The Company is not nor with the giving of notice or lapse of time or
both, will be, in violation of or in default under its Charter or Bylaws or
under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or
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<PAGE>
any of its properties, is bound and which default is of material significance in
respect of the condition, financial or otherwise of the Company or the business,
management, properties, assets, rights, operations or condition (financial or
otherwise) of the Company. The execu tion and delivery of this Agreement and
the consummation of the transactions herein contemplated and the fulfillment of
the terms hereof will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any indenture, mortgage,
deed of trust or other agreement or instrument to which the Company is a party,
or of the Charter or Bylaws of the Company or any order, rule or regulation
applicable to the Company of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connec tion with the execution and delivery by
the Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(xiv) The Company holds all material licenses, certificates and permits
from governmental authorities which are necessary to the conduct of their
businesses; and, to the Company's knowledge, the Company has not infringed any
patents, patent rights, trade names, trademarks or copyrights, which
infringement is material to the business of the Company. The Company knows of
no material infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company.
(xv) Neither the Company, nor to the Company's best knowledge, any of its
affiliates, has taken or may take, directly or indirectly, any action designed
to cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the Shares.
(xvi) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940 (the "1940 Act") and the
rules and regulations of the Commission thereunder.
(xvii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are executed
in accordance with management's general or specific authorization; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
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<PAGE>
(xviii) The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct its business and the
value of its properties and as is customary for companies engaged in similar
industries.
(xix) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any material liability; the Company has not incurred and does not
expect to incur liability under (A) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (B) sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under section 401(a) of the Code is so qualified in all material respects and,
to the knowledge of the Company, nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification.
(xx) The Company confirms as of the date hereof that it is in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act
Relating to Disclosure of doing Business with Cuba, and the Company further
agrees that if it commences engaging in business with the government of Cuba or
with any person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever date is
later, or if the information reported or incorporated by reference in the
Prospectus, if any, concerning the Company's business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
(b) Each of the Selling Stockholders severally represents and warrants as
follows:
(i) Such Selling Stockholder now has and at the Closing Date (as such date
is hereinafter defined) will have good and valid title to the Firm Shares to be
sold by such Selling Stockholder, free and clear of any liens, encumbrances,
equities and claims (except as contemplated by this Agreement and except for
restrictions on transfer which will no longer be applicable from and after the
Closing Date, and full right, power and authority to effect the sale and
delivery of such Firm Shares; and upon the delivery of, against payment for,
such Firm Shares pursuant to this Agreement, the Underwriters will acquire good
and valid title thereto, free and clear of any liens, encumbrances, equities and
claims.
(ii) Such Selling Stockholder has full right, power and authority to
execute and deliver this Agreement, [the Power of Attorney, and the Custodian
Agreement] referred to below and to perform its obligations under such
Agreements. The execution and delivery of this Agreement and the consummation
by such Selling Stockholder of the transactions herein contemplated and the
fulfillment by such Selling Stockholder of the terms hereof will not
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require any consent, approval, authorization, or other order of any court,
regulatory body, administrative agency or other governmental body (except as may
be required under the Act, state securities laws or Blue Sky laws) and will not
result in a breach of any of the terms and provisions of, or constitute a
default under, organizational documents of such Selling Stockholder, if not an
individual, or any indenture, mortgage, deed of trust or other agreement or
instrument to which such Selling Stockholder is a party, or of any order, rule
or regulation applicable to such Selling Stockholder of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction.
(iii) 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 the stabilization or manipulation
of the price of the Common Stock of the Company and, other than as permitted by
the Act, the Selling Stockholder will not distribute any prospectus or other
offering material in connection with the offering of the Shares.
(iv) The information pertaining to such Selling Stockholder in the
Registration Statement and as set forth under the caption "Principal and Selling
Stockholders" in the Prospectus is complete and accurate in all material
respects.
(v) Without having undertaken to determine independently the accuracy or
completeness of either the representations and warranties of the Company
contained herein or the information contained in the Registration Statement,
Susan K. Buchanan (the "Principal Selling Stockholder") has no reason to believe
that the representations and warranties of the Company contained in this Section
1 are not true and correct, is familiar with the Registration Statement and has
no knowledge of any material fact, condition or information not disclosed in the
Registration Statement which has adversely affected or would adversely affect
the business of the Company; and the sale of the Firm Shares by such Principal
Selling Stockholder pursuant hereto is not prompted by any information
concerning the Company which is not set forth in the Registration Statement.
2. Purchase, Sale and Delivery of the Firm Shares.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Sellers agree to
sell to the Underwriters and each Underwriter agrees, severally and not jointly,
to purchase, at a price of $_________ per share, the number of Firm Shares set
forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof. The number of Firm Shares to
be purchased by each Underwriter from each Seller shall be as nearly as
practicable in the same proportion to the total number of Firm Shares being sold
by each Seller as the number of Firm Shares being purchased by each Underwriter
bears to the total number of Firm Shares to be sold hereunder. The obligations
of the Company and of each of the Selling Stockholders shall be several and not
joint.
(b) Certificates in negotiable form for the total number of Shares to be
sold hereunder by the Selling Stockholders have been placed in custody with The
First National Bank of Boston as custodian (the "Custodian") pursuant to the
Custodian Agreement
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<PAGE>
executed by each Selling Stockholder for delivery of all Firm Shares to be sold
hereunder by the Selling Stockholders. Each of the Selling Stockholders
specifically agrees that the Firm Shares represented by the certificates held in
custody for the Selling Stockholders under the Custodian Agreement are subject
to the interests of the Underwriters hereunder, that the arrangements made by
the Selling Stockholders for such custody are to that extent irrevocable, and
that the obligations of the Selling Stockholders hereunder shall not be
terminable by any act or deed of the Selling Stockholders (or by any other
person, firm or corporation including the Company, the Custodian or the
Underwriters) or by operation of law (including the death of an individual
Selling Stockholder or the dissolution of a corporate Selling Stockholder) or by
the occurrence of any other event or events, except as set forth in the
Custodian Agreement. If any such event should occur prior to the delivery to
the Underwriters of the Firm Shares hereunder, certificates for the Firm Shares
shall be delivered by the Custodian in accordance with the terms and conditions
of this Agreement as if such event has not occurred. The Custodian is
authorized to receive and acknowledge receipt of the proceeds of sale of the
Shares held by it against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be made in
same-day funds by wire transfer to the order of the Company for the shares to be
sold by it and to the order of The First National Bank of Boston, "as Custodian"
for the shares to be sold by the Selling Stockholders, in each case against
delivery of certificates therefor to the Representatives for the several
accounts of the Underwriters. Such payment and delivery are to be made at the
offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street,
Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the third business day
after the date of this Agreement or at such other time and date not later than
five business days thereafter as you and the Company shall agree upon, such time
and date being herein referred to as the "Closing Date." (As used herein,
"business day" means a day on which the New York Stock Exchange is open for
trading and on which banks in New York are open for business and not permitted
by law or executive order to be closed.) The certificates for the Firm Shares
will be delivered in such denominations and in such registrations as the
Representatives request in writing not later than the second full business day
prior to the Closing Date, and will be made available for inspection by the
Representatives at least one business day prior to the Closing Date.
(d) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase up to a maximum
of _____ of the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in
whole or in part by giving written notice (i) at any time before the Closing
Date and (ii) only once thereafter within thirty (30) days after the date of
this Agreement, by you, as Representatives of the several Underwriters, to the
Company setting forth the number of Option Shares as to which the several
Underwriters are exercis ing the option, the names and denominations in which
the Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which certificates for
Option Shares are to be delivered shall be determined by the Representatives but
shall not be earlier than three nor later than ten (10) full business days after
the exercise of such option, nor in any event prior to the Closing Date (such
time and
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date being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is three or more days before the Closing Date, the notice
of exercise shall set the Closing Date as the Option Closing Date. The number
of Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears to the total number of
Firm Shares, adjusted by you in such manner as to avoid fractional shares. The
option with respect to the Option Shares granted hereunder may be exercised only
to cover over-allotments in the sale of the Firm Shares by the Underwriters.
You, as Representatives of the several Underwriters, may cancel such option at
any time prior to its expiration by giving written notice of such cancellation
to the Company and the Attorney-in-Fact. To the extent, if any, that the option
is exercised, payment for the Option Shares shall be made on the Option Closing
Date in same-day funds by wire transfer to the order of the Company for the
Option Shares to be sold by it against delivery of certificates therefor at the
offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street,
Baltimore, Maryland.
(e) If on the Closing Date any Selling Stockholder fails to sell the Firm
Shares which such Selling Stockholder has agreed to sell on such date as set
forth in Schedule II hereto, the Company agrees that it will sell or arrange for
the sale of that number of shares of Common Stock to the Underwriters which
represents Firm Shares which such Selling Stockholder has failed to so sell, as
set forth in Schedule II hereto, or such lesser number as may be requested by
the Representatives.
3. Offering by the Underwriters.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company and the Selling Stockholders.
-----------------------------------------------------
(a) The Company covenants and agrees with the several Underwriters that:
(i) The Company will (A) use its best efforts to cause the Registration
Statement to become effective or, if the procedure in Rule 430A of the Rules and
Regulations is followed, to prepare and timely file with the Commission under
Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the
Representatives containing information previously omitted at the time of
effectiveness of the Registration Statement in
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reliance on Rule 430A of the Rules and Regulations and (B) not file any
amendment to the Registration Statement or supplement to the Prospectus of which
the Representatives shall not previously have been advised and furnished with a
copy or to which the Representatives shall have reasonably objected in writing
or which is not in compliance with the Rules and Regulations.
(ii) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in endeavoring
to qualify the Shares for sale under the securities laws of such jurisdictions
as the Representatives may reasonably have designated in writing and will make
such applications, file such documents, and furnish such information as may be
reasonably required for that purpose, provided the Company shall not be required
to qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or
before the Closing Date, four signed copies of the Registration Statement and
all amendments thereto including all exhibits filed therewith, and will deliver
to the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) The Company will comply with the Act and the Rules and Regulations,
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Underwriters, it becomes necessary to amend or supplement the Prospectus in
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order to make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or, if
it is necessary at any time to amend or supplement the Prospectus to comply with
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with the law.
(vi) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earning statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earning statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(vii) The Company will, for a period of five years from the Closing Date,
deliver to the Representatives copies of annual reports and copies of all other
documents, reports and information furnished by the Company to its stockholders
or filed with any securities exchange pursuant to the requirements of such
exchange or with the Commission pursuant to the Act or the Exchange Act. The
Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements.
(viii) Except for the offer and sale of shares pursuant to the equity
incentive plans of the Company described in the Prospectus, no offering, sale,
short sale or other disposition of any shares of Common Stock of the Company or
other securities convertible into or exchangeable or exercisable for shares of
Common Stock or derivative of Common Stock (or agreement for such) will be made
for a period of one hundred eighty (180) days after the date of this Agreement,
directly or indirectly, by the Company otherwise than hereunder or with the
prior written consent of Alex. Brown & Sons Incorporated.
(ix) The Company will use its best efforts to list, subject to notice of
issuance, the Shares on The Nasdaq National Market.
(x) The Company has caused each officer and director and specific
stockholders of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person shall agree not to offer, sell,
sell short or otherwise dispose of any shares of Common Stock of the Company or
other capital stock of the Company, or any other securities convertible,
exchangeable or exercisable for Common Shares or derivative of Common Shares
owned by such person or request the registration for the offer or sale of any of
the foregoing (or as to which such person has the right to direct the
disposition of) for a period of one hundred eighty (180) days after the date of
this Agreement, directly or indirectly, except with the prior written consent of
Alex. Brown & Sons Incorporated ("Lockup Agreements"). Alex. Brown & Sons
Incorporated agrees that it will consent to, and will not seek to limit, any
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sale or other disposition of Common Shares acquired by any employee or
stockholder of the Company, provided such employee or stockholder is not an
officer, director or five percent stockholder of the Company, where such Common
Shares are acquired after the Effective Date and are publicly traded.
(xi) The Company shall apply the net proceeds of its sale of the Shares
as set forth in the Prospectus and shall file such reports with the Commission
with respect to the sale of the Shares and the application of the proceeds
therefrom as may be required in accordance with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use the proceeds received
by the Company from its sale of the Shares in such a manner as would require the
Company to register as an investment company under the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Common
Stock.
(xiv) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
(b) Each of the Selling Stockholders covenants and agrees with the several
Underwriters that:
(i) No offering, sale, short sale or other disposition of any shares of
Common Stock of the Company or other capital stock of the Company or other
securities convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by the Selling Stockholder or request the
registration for the offer or sale of any of the foregoing (or as to which the
Selling Stockholder has the right to direct the disposition of) will be made for
a period of one hundred eighty (180) days after the date of this Agreement,
directly or indirectly, by such Selling Stockholder otherwise than hereunder or
with the prior written consent of Alex. Brown & Sons Incorporated.
(ii) In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 and the Interest and Dividend Tax Compliance Act of 1983 with respect to
the transactions herein contemplated, each of the Selling Stockholders agrees to
deliver to you prior to or at the Closing Date a properly completed and executed
United States Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
(iii) Such Selling Stockholder will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
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5. Costs and Expenses.
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The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company and the
Selling Stockholders; the cost of printing and delivering to, or as requested
by, the Underwriters copies of the Registration Statement, Preliminary
Prospectuses, the Prospectus, this Agreement, the Underwriters' Selling
Memorandum, the Underwriters' Invitation Letter, the Listing Application, the
Blue Sky Survey and any supplements or amendments thereto; the filing fees of
the Commission; the filing fees and expenses (including legal fees and
disbursements) incident to securing any required review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Shares; the Listing Fee of The Nasdaq National Market; and the expenses,
including the fees and disbursements of counsel for the Underwriters, incurred
in connection with the qualification of the Shares under State securities or
Blue Sky laws. To the extent, if at all, that any of the Selling Stockholders
engage special legal counsel to represent them in connection with this offering,
the fees and expenses of such counsel shall be borne by such Selling
Stockholder. Any transfer taxes imposed on the sale of the Shares to the
several Underwriters will be paid by the Sellers pro rata. The Company agrees
to pay all costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, incident to the offer and sale of
directed shares of the Common Stock by the Underwriters to employees and persons
having business relationships with the Company. The Company shall not, however,
be required to pay for any of the Underwriters expenses (other than those
related to qualification under NASD regulation and State securities or Blue Sky
laws) except that, if this Agreement shall not be consummated because the
conditions in Section 6 hereof are not satisfied, or because this Agreement is
terminated by the Representatives pursuant to Section 11 hereof, or by reason of
any failure, refusal or inability on the part of the Company or the Selling
Stockholders to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on their part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company and the
Selling Stockholders shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. Conditions of Obligations of the Underwriters.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company and the
Selling Stockholders contained herein, and to the performance by the Company and
the Selling Stockholders of their covenants and obligations hereunder and to the
following additional conditions:
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(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424 and
Rule 430A of the Rules and Regulations shall have been made, and any request of
the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company or the Selling Stockholders, shall be
contemplated by the Commission and no injunction, restraining order, or order of
any nature by a federal or state court of competent jurisdiction shall have been
issued as of the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Wilson Sonsini Goodrich
& Rosati, counsel for the Company and the Selling Stockholders, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement; and is duly
qualified to transact business in all jurisdictions in which the conduct of
its business requires such qualification, or in which the failure to
qualify would have a materially adverse effect upon the business of the
Company.
(ii) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus; the authorized
shares of the Company's Common Stock have been duly authorized; the
outstanding shares of the Company's Common Stock, including the Shares to
be sold by the Selling Stockholders, have been duly authorized and validly
issued and are fully paid and non-assessable; all of the Shares conform in
all material respects to the description thereof contained in the
Prospectus; the certificates for the Shares, assuming they are in the form
filed with the Commission, are in due and proper form; the shares of Common
Stock, including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and will be validly
issued, fully paid and non-assessable when issued and paid for as
contemplated by this Agreement; and no preemptive rights of stockholders
contained in the charter or Bylaws of the Company or, to the knowledge of
such counsel, in any agreement binding upon the Company exist with respect
to any of the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus, to
the knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to
purchase
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<PAGE>
or subscribe for any shares of capital stock of the Company and there are
no outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of such stock; and except as described
in the Prospectus, to the knowledge of such counsel, no holder of any
securities of the Company or any other person has the right, contractual or
otherwise, which has not been satisfied or effectively waived, to cause the
Company to sell or otherwise issue to them, or to permit them to underwrite
the sale of, any of the Shares or the right to have any Common Shares or
other securities of the Company included in the Registration Statement or
the right, as a result of the filing of the Registration Statement, to
require registration under the Act of any shares of Common Stock or other
securities of the Company.
(iv) The Registration Statement has become effective under the Act
and, to the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act or the Exchange Act, as applicable and the
applicable rules and regulations thereunder (except that such counsel need
express no opinion as to the financial statements, any financial data and
related schedules and statistical information therein).
(vi) The statements under the captions "Description of Capital Stock"
and "Shares Eligible for Future Sale" in the Prospectus, insofar as such
statements constitute a summary of documents referred to therein or matters
of law, fairly summarize in all material respects the information called
for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents required
to be filed as exhibits to the Registration Statement or described in the
Registration Statement or the Prospectus which are not so filed or
described as required, and such contracts and documents as are summarized
in the Registration Statement or the Prospectus are fairly summarized in
all material respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company except as set forth
in the Prospectus.
(ix) The execution and delivery of this Agreement and the consummation
of the transactions herein contemplated do not and will not conflict with
or result in a breach of any of the terms or provisions of, or constitute a
default under, the Charter or Bylaws of the Company, or any
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<PAGE>
agreement or instrument to which the Company is a party or by which the
Company may be bound and which is identified in a schedule to be attached
to such opinion.
(x) This Agreement has been duly authorized, executed and delivered
by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by
state securities and Blue Sky laws as to which such counsel need express no
opinion) except such as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act (subject
to the assumption to be permitted of such counsel that pending their
identified uses, the net proceeds of the offering will be invested in
"government securities" within the meaning of the 1940 Act.
(xiii) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Stockholders.
(xiv) Each Selling Stockholder has full legal right, power and
authority, and any approval required by law (other than as required by
State securities and Blue Sky laws as to which such counsel need express no
opinion), to sell, assign, transfer and deliver the portion of the Shares
to be sold by such Selling Stockholder.
(xv) The Custodian Agreement and the Power of Attorney executed and
delivered by each Selling Stockholder are valid and binding.
(xvi) The Underwriters (assuming that they are bona fide purchasers
within the meaning of the Uniform Commercial Code) have acquired good and
valid title to the Shares being sold by each Selling Stockholder on the
Closing Date, and the Option Closing Date, as the case may be, free and
clear of all liens, encumbrances, equities and claims.
In rendering such opinion Wilson Sonsini Goodrich & Rosati may rely as to
matters governed by the laws of states other than California and Delaware (as to
the General Corporation Law) or federal laws on local counsel in such
jurisdictions, and may rely on counsel for and factual representation of, the
Selling Stockholders, provided that in each case Wilson Sonsini Goodrich &
Rosati shall state that they believe that they and the
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<PAGE>
Underwriters are justified in relying on such other counsel. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads them
to believe that (i) the Registration Statement, at the time it became effective
under the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, financial data and
schedules and statistical information therein). With respect to such statement,
Wilson Sonsini Goodrich & Rosati may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(c) The Representatives shall have received from Pillsbury Madison & Sutro
LLP, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (ii) and (iv) of Paragraph (b) of this Section 6, and that the
Company is a duly organized and validly existing corporation under the laws of
the State of Delaware. In rendering such opinion Pillsbury Madison & Sutro LLP
may rely as to all matters governed other than by the laws of the State of
California and Delaware (as to the General Corporation Law) or federal laws on
the opinion of counsel referred to in Paragraph (b) of this Section 6. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact, necessary in
order to make the statements, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as to
financial statements, financial data and schedules and statistical information
therein). With respect to such statement, Pillsbury Madison & Sutro LLP may
state that their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(d) The Representatives shall have received at or prior to the Closing
Date from Pillsbury Madison & Sutro LLP a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the qualification
for offering and sale by the Underwriters of the Shares under the State
securities or Blue Sky laws of such jurisdictions as the Representatives may
reasonably have designated to the Company.
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<PAGE>
(e) You shall have received, on each of the dates hereof, the Closing Date
and the Option Closing Date, as the case may be, a letter dated the date hereof,
the Closing Date or the Option Closing Date, as the case may be, in form and
substance satisfactory to you, of Coopers & Lybrand L.L.P. confirming that they
are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been
taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained in
Section 1 hereof are true and correct in all material respects as of the
Closing Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules 424 or
430A under the Act have been made;
(iv) He or she has carefully examined the Registration Statement and
the Prospectus and, in his or her opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration
Statement were true and correct in all material respects, and such
Registration Statement and Prospectus did not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth in a
supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the
Company the earnings, business, management, properties, assets, rights,
operations or
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<PAGE>
condition (financial or otherwise) of the Company, whether or not arising
in the ordinary course of business.
(g) The Company and the Selling Stockholders shall have furnished to the
Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on The Nasdaq National Market.
(i) The Lockup Agreements described in Section 4(x) are in full force and
effect.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Pillsbury Madison & Sutro
LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company and the Selling Stockholders of such
termination in writing or by telegram at or prior to the Closing Date or the
Option Closing Date, as the case may be.
In such event, the Selling Stockholders, the Company and the Underwriters
shall not be under any obligation to each other (except to the extent provided
in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Sellers.
--------------------------------------------
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. Indemnification.
---------------
(a) The Company and Susan K. Buchanan (the "Principal Selling
Stockholder"), jointly and severally, agree 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 or liabilities to which
such Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) 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 (ii) the omission or alleged omission to
state therein a material
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<PAGE>
fact required to be stated therein or necessary to make the statements therein
not misleading; and will reimburse each Underwriter and each such controlling
person upon demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Shares, whether or not such Underwriter or controlling person is a party to any
action or proceeding; provided, however, that the Company and the Principal
Selling Stockholder will not be liable in any such case to the extent that any
such loss, claim, damage or liability 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 such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. The indemnity agreement
provided in this Section 8(a) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting such
loss, claim, damage or liability based upon any untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state
therein a material fact purchased Shares which are the subject thereof, if at or
prior to the written confirmation of the sale of such Shares, a copy of the
Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person and the untrue statement or alleged untrue statement or
omission or alleged omission contained in such Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented)
unless such failure is the result of non-compliance by the Company with Section
4(a)(iv). In no event, however, shall the liability of the Principal Selling
Stockholder for indemnification under this Section 8(a) exceed the lesser of (A)
the aggregate net proceeds received by the Principal Selling Stockholder upon
the sale of the Shares by the Principal Selling Stockholder to the Underwriters
and (B) the proportion of aggregate losses, claims, damages or liabilities
indemnified against which equals the proportion which the number of Shares being
sold by the Principal Selling Stockholder bears to the total number of Shares
being sold by the Company and all Selling Stockholders. This indemnity
agreement will be in addition to any liability which the Company or the
Principal Selling Stockholder may otherwise have.
(b) The Company and the Selling Stockholders, severally and not jointly,
agree 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 or liabilities to which such Underwriter or any such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) 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 (ii) 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; and will reimburse each Underwriter and each such controlling person
upon demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Shares,
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<PAGE>
whether or not such Underwriter or controlling person is a party to any action
or proceeding; provided, however, that, no Selling Stockholder will be liable in
any such case except to the extent that any such loss, claim, damage or
liability 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 such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through such Selling Stockholder specifically for use in the
preparation thereof. The indemnity agreement provided in this Section 8(b) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting such loss, claim, damage or liability
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact purchased
Shares which are the subject thereof, if at or prior to the written confirmation
of the sale of such Shares, a copy of the Prospectus (or the Prospectus as
amended or supplemented) was not sent or delivered to such person and the untrue
statement or alleged untrue statement or omission or alleged omission contained
in such Preliminary Prospectus was corrected in the Prospectus (or the
Prospectus as amended or supplemented) unless such failure is the result of non-
compliance by the Company with Section 4(a)(iv). In no event, however, shall
the liability of any Selling Stockholder for indemnification under this Section
8(b) exceed the lesser of (A) the aggregate net proceeds received by such
Selling Stockholder upon the sale of the Shares by such Selling Stockholder to
the Underwriters and (B) the proportion of aggregate losses, claims, damages or
liabilities indemnified against which equals the proportion which the number of
Shares being sold by such Selling Stockholder bears to the total number of
Shares being sold by the Company and all Selling Stockholders. This indemnity
agreement will be in addition to any liability which the Company or the Selling
Stockholders may otherwise have. This Section 8(b) shall not be construed to
limit in any manner the liability of the Principal Selling Stockholder as set
forth in Section 8(a) above.
(c) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Selling Stockholders, and each person, if
any, who controls the Company or the Selling Stockholders within the meaning of
the Act, against any losses, claims, damages or liabilities to which the Company
or any such director, officer, Selling Stockholder or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) 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 (ii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, Selling Stockholder or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the
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Prospectus or such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a), (b) or (c) shall be available to any party who shall fail to give notice
as provided in this Section 8(d) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a), (b) or (c). In
case any such proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or
within thirty (30) days of presentation) the fees and expenses of the counsel
retained by the indemnified party in the event (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them or (iii) the indemnifying
party shall have failed to assume the defense and employ counsel acceptable to
the indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceed ings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated
in writing by you in the case of parties indemnified pursuant to Section 8(a)
and (b) and by the Company and the Selling Stockholders in the case of parties
indemnified pursuant to Section 8(c). The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
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<PAGE>
(e) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under Section 8(a), (b)
or (c) above in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other from the offering
of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Stockholders on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Stockholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 8(e)
were determined 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 above in this Section
8(e). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(e) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter (ii) 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, and (iii) no Selling Stockholder
shall be required to contribute any amount in excess of the lesser of (A) that
proportion of the total of such losses, claims, damages or liabilities
indemnified or contributed against equal to the proportion of the total Shares
sold hereunder which is being sold by such Selling Stockholder, or (B) the
proceeds received by such Selling Stockholder from the Underwriters in the
offering. The
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<PAGE>
Underwriters' obligations in this Section 8(e) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. Default by Underwriters.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company or a Selling Stockholder),
you, as Representatives of the Underwriters, shall use your reasonable efforts
to procure within thirty-six (36) hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company and the Selling
Stockholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed ten percent (10%) of the Firm Shares or
Option Shares, as the case may be, covered hereby, the other Underwriters shall
be obligated, severally, in proportion to the respective numbers of Firm Shares
or Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds
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<PAGE>
ten percent (10%) of the Firm Shares or Option Shares, as the case may be,
covered hereby, the Company and the Selling Stockholders or you as the
Representatives of the Underwriters will have the right, by written notice given
within the next thirty-six (36) hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company or of the Selling Stockholders except to the
extent provided in Section 8 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or
Option Closing Date, as the case may be, may be postponed for such period, not
exceeding seven days, as you, as Representatives, may determine in order that
the required changes in the Registration Statement or in the Prospectus or in
any other documents or arrangements may be effected. The term "Underwriter"
includes any person substituted for a defaulting Underwriter. Any action taken
under this Section 9 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
10. Notices.
-------
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention:
_________; with a copy to Alex. Brown & Sons Incorporated, 135 East Baltimore
Street, Baltimore, Maryland 21202. Attention: General Counsel; if to the
Company or the Selling Stockholders, to:
Aurum Software, Inc.
3385 Scott Boulevard
Santa Clara, CA 95054
Attention: Mary Coleman
11. Termination.
-----------
This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company or the earnings, business,
management, properties, assets, rights, operations or condition (financial or
otherwise) of the Company, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would,
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<PAGE>
in your reasonable judgment, make it impracticable to market the Shares or to
enforce contracts for the sale of the Shares, or (iii) suspension of trading in
securities generally on the New York Stock Exchange or the American Stock
Exchange or limitation on prices (other than limitations on hours or numbers of
days of trading) for securities on either such Exchange, (iv) the enactment,
publication, decree or other promulgation of any statute, regulation, rule or
order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by United States or New York State authorities, (vi) the suspension of trading
of the Company's common stock by the Commission on The Nasdaq National Market or
(vii) the taking of any action by any governmental body or agency in respect of
its monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Stockholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. Information Provided by Underwriters.
------------------------------------
The Company, the Selling Stockholders and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters),
legends required by Item 502(d) of Regulation S-B under the Act and the
information under the caption "Underwriting" in the Prospectus.
14. Miscellaneous.
-------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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<PAGE>
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Stockholders, the
Company and the several Underwriters in accordance with its terms.
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder 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.
Very truly yours,
AURUM SOFTWARE, INC.
By_______________________________________
Mary Coleman
President and
Chief Executive Officer
Selling Stockholders listed on Schedule I
By_______________________________________
Attorney-in-Fact
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<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
COWEN & COMPANY
WESSELS, ARNOLD & HENDERSON, L.L.P.
As Representatives of the several
Underwriters listed on Schedule II
By Alex. Brown & Sons Incorporated
By______________________________________
Authorized Officer
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<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm
Underwriter Shares to be Purchased
----------- ----------------------
Alex. Brown & Sons Incorporated
Cowen & Company
Wessels, Arnold & Henderson, L.L.C.
________
Total ________
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<PAGE>
SCHEDULE II
SCHEDULE OF SELLING STOCKHOLDERS
Number of Firm
Selling Stockholder Shares to be Sold
------------------- -----------------
Susan K. Buchanan 125,000
Sales Technologies, Inc. 25,000
Total 150,000
=======
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<PAGE>
EXHIBIT 4.1
LOGO OF AURUM SOFTWARE
NUMBER
SHARES
COMMON STOCK CUSIP 05208A 10 6
See Reverse for
Certain Definitions and Legends
Aurum Software, Inc,
Incorporated Under the Laws of the State of Delaware
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK
($.001 PAR VALUE) OF
AURUM SOFTWARE INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney on surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Mary E. Coleman /s/ Christopher L. Dier
----------------------------- -----------------------------------
President Secretary
Aurum Software, Inc.
Corporate
SEAL
July 30, 1996
Delaware
Countersigned and Registered:
First National Bank of Boston
Transfer Agent and Registrar
By_____________________________________
Authorized Signature
<PAGE>
Aurum Software, Inc.
The Corporation is authorized to issue Common Stock and Preferred Stock.
The Board of Directors of the Corporation has authority to determine the
authorized number of shares of each series of Preferred Stock and to determine
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, and to increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series subsequent to the issue of shares of that
series.
A statement of the rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes, or series of shares and 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 COM -- as tenants in entireties
JF TEN -- as joint tenants with right of survivorship and not as tenants
UNIF TRF MIN ACT -- _____________________ Custodian (until age _______________)
____________________________________ 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
Identify Number of Assignee
______________________________________
______________________________________
________________________________________________________________________________
(Please Print or Typewriter and Address Including Postal Zip Code of Assignee)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital 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 ___________________
_____________________________________________________
NOTICE: The signature to this assignment must
correspond with the name, as written upon the
face of the certificate in every particular,
without alteration or enlargement or any
change whatever.
Signature(s) Guaranteed:
By______________________________________
<PAGE>
[LETTERHEAD OF WILSON SONSINI GOODRICH & ROSATI APPEARS HERE]
EXHIBIT 5.1
October 18, 1996
Aurum Software, Inc.
3385 Scott Boulevard
Santa Clara, CA 95054
Re: Registration Statement of Form SB-2
Ladies and Gentlemen:
We have examined the Registration Statement on Form SB-2 (File No.
333-11947) to be filed by you with the Securities and Exchange Commission on
October 18, 1996 (the "Registration Statement") in connection with the
registration under the Securities Act of 1933, as amended, of 2,650,000 shares
of Common Stock of Aurum Software, Inc. (the "Shares). As your counsel in
connection with this transaction, we have examined the proceedings proposed to
be taken in connection with said sale and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states, where required, the Shares when issued and sold in the
manner referred to in the Registration Statement will be legally and validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours
WILSON SONSINI GOODRICH & ROSATI
/s/ Wilson Sonsini Goodrich & Rosati
------------------------------------
<PAGE>
EXHIBIT 10.12
[Logo]
B u s i n e s s O b j e c t s
UNIVERSE OF PARTNERS
Partner Company Name Aurum Software, Inc. Agreement Date: 3/22/96
-------------------------- -------
BUSINESS OBJECTS, INC.
VERTICAL APPLICATION RESELLER AGREEMENT
This Agreement is made as of the date set forth below (the "Effective Date") by
and between Business Objects, Inc., a Delaware corporation ("BOI") having as its
principal place of business at 20813 Stevens Creek Blvd., Suite 100, Cupertino,
CA 95014 and the vertical application reseller named on Schedule 1 hereto
("VAR").
WHEREAS, BOI is the developer, manufacturer, distributor and licensor of the
software and related products listed in Exhibit A hereto (the "BOI Products")
and is owner of certain trademarks (the "BOI Trademarks") and other intellectual
property rights related to the BOI Products.
WHEREAS, VAR is a developer, manufacturer and distributor of the software
products, listed on Exhibit B hereto, that add value to or work in conjunction
with, the BOI Products (the "VAR Products").
WHEREAS, VAR desires to license from BOI, and BOI desires to license to VAR,
certain limited rights to use the BOI Products for the sole purpose of
developing a set of data access, reporting and analysis modules for the VAR
Products (the "Value-Add"), and to market and sublicense the BOI Products with
the VAR Products.
NOW, THEREFORE, in consideration of the mutual promises contained herein, it is
agreed as follows:
1. APPOINTMENT AND AUTHORITY OF VAR
1.1 Appointment of VAR. Subject to the terms and conditions of this
------------------
Agreement, BOI hereby appoints VAR to act as a non-exclusive vertical
application reseller of BOI for the BOI Products, within the territory listed in
Schedule 1 ("The Territory"), and VAR hereby accepts such appointment.
1.2 Independent Contractors. The relationship of BOI and VAR
-----------------------
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either party the
power to direct and control the day-to-day activities of the other, (ii)
constitute the parties as legal partners, jointventurers, co-owners or otherwise
as participants in a joint undertaking, or (iii) allow either party to create or
assume any obligation on behalf of the other party for any purpose whatsoever.
All financial and other obligations associated with the business of BOI and VAR
are their sole respective responsibilities.
2. DEVELOPMENT AND DEMONSTRATION LICENSE
2.1 Development and Demonstration License Grant. For the
-------------------------------------------
Development and Demonstration License Fees set forth in Section 11.1 of this
Agreement, BOI hereby grants to VAR a non-exclusive, nontransferable right to
have VAR use object code copies of the BOI products listed on Exhibit C solely
for the purpose of developing, testing, and supporting the Value-Add, and not
for other internal productive purposes, (the "Development and Demonstration
License"), provided that VAR: (i) shall not make, reproduce or modify any copies
--------
of the BOI Products, or the BOI Documentation, and shall not authorize any other
party to do so, except for the copies specified in Exhibit C, and except that
VAR may make one copy of the BOI Products to be used by it pursuant to this
Section 1.2 solely for back-up or archival purposes; (ii) shall not modify,
reverse engineer or decompile any of the BOI Products and shall not alter or
remove any copyright or other proprietary notices on or in any of the BOI
Products or BOI Documentation; (iii) shall not under any circumstances
sublicense, assign or otherwise transfer its rights under this Section 2.1.
3. MARKETING AND SUBLICENSING
3.1 License to Sublicense. For the Sublicense License Fees specified in
---------------------
Section 11.3 of this Agreement, BOI grants to VAR a nonexclusive,
nontransferable right during the term of this Agreement to market and sublicense
to end users for such end-users' own internal purposes object code copies of the
BOI Products and the related BOI Documentation, if any, in connection with the
marketing and license of the VAR Products (the "Sublicense
-1 of 12-
<PAGE>
License") pursuant to BOI's standard form Software License Agreement, or an
agreement substantially similar andapproved by BOI (the "Sublicense License
Agreement"), provided, that VAR shall not: (a) market or sublicense the BOI
--------
Products, except for sole use with the VAR Products, supplied in conjunction
therewith, and to end users for their own internal purposes; (b) sublicense the
BOI Products, except in whole as received from BOI and in object code form; (c)
modify, reverse engineer or decompile the BOI Products; (d) remove any of BOI's
proprietary notices or legends, including any BOI Trademark contained in or on
the BOI Products or the BOI Documentation, without the specific prior written
consent of BOI; (e) make any copies of the BOI Products or the BOI
Documentation, except for one copy of each BOI Product sublicensed by, and for
delivery to, each sublicensee; (f) sublicense, assign or otherwise transfer its
rights under this Section 3.
3.2 Temporary Trial Demonstration Licenses. VAR shall be entitled to
--------------------------------------
grant, at the charges and terms then current for VARs, up to a maximum combined
total of ten (10) temporary Trial Sublicenses of the BOI Products at any one
time, only in conjunction with trials of the Value-Add. Such Sublicenses shall
be for evaluation purposes only and shall be for a period not to exceed thirty
(30) days. VAR is responsible for ensuring that prospects receiving a trial
sublicense sign a trial license agreement substantially similar to BOI's
Software Trial License Agreement and for ensuring that trial software is purged
at the end of the evaluation period. BOI reserves the right to require VAR to
provide Business Objects with a prospect summary and trial plan prior to
providing trial software.
4. TRADEMARK LICENSE GRANT
4.1 Grant of License. BOI hereby grants to VAR a nonexclusive,
----------------
nontransferable license for the term of this Agreement to use the BOI Trademarks
solely for the purpose of marketing the BOI Products pursuant to this Agreement.
VAR is granted no other license hereby, and specifically is granted no right to
use any name, mark, logo, trademark, tradename or other intellectual property
right, including any BOI Trademark, on, in or in connection with any products
developed by VAR or other than pursuant to this Agreement. VAR agrees that it
will not, at any time during or after the term of this Agreement, use,
advertise, or display any name, mark, logo, or designation on a product or as a
name under which it does business that is confusingly similar to any name, mark,
logo, or designation of BOI.
4.2 Review of Use of the BOI Trademarks. BOI may, at its sole option,
-----------------------------------
review all VAR use of the BOI Trademarks, including in the promotion and
advertising of the VAR Products and the BOI Products, prior to and/or after the
use of any of the BOI Trademarks. VAR agrees towithdraw and retract any such
use, including any such promotion or advertising that BOI, in its sole
discretion, finds unsuitable.
4.3 No Transfer. VAR may under no circumstances sublicense, assign or
-----------
otherwise transfer its rights under this Section 4.
5. OBLIGATIONS OF VAR
5.1 Compliance with Terms of Licenses. VAR shall at all times comply
---------------------------------
with the terms of the Licenses granted to VAR under Sections 2, 3 and 4 of this
Agreement.
5.2 VAR Conduct. VAR shall conduct its business in its own name and in
-----------
such a manner that will be reasonably expected to reflect favorably at all times
on the BOI Products and the good name, goodwill and reputation of BOI. VAR shall
not engage in deceptive, misleading or unethical practices that are or might be
detrimental to BOI, the BOI Products or any third party.
5.3 Staff Requirements. VAR shall at all times employ trained personnel
------------------
who have been adequately trained to support, demonstrate and develop with the
BOI Products in accordance with reasonable training requirements and policies as
may be issued by BOI from time to time.
5.4 Payment. VAR shall pay BOI all license and support fees due under
-------
this Agreement in accordance with the terms of Section 11 of this Agreement. VAR
shall directly bill its end user customers for licensing of VAR Products and
sublicensing of BOI Products and BOI Documentation. VAR shall pay all expenses
incurred by it in connection with its marketing, distribution, delivery and
service of the VAR Products and the BOI Products.
5.5 Maintenance of VAR's Customers. VAR shall provide support of the VAR
------------------------------
Products and Value-add directly to its end user customers. VAR shall provide the
appropriate first level of support, skilled instruction and maintenance to VAR's
customers for BOI Products.
5.6 Marketing and Advertising. During the term hereof, VAR, as part of
-------------------------
its activities to promote the distribution of the BOI Products with the VAR
Products, agrees to confer periodically with BOI at BOI's request on
-2 of 12-
<PAGE>
matters relating to market conditions, sales forecasting, product planning, and
update, promotional and marketing strategies.
5.7 Support of Development and Demonstration Licenses. VAR shall
-------------------------------------------------
purchase at least one year of telephonesupport and program updates (the "Support
Period") for each Development and Demonstration License commencing on the date
each such Development and Demonstration License is shipped for the Development
Support Fee specified in Section 11.2 of this Agreement. BOI shall automatically
extend the Support Period for additional one year periods (each being an
"Additional Support Period"), and VAR shall pay to BOI the Additional Support
Fee specified in Section 11.2 of this Agreement upon the commencement of each
Additional Support Period, unless VAR shall have given notice to BOI at least
thirty (30) days prior to the end of the Support Period or an Additional Support
Period.
5.8 Sublicense Reports. Within thirty (30) days of the last day of each
------------------
quarter, VAR shall send BOI, if requested by BOI, (a) a report detailing for
that quarter for each sublicensee (i) such sublicensee's name and address, (ii)
the platform, (iii) the date of installation, (iv) the number of users and (v)
the total Sublicense License Fees and Sublicense Support Fees due BOI (the
"Sublicense Report"); and (b) a copy of the Sublicense License Agreement signed
and dated by VAR and each such sublicensee.
5.9 Records Inspection and Audits. VAR shall maintain books and records
-----------------------------
in connection with its obligations under this Agreement, during, and for a
period of two years after, the term of this Agreement. Such records shall
include the executed Sublicense License Agreements and the information required
in the monthly Sublicense Reports. VAR shall permit BOI to inspect all books,
records and other documentation relating to VAR's performance of this Agreement
and to audit up to twice yearly the relevant books of VAR to ensure compliance
with the terms of this Agreement upon reasonable prior notice to VAR. Any such
inspection or audit shall be conducted during regular business hours at VAR's
offices and shall not interfere unreasonably with VAR's business activities. BOI
shall pay all of its costs related to performing all inspections and audits;
provided, that if any audit reveals that VAR has underpaid fees to BOI in excess
of five percent (5%), then VAR shall pay BOI's reasonable costs of conducting
such audit in addition to paying the underpaid amounts.
5.10 Notice of Claims, Defects and Changes of Control. VAR shall notify
------------------------------------------------
BOI promptly in writing of: (i) any claim or proceeding involving a VAR Product
or BOI Product that comes to its attention; (ii) any claimed or suspected
defects in a VAR Product or a BOI Product; and (iii) any material change in the
management or control of VAR.
6. OBLIGATIONS OF BOI
6.1 BOI Support of the Development and Demonstration License. BOI shall
--------------------------------------------------------
provide telephone support for the Development and Demonstration License to two
contacts named by VAR (the "Authorized Contacts") for the fees specified in
Section 11.2 of this Agreement for technical and related inquiries arising from
VAR's use of the BOI Products in connection with VAR's development of the VAR
Products. Upon receipt of notice of a problem from an Authorized Contact, and if
such problem can be reproduced at a BOI support facility or via remote access to
the site of the Development and Demonstration License, BOI shall use its
reasonable efforts to correct or circumvent such problem; provided, that all
corrections to the BOI Products shall be made only to the most current generally
available release of such BOI Products, except that for a period of twelve (12)
months after the introduction of a new generally available release of such BOI
Products, BOI shall use reasonable efforts to provide telephone support for the
immediately prior generally released version of such BOI Products. BOI shall
also provide, for the Support Fees specified in Section 11.2 of this Agreement,
new releases, maintenance releases and patches to the Development and
Demonstration Licenses .
6.2 Training. BOI shall provide training for VAR employees according to
--------
the terms, and for the fees, established for VARs by BOI, from time to time.
7. OWNERSHIP OF PRODUCTS AND DOCUMENTATION
7.1 Ownership of BOI Products and BOI Documentation. BOI owns all right,
-----------------------------------------------
title and interest in and to the BOI Products and the BOI Documentation,
including without limitation, all copyrights, trade secrets, patents, trademark
rights and other intellectual property rights in and to the BOI Products, except
for the limited rights licensed to VAR pursuant to Sections 2, 3 and 4 of this
Agreement. Upon any termination of this Agreement or the licenses granted in
Section 2, 3 or 4 of this Agreement, all rights of VAR to use, market or
distribute the BOI Products and the BOI Documentation shall also terminate.
-3 of 12-
<PAGE>
7.2 Ownership of VAR Products and VAR Documentation. VAR owns all right,
-----------------------------------------------
title and interest in and to the VAR Products and the VAR Documentation,
including without limitation, all copyrights, trade secrets, patents, trademark
rights and other intellectual property rights in and to the VAR Products.
7.3 Ownership of Other Materials. All other aspects of the BOI Products,
----------------------------
the BOI Documentation and all other items licensed by BOI hereunder, including
without limitation, programs, methods of processing, specific designs and
structure of individual programs and their interaction and unique programming
techniques employed therein as well as screen formats shall remain the sole and
exclusive property of BOI and shall not be sold, revealed, disclosed or
otherwise communicated, directly or indirectly, by VAR to any person, company or
institution whatsoever other than for the purposes set forth herein.
8. WARRANTIES
8.1 Limited Warranty. BOI warrants that the BOI Products, when properly
----------------
used, will operate in all material respects in conformity with BOI published
specifications for such version for so long as VAR shall purchase Support from
BOI in accordance with the terms of Section 11 of this Agreement. BOI does not
warrant that the BOI Products work or perform satisfactorily with any VAR
Products or that the VAR Products will work or perform satisfactorily. The
medium on which the BOI Products are delivered to VAR is warranted against
defects for a period of 90 days from the original date of invoice. If the medium
is defective, return it within the warranty period, and BOI will replace it at
no charge. BOI's obligations under this warranty are limited to replacing or
repairing at BOI's option, the initial copy of the BOI Products delivered to VAR
and which shall be returned to BOI, transportation charges prepaid, and which
are, after examination, disclosed to BOI's satisfaction to be defective. This
warranty shall not apply to any BOI Products that have been altered or repaired,
except by BOI, or which have been subject to misuse, negligence or accident.
8.2 Customer Warranty. VAR agrees not to make any representations or
-----------------
warranties with respect to the BOI Products which exceed the limited warranties
made by BOI under this Agreement absent BOI's prior written consent.
8.3 Disclaimer of Warranties. OTHER THAN THOSE WARRANTIES SET FORTH IN
------------------------
PARAGRAPHS 8.1 AND 8.2, BOI SPECIFICALLY DISCLAIMS ALL WARRANTIES EXPRESSED OR
IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE BOI PRODUCTS AND THE
VAR PRODUCTS.
9. LIMITATION OF LIABILITY
IN NO EVENT SHALL BOI BE LIABLE FOR ANY DAMAGES, INCLUDING WITHOUT
LIMITATION,LOSS OF DATA, LOSS OF PROFITS, COST OF COVER OR OTHER SPECIAL,
INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES ARISING FROM OR IN RELATION TO
THIS AGREEMENT OR THE USE OF THE BOI PRODUCTS OR THE VAR PRODUCTS, HOWEVER
CAUSED AND REGARDLESS OF THEORY OF LIABILITY. THIS LIMITATION WILL APPLY EVEN IF
BOI HAS BEEN ADVISED OR IS AWARE OF THE POSSIBILITY OF SUCH DAMAGES. VAR HEREBY
ACKNOWLEDGES THAT THE MUTUAL COVENANTS AND AGREEMENTS SET FORTH IN THIS
AGREEMENT REFLECT THIS ALLOCATION OF RISK.
10. INDEMNIFICATION
10.1 Indemnification by BOI. Subject to Section 9 of this Agreement, BOI
----------------------
shall indemnify, defend and hold VAR harmless from any claims, demands,
liabilities, losses, damages, judgments or settlements, including all reasonable
costs and expenses related thereto including attorneys' fees, directly or
indirectly resulting from any claimed infringement or violation by BOI of any
copyright, patent or other intellectual property right with respect to the
Developer Programs, so long as the BOI Products are used in accordance with the
BOI Documentation and VAR has adhered to its obligations under this Agreement;
provided, that the foregoing notwithstanding, BOI's obligation to indemnify
- --------
shall not pertain to the extent that the infringement or violation is
attributable to any misuse, modification or use of the BOI Products or the BOI
Documentation by VAR or by the combination of a BOI Product or the BOI
Documentation with a VAR Program or VAR Documentation, respectively.
10.2 Indemnification by VAR. VAR shall indemnify, defend and hold BOI
----------------------
harmless from any claims, demands, liabilities, losses, damages, judgments or
settlements, including all reasonable costs and expenses related thereto
including attorneys' fees, directly or indirectly resulting from any claimed
infringement or violation by VAR of any copyright, patent or other intellectual
property right with respect to any VAR Product or to a VAR Product used in
conjunction with a BOI
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<PAGE>
Product, except to the extent such infringement or violation is attributable
solely to a BOI Product.
10.3 Cooperation by Indemnified Party. Notwithstanding Sections 10.1 and
--------------------------------
10.2 of this Agreement, the indemnifying party is under no obligation to
indemnify and hold the other party harmless unless: (a) the indemnifying party
receives notice of the suit or claim from the indemnified party and is furnished
with a copy of each communication,notice or other action relating to said claim
within ten (10) days after the indemnified party receives such notice and each
such communication; (b) the indemnifying party shall have the right to assume
sole authority to conduct the trial or settlement of such claim or any
negotiations related thereto at the party's own expense; and (c) the indemnified
party shall provide reasonable information and assistance requested by the
indemnifying party in connection with such claim or suit.
11. LICENSE AND SUPPORT FEES; PAYMENT TERMS
11.1 Development and Demonstration License Fees. VAR agrees to pay BOI
------------------------------------------
the Development and Demonstration License Fees specified on Exhibit C hereto for
the Initial Development and Demonstration Licenses outlined on Exhibit C. VAR
shall have the right to acquire and use additional BOI Products for development
and demonstration purposes for the fees outlined on Exhibit D.
11.2 Initial and Subsequent Development Support Fees. VAR agrees to pay
-----------------------------------------------
BOI a Support Fee, as outlined in Exhibit D, for each Development and
Demonstration License, which shall pay for support during the Support Period in
accordance with Sections 5.7 and 6.1 of this Agreement. In addition, VAR agrees
to pay an Additional Support Fee on the commencement date of each Additional
Support Period, in accordance with Support Fees established for VARs in effect
at the time, which BOI may change from time to time, which shall pay for support
during the Additional Support Period in accordance with Sections 5.7 and 6.1 of
this Agreement.
11.3 Sublicense License Fees. VAR agrees to pay BOI a Sublicense License
-----------------------
Fee for each copy of each BOI Product sublicensed to an end user equal to the
list price of such BOI Product in effect on the date of such sublicense less the
applicable discount percentage specified on Exhibit D hereto.
11.4 End-User Support. A Support Fee, outlined in Exhibit D, will be
----------------
added to the price of each BOI Product sublicensed by VAR, providing VAR with
the right to provide new releases, maintenance releases and patches to
Sublicensees for no charge for a period of one year. During subsequent years,
the Support Fee will be optional.
11.5 General Payment Terms. All fees payable hereunder shall be paid to
---------------------
BOI within thirty (30) days of invoice date. All payments made shall be in
United States currency and shall be made without deductions based on any taxes
or withholdings. The fees listed in this Agreement do not include taxes. If BOI
is required to pay sales, use,property, value-added or other federal, state or
local taxes based on the licenses granted under this Agreement, or the
sublicenses granted by VAR to end users, then such taxes shall be billed and
paid by VAR this shall not apply to taxes based upon BOI's income.
12. TERM, TERMINATION AND EFFECT OF TERMINATION
12.1 Term. This Agreement shall commence on the Effective Date and shall
----
continue in full force and effect for three years unless terminated earlier
under the provisions of this Section 12. Thereafter, this Agreement shall
automatically renew for subsequent one year terms, unless terminated by either
party upon written notice to the other party at least thirty (30) days prior to
the end of the then current term.
12.2 Termination for Convenience, Change of Control. In addition to the
----------------------------------------------
foregoing, this Agreement may be terminated (i) by mutual written consent of
both parties or (ii) at the option of BOI, upon any majority change in ownership
or control of VAR.
12.3 Termination Upon Insolvency. This Agreement shall terminate,
---------------------------
effective upon delivery of written notice by a party, (i) upon the institution
of insolvency, receivership or bankruptcy proceedings or any other proceedings
for the settlement of debts of the other party, (ii) upon the making of an
assignment for the benefit of creditors by the other party, or (iii) upon the
dissolution of the other party.
12.4 Termination Upon Default. Either party may terminate this Agreement
------------------------
in the event that the other party materially defaults in performing any
obligation under this Agreement and such default continues unremedied for a
period of thirty (30) days following written notice of default.
12.5 Survival of Certain Terms. The provisions of Sections 2, 4, 6, 8, 9,
-------------------------
10, 11.5 and 12 shall survive termination of this Agreement. All other rights
and
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<PAGE>
obligations of the parties shall cease upon termination of this Agreement.
12.6 Damages. NEITHER BOI NOR VAR SHALL BE LIABLE TO THE OTHER FOR
-------
DAMAGES OF ANY KIND, INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGES, ON ACCOUNT
OF THE TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH THIS SECTION 12. VAR
WAIVES ANY RIGHT IT MAY HAVE TO RECEIVE ANY COMPENSATION OR REPARATIONS
ONTERMINATION OF THIS AGREEMENT, OTHER THAN AS EXPRESSLY PROVIDED IN THIS
AGREEMENT.
12.7 Effect of Termination (Termination of Licenses and Return of
------------------------------------------------------------
Materials). Upon termination of this Agreement for any reason, including the
- ----------
failure of VAR, in the opinion of BOI, to comply with any of VAR's obligations
under Section 5 of this Agreement, VAR shall immediately: (i) if a license
granted under this Agreement expires or otherwise terminates, cease all use of
the BOI Products and the BOI Documentation and promptly return all related
copies of BOI Product and BOI Documentation to BOI; (ii) cease all marketing and
distribution of the BOI Products and the BOI Documentation; (iii) cease all
display and advertising of all BOI Products and all BOI Trademarks and logos
associated therewith; (iv) cease using any and all materials identifying VAR
with BOI and the BOI Products; (v) promptly return all marketing literature,
written information and reports pertaining to the BOI Products; and (vi) return
to BOI any and all Confidential Information, as defined in Section 13 of this
Agreement.
13. CONFIDENTIAL INFORMATION
Except for the specific rights granted by this Agreement, neither party
shall use or disclose any Confidential Information of the other party. A party
receiving Confidential Information from the other shall use the highest
commercially reasonable degree of care to protect that Confidential Information.
The BOI Products including methods or concepts utilized therein, the BOI
Documentation and all information identified by the disclosing party as
proprietary or confidential ("Confidential Information"), shall remain the sole
property of the disclosing party and shall not be disclosed to any third party
without the express written consent of the disclosing party (except solely for
each party's internal business needs, to employees or consultants who are bound
by a written agreement with such party to maintain the confidentiality of such
Confidential Information in a manner consistent with this Agreement). Items will
not be considered to be Confidential Information if (i) available to the public
other than by a breach of an agreement with BOI; (ii) rightfully received from a
third party not in breach of an obligation of confidentiality; (iii)
independently developed by one party without access to the Confidential
information of the other; (iv) known to the recipient at the time of disclosure;
or (v) produced in compliance with applicable law or a court order, provided the
other party is given reasonable notice of such law or order and an opportunity
to attempt to preclude or limit such production.
14. MISCELLANEOUS
14.1 Notices. Any notice required or permitted hereunder shall be in
-------
writing and shall be given by registered or certified mail addressed as follows:
If to BOI:
Business Objects, Inc.
20813 Stevens Creek Blvd.
Suite 100
Cupertino, CA 95014
Fax: (408) 973-1057
If to VAR, at the address and the fax number listed on Schedule 1 hereto.
Such notice shall be deemed to be given upon the earlier of actual receipt
or three (3) days after it has been sent, properly addressed and with postage
prepaid. Either party may change its address for notice by means of notice to
the other party given in accordance with this Section.
14.2 Assignment. This Agreement may not be transferred or assigned, in
----------
whole or in party, by either party either voluntarily or by operation of law,
and any attempt to do so shall be a material default of this Agreement and shall
be void.
14.3 Governing Law. This Agreement shall be interpreted according to the
-------------
laws of the State of California without regard to or application of choice-of-
law rules or principles.
14.4 Entire Agreement and Waiver. This Agreement and the Exhibits hereto
---------------------------
shall constitute the entire agreement between BOI and VAR with respect to the
subject matter hereof and all prior agreements, representations, and statement
with respect to such subject matter are superseded hereby. This Agreement may be
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<PAGE>
changed only by written agreement signed by both BOI and VAR. No failure of
either party to exercise or enforce any of its rights under this Agreement shall
act as a waiver of subsequent breaches; and the waiver of any breach shall not
act as a waiver of subsequent breaches.
14.5 Severability. In the event any provision of this Agreement is held
------------
by a court or other tribunal of competent jurisdiction to be unenforceable, that
provision will be enforced to the maximum extent permissible under applicable
law, and the other provisions of this Agreement will remain in full force and
effect.
14.6 Headings. The headings of the sections of this Agreement are for
--------
convenience and shall not by themselves determine the interpretation of this
Agreement.
14.7 Counterparts. This Agreement may be signed in counterparts, each of
------------
which shall be deemed an original, but which together will constitute one and
the same instrument.
Business Objects, Inc. VAR
By: /s/ Dennis McCann By: /s/ Mary E. Coleman
----------------------------- ----------------------------------
Name: Dennis McCann Name: Mary E. Coleman
--------------------------- --------------------------------
Title: President Title: President and CEO
-------------------------- -------------------------------
Date: 4/16/96 Date: 3/25/96
--------------------------- --------------------------------
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<PAGE>
SCHEDULE 1
Vertical Application Reseller
- -----------------------------
Name: Aurum Software
Address:
3385 Scott Boulevard
Santa Clara, CA 95054
Telephone Number:
408-986-8100
Fax Number:
408-654-3525
Contacts
- --------
1. Chuck Donchess
2. Brian Mulvey
Territory: Worldwide
- ---------
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<PAGE>
ADDENDUM
TO VERTICAL APPLICATION RESELLER AGREEMENT
Replace Section 3.1 (f), in its entirety, with the following:
"(f) sublicense, assign or otherwise transfer its rights under this Section 3,
except that VAR may authorize VAR's distributors of VAR Products to sublicense
BOI Products according to the terms of this Agreement. VAR Distributors are not
to be granted any additional rights regarding the BOI Products and Documentation
beyond those granted to VAR in this Agreement. VAR shall be responsible for
Distributors' compliance with the obligations and restrictions imposed upon VAR
under this Agreement;"
In Section 5.10, delete both occurrences of "a VAR Product or"
Replace Section 12.2, in its entirety, with the following:
12.2 Termination for Convenience, Change of Control. In addition to the
----------------------------------------------
foregoing, this Agreement may be terminated (i) by mutual written consent of
both parties.
Replace, in Section 12.1, "three years" to "four years"
Replace Section 12.6, in its entirety, with the following:
12.6 Damages. NEITHER BOI NOR VAR SHALL BE LIABLE TO THE OTHER FOR DAMAGES OF
-------
ANY KIND, INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGES, ON ACCOUNT OF THE
TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH THIS SECTION 12, OTHER THAN IN
ACCORDANCE WITH SECTION 12.4. VAR WAIVES ANY RIGHT IT MAY HAVE TO RECEIVE ANY
COMPENSATION OR REPARATIONS ON TERMINATION OF THIS AGREEMENT, OTHER THAN AS
EXPRESSLY PROVIDED IN THIS AGREEMENT.
Replace, in Section 12.7, "in this opinion", with "in the reasonable opinion"
Delete "other than by a breach of an agreement with BOI" in Section 13.
-9 of 12-
<PAGE>
EXHIBIT A
BOI PRODUCTS
Business Objects Products for Windows, Macintosh, and UNIX Platforms
Manager's Module
User's Module
Batch Option
Procedures Option
Business Analyzer
Database Drivers for Windows, Macintosh and UNIX Platforms
Oracle Driver
Sybase Driver
Ingres Driver
Informix Driver
DEC Rdb Driver
Micro Decisionware Driver
Red Brick Warehouse Driver
Teradata Driver
ODBC Driver
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<PAGE>
EXHIBIT B
VAR PRODUCTS
SalesTrack
SupporTrack
TeleTrack
QualityTrack
WebTrack
Additional VAR Products may be added upon mutual agreement, in writing, at any
time. Such agreement shall not be unreasonably withheld.
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<PAGE>
EXHIBIT C
INITIAL
DEVELOPMENT AND DEMONSTRATION LICENSE
AND SUBLICENSE LICENSE SPECIFICATIONS
-------------------------------------
See attached Purchase Order for initial development license and sublicense
purchases.
BOI grants to VAR a license to demonstrate BOI products in conjunction with VAR
Products at VAR's Demonstration centers and by VAR's sales professionals.
INITIAL
DEVELOPMENT AND DEMONSTRATION LICENSE,
SUBLICENSE AND SUPPORT FEES
---------------------------
See attached Purchase Order for initial development license and sublicense
purchases.
There shall be no charge for the demonstration licenses granted above.
BOI shall provide VAR with a sales training course, on-site at VAR headquarters,
for sales personnel, not to exceed two days at no charge.
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<PAGE>
EXHIBIT D
LICENSE AND SUBLICENSE FEES
---------------------------
Development and Demonstration License and Sublicense fees are calculated as a
discount of the then current BOI Price List. VAR shall receive the following
discounts:
Minimum initial non-refundable, non-returnable, non-cancelable purchase:
$154,713.25
VAR may exchange products previously licensed, dollar for dollar, for any then
currently available products.
Initial Discount: 60%
--------------------------------
Net Price to VAR for User Module is $100.00. BOI shall deliver master copy of
User Module and either camera ready documentation or electronic documentation,
as available, and not hardcopy documentation for User Module Licenses. VAR may
purchase User Module documentation at the then current list price.
International Uplifts:
An International uplift of 1.25 will be applied to all prices, including the
$100.00 User Module.
Large Deals:
BOI agrees to discuss special pricing for VAR deals to individual customers that
exceed 1,000 users.
SUPPORT FEES
------------
17.5% of the net License and Sublicense Fees paid to BOI for Manager Modules.
12% of the net License Sublicense Fee paid to BOI for all other products other
than Manager Modules. Sublicense Support Fees shall be due with Sublicense
Report delivered each quarter per Section 5.8.
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<PAGE>
EXHIBIT 10.13
SOFTWARE DEVELOPMENT LICENSE
AND DISTRIBUTION AGREEMENT
This Software License and Distribution Agreement (the "Agreement") is
entered as of June 3, 1996 (hereinafter "Effective Date') by and between First
Floor Software, Inc., a California corpora tion, with its principal place of
business at 444 Castro Street, Mountain View, California 94041 (hereinafter
"First Floor"), and Aurum Software, Inc. a California corporation, with its
principal place of business at 3385 Scott Boulevard, Santa Clara, CA 95054
(hereafter "Aurum").
WHEREAS, First Floor markets a product called Smart Bookmarks (defined
below) that allows a single user to monitor, organize, and cache for off-line
viewing information on the Internet. First Floor also markets a product called
InfoServer (defined below) which allows one touch publishing of custom Smart
Bookmark catalogs.
WHEREAS, subject to the terms and conditions contained herein, First Floor
desires to grant and Aurum desires to acquire certain exclusive license and
distribution rights to the Smart Bookmark and InfoServer products in order for
Aurum to resell these products to its Sales Force Automation customers wishing
to implement Internet/Web-based Marketing Encyclopedia Systems.
NOW THEREFORE, in consideration of the foregoing and the promises, mutual
covenants and conditions contained herein, the parties agree as follows:
1. DEFINITIONS.
-----------
a. "Documentation" shall mean the manuals developed by or for First
Floor that are distributed with the products and that describe the installation,
operation and use of the Products.
b. "First Floor Trademarks" shall mean the First Floor trade name,
logo, and other First Floor trademarks as listed in Attachment C or added by
First Floor from time to time in its sole discretion.
c. "InfoServer" shall mean First Floor's custom Smart Bookmark
catalog publishing server software product in object code form, including
associated Documentation. First Floor reserved the right to change, modify or
discontinue InfoServer at any time.
d. "Licensed Products" shall mean an exact object code copy of the
Products in machine readable form together within exact copy of the end-user
documentation included in the definition of such Products.
e. "Products" shall mean First Floor's Smart Bookmarks or InfoServer
product.
f. "Proprietary Rights" shall mean patent rights, copyrights,
trademark rights, trade secret rights and all other intellectual property rights
throughout the world.
<PAGE>
g. "Smart Bookmarks" shall mean First Floor's single use Smart
Bookmarks client software product developed specifically for use with
Internet/Web-based Marketing Encyclopedia Systems, in object code form,
including associated Documentation. First Floor reserved the right to change,
modify or discontinue Smart Bookmarks at any time.
h. "Updates" shall mean current version updates, corrections,
revisions, new versions, modifications, and additions to the Products that First
Floor makes commercially available to all of its end users and distributors of
Internet/Web-based Marketing Encyclopedia Systems.
2. License Grant.
-------------
2.1 License. Subject to all the terms of this Agreement, First Floor
-------
grants to Aurum a non-transferable license:
a. to license Licensed Products only as provided herein and only
directly to end-user customers. However, Aurum may use subdistributors provided
that any such subdistributor may not make copies or use other subdistributors
and shall be bound by an enforceable writing to all the limitations and
restrictions of this Agreement.
b. to use the Products only for the purpose of testing or
demonstrating to prospective end-users in accordance with documentation provided
by First Floor.
c. to exchange Internal Licenses. (200) copies of Smart
Bookmarks will be exchanged for (20) SalesTrack clients and (1) SalesTrack
server to be installed by First Floor.
2.2 License Restrictions. During the term of Exclusivity each party
--------------------
is prohibited from announcing or deploying solutions with competitors such that:
(i) Aurum is prohibited from distributing Web-based
client-side technology that (A) manages URLs or any file type or (B) monitors
files for changed and updated information or (C) caches files on a local hard
drive for off-line viewing.
(ii) First Floor is prohibited from distributing the
Products to any competitors ("Competitors") set forth in Attachment A.
2.3 Proprietary Rights. Notwithstanding anything else, First Floor
------------------
and its licensors retain (i) all title to, and, except as expressly licensed
herein, all rights to the Products, all copies and derivative works thereof (by
whomever produced) and all related documentation and materials, (ii) all of
their service marks, trademarks, trade names or any other designations (and
notwithstanding anything else herein, Aurum may not use nay trade name or
trademark of First Floor described in Attachment C, and (iii) all copyrights,
patent rights, trade secret rights and other proprietary rights in the Products.
Aurum will have no right to receive any source code with respect to any
Products, except as follows:
-2-
<PAGE>
a. First Floor agrees to keep, and maintain current, a copy of the
source code and relevant materials (hereinafter referred to as "Escrow
Materials") for the Products in escrow with a mutually agreeable escrow agent
(the "Escrow Agent"). A copy of the Escrow Materials for each correction,
improvement, enhancement, update and new release of the Products will also be
delivered to the Escrow Agent to be held in escrow; provided, however, that
First Floor need not update the Escrow Materials more frequently than either
twice per year or upon each new major release of the Program. First Floor to
the Escrow Agent. First Floor shall further instruct the Escrow Agent to
confirm the type of Escrow Materials then held, should Aurum so request in
writing; provided, however, the Aurum may make such request no more than once in
any six (6) month period.
Aurum, First Floor and Escrow Agent shall enter into an agreement
setting out the terms of this Section 2.3, and further providing that
immediately upon notification by Aurum of the occurrence of an event described
in Paragraph (b) below and requesting delivery of the Escrow Materials, the
Escrow agent shall immediately give notice thereof to First Floor. If First
Floor does not challenge the request within fifteen (15) days of receipt of such
notice, the Escrow Agent may proceed; otherwise, the matter shall be referred to
a court of competent jurisdiction.
b. First Floor's agreement with the Escrow Agent shall provide that
a copy of the Escrow Materials for the Products will be delivered to Aurum by
the Escrow Agent in the event the (i) First Floor (or its successors or assigns)
ceases doing business as a going concern, or (ii) an involuntary bankruptcy
petition is not discharged within 120 days after the First Floor receives notice
of the filing of the petition and First Floor discontinues supporting the
software for any reason or (iii) First Floor discontinues or is in material
breach of its support obligations for the Software and does not provide
appropriate support ninety (90) days after receiving a request from Aurum to do
so.
c. Upon delivery of the Escrow Materials to Aurum, Aurum shall have
nontransferable, nonexclusive license to use the Escrow Materials to support and
maintain the Products for existing Sublicensees for no other purpose. First
Floor shall retain all ownership right, title and interest in and to the Escrow
Materials, including all patents, copyrights, trademarks, trade secrets and
other intellectual property rights inherent therein. Aurum shall maintain the
Escrow Materials in the strictest confidence and disclose them to employees only
as necessary to exercise its rights granted herein. The object code derived
from the source code is subject to the same restric tions as apply to the
Products distributed under this Agreement.
2.4 End User Restrictions. Without the express consent of First
---------------------
Floor, Aurum shall not (i) delete or fail to reproduce any copyright or other
proprietary notices appearing in the Products, (ii) disassemble, decompile or
otherwise reverse engineer the Products or otherwise attempt to learn the source
code, structure , algorithms underlying the Products, (iii) rent or otherwise
provide temporary access to the Products (except for purposes of product
demonstrations or similar promotional activities). If Aurum provides long-term
leasing of the Products the terms and condi tions for re-selling the Products
in the Agreement shall apply. All Aurum distribution licenses or end-user
licenses pertaining to the Products shall prohibit others from doing any of the
foregoing, in
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<PAGE>
similar, but no less restrictive terms. Aurum will make no warranty, guarantee
or representation, whether written or oral, on First Floor's behalf.
2.5 End User Licenses. Aurum and its subdistributors shall
-----------------
distribute the Products only pursuant to an end user license agreement in form
and content substantially similar to the form attached to this Agreement as
Attachment B. Any material changes to the form shall be subject to First
Floor's prior approval, which shall not be unreasonably withheld or delayed.
Furthermore, if a Licensed Product is to be provided to a government agency or
to anyone that may acquire it pursuant to a government contract or with
government funds, Aurum will ensure, in the case of the U.S. government, that
the attached End-User Software License Agreement (as modified by the Govern
ment License Attachment thereto) is incorporated into any relevant proposals and
contracts and that the provisions of the Government License Attachment are
effectively implemented. In the case of any other government, Aurum will ensure
that the Licensed Products and First Floor's rights are protected to the maximum
extent possible.
3. MARKETING.
---------
3.1 Joint Marketing.
---------------
a. To promote effective marketing of the Products, the parties will
undertake certain joint marketing activities. All joint marketing activities
shall be subject to the mutual agreement of the parties, but should include:
joint advertising, joint mailings, marketing, press tours, and development of
collateral materials to promote to Product. Furthermore, both Aurum and First
Floor agree to:
(i) Press/Media Activities. A press tour and media blitz for
----------------------
Aurum's Internet/Web-based Marketing Encyclopedia System strategy will feature
First Floor as the key agent and off-line viewing technology component.
(ii) Industry Shows and Seminars. For the term of Exclusivity,
---------------------------
First Floor will be highlighted by Aurum in a similar fashion to that of the
upcoming DCI show on June 13, 1996 where First Floor will be prominently
mentioned in Mary Coleman's keynote presentation entitled "Internet Enabled
Sales & Marketing" and where Aurum will have a 40 ft. by 30 ft. booth with a
stage presentation, including special focus on the Internet and a demo
substation labeled the "Intra Intelligence" center which will feature First
Floor's Smart Bookmarks product.
(iii) Sales Presence. Aurum will train the entire direct sales
--------------
force on the new Internet/Web-based Marketing Encyclopedia System with Smart
Bookmarks.
(iv) Partner/System Integrator Visibility. Aurum will
------------------------------------
introduce Smart Bookmarks as an integral a part of an Internet/Web-based
Marketing Encyclopedia System Solution to the SFA system integrators, including
CTP, KPMG, E&Y, and Delotte & Touche.
(v) Joint Lead Sharing.
------------------
-4-
<PAGE>
(vi) Mutual links on Web Sites.
--------------------------
(vii) Aurum will make reasonable efforts to use "Bulletins" and
---------------------------------------------------------
"Monitor Me'" Buttons on Aurum's web site.
- -----------------------------------------
The level of participation marketing efforts accorded to First Floor
in this Section 3.1(a) shall be a least equivalent to the level of participation
afforded to Aurum's similar licensors who are afforded any of the foregoing
privileges.
b. In addition, Aurum agrees that it shall issue with First
Floor a joint press release in a form agreed upon by the parties immediately
upon execution of this Agreement. Aurum agrees that it shall prominently refer
to and credit First Floor in each subsequent release of the Products developed
by First Floor.
3.2 Branding of the Product.
-----------------------
a. First Floor hereby grants Aurum a license to use the First Floor
trademarks, service marks and trade names (including, but not limited to the
name and logo of First Floor) identified on Attachment C hereto (the
"Trademarks") solely for the purpose of promoting the sales of the Products;
First Floor may add to, delete from or modify the Trademarks from time to time.
Aurum agrees that all advertising and promotional material prominently contain
First Floor's name and logo, and shall otherwise comply with First Floor's
marketing guidelines in effect from time to time. Aurum shall not at any time
do or permit any act to be done which may in any way impair the rights of First
Floor In the trademarks and trade names involved herein. Aurum will discontinue
all use of the Trademarks immediately upon the termination or expiration of this
Agreement, or upon First Floor's specific direction.
b. First Floor may from time to time request and inspect copies of
the Products to confirm Aurum's compliance with the foregoing provisions and
First Floor quality standards then in effect. In the event that First Floor
determines that Aurum is not in compliance with such provisions and standards,
First Floor shall have the right to suspend Aurum's use of the Trademarks until
such time as Aurum meets such standards and provisions to First Floor's
satisfaction.
3.3 Aurum Marketing. Aurum shall diligently market (including,
---------------
without limitation, inclusion of the Products in Aurum's catalogs and other
promotional materials that Aurum may determine is appropriate for the Products),
distribute and support the Products on a continuing basis. In support of
Aurum's marketing efforts, First Floor will supply Aurum with a reasonable
quantity of First Floor's existing sales literature.
4. PAYMENT TERMS.
-------------
4.1 Royalties. Aurum shall pay First Floor (i) Fifty dollars
---------
($50.00) for each copy of Smart Bookmark product it distributes, (ii) One
thousand dollars ($1000.00) for each copy of
-5-
<PAGE>
InfoServer product it distributes, and (iii) 7% for Support and Maintenance.
Nothing in this Agreement shall be construed as restricting Aurum from reselling
the Products at any resale price it chooses.
4.2 Support and Maintenance. First Floor will provide support and
-----------------------
maintenance services for so long as this Agreement is in effect under the terms
and conditions set forth in Attachment D. Corrections and updates to the
Product provided under that agreement will be considered Products. If First
Floor materially fails to provide such services for a Product and such failure
continues for more than (10) consecutive days, Aurum shall be entitled to
receive from First Floor, pursuant to an escrow arrangement, a copy of all
source code used by First Floor in the maintenance or support of such Product.
4.3 Payments. Except as provided in the previous section, payments
--------
shall be made in U.S. dollars within 30 days after the calendar quarter of
distribution. Late payments will bear interest at the rate of 1.5% per month or,
if lower, the maximum rate allowed by law.
5. AURUM COVENANTS. Except as expressly provided herein or as otherwise
---------------
agreed to by the parties and as conditions of Aurum's license hereunder, Aurum
agrees:
a. not to modify, create any derivative work of, or include in any
other software the Products or Licensed Products or any portion thereof.
b. not to delete, alter, add to or fail to reproduce in and on any
Licensed Product and media the name of the Product and any copyright or other
notices appearing in or on any copy, media or master or package materials
provided by First Floor.
c. not to reverse assemble, decompile, reverse engineer or otherwise
attempt to derive source code (or the underlying algorithms, structure or
organization) from the Product or Licensed Product or from any other
information.
d. to use its commercially reasonable efforts to successfully
market, distribute and support (including installation, training and other
support) the Products on a continuing basis and to comply with good business
practices and all laws and regulations relevant to this Agreement or the subject
matter hereof. In its distribution efforts, Aurum will use the then current
names used by First Floor for the Products (but will not represent or imply that
it is First Floor or is a part of First Floor).
e. to keep First Floor informed as to any problems encountered with
the Products and any resolutions arrived at for those problems, and to
communicate promptly to First Floor any and all modifications, design changes or
improvements of the Products suggested by any customer, employee or agent.
f. in addition to and without in any way limiting Aurum's other
obligations hereunder, use all methods to protect First Floor's rights with
respect to the Products, Licensed
-6-
<PAGE>
Products and Proprietary Information as it uses to protect its own or any third
party's software, confidential information or rights of a similar nature.
6. CONFIDENTIALITY. Each party agrees that all source code, inventions,
---------------
algorithms, know-how it obtains from the other and all other business, technical
and financial information it obtains from the other are the confidential
property of the disclosing party ("Proprietary Information"). Except as
expressly allowed herein, the receiving party will hold in confidence and not
use or disclose any Proprietary Information and shall similarly bind its
employees and contractors in writing. Notwithstanding the foregoing,
Proprietary Information shall not include any information which (i) is or falls
within the public domain without fault of the recipient; (ii) is hereafter
rightfully obtained by the recipient from a third party without breach of any
obligation to the disclosing party; (iii) the recipient independently develops
by employees without access to or the benefit of any Proprietary Information as
shown by documentary evidence; or (iv) is produced in compliance with applicable
law or the requirement of any judicial, legislative or regulatory authority,
provided that the recipient first gives the disclosing party written notice of
such law or order in order that the disclosing party may have an opportunity to
object and/or attempt to limit such production.
7. WARRANTY AND DISCLAIMER. First Floor warrants that, for a period of
-----------------------
ninety (90) days from delivery to Aurum, the Products when operated as directed,
will substantially conform to the accompanying Documentation, and the media on
which the Products are supplied will be free from defects in material and
workmanship. First Floor's sole liability for any breach of this warranty shall
be to repair or replace any defective software or media, or, if the above
remedies are impracticable, to refund the license fees paid for the defective
Product units. Repaired, corrected or replaced Products shall be covered by
this limited warranty for the period remaining under the warranty that covered
the original Product. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT FIRST
FLOOR MAKES NO WARRANTIES TO ANY PERSON WITH RESPECT TO THE PRODUCTS OR ANY
SERVICES OR LICENSES AND DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING WITHOUT
LIMITATION WARRANTIES OF MERCHANT ABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT.
8. LIMITED LIABILITY. EXCEPT IN THE CASE OF A BREACH OF SECTION 6 OR 2.2
-----------------
WITH RESPECT TO FIRST FLOOR'S INDEMNITY OBLIGATIONS HEREIN, IN NO EVENT WILL
EITHER PARTY BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT
UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE
THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS OR LOST DATA OR
COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES. EXCEPT WITH
RESPECT TO FIRST FLOOR'S INDEMNITY OBLIGATIONS, IN NO EVENT WILL FIRST FLOOR BE
LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE AUTHORITY FOR ANY
AMOUNTS IN EXCESS OF THE GREATER OF THE AGGREGATE OF THE AMOUNTS PAID TO FIRST
FLOOR HEREUNDER OR TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000).
-7-
<PAGE>
9. RELATIONSHIP OF PARTIES. The parties hereto are independent
-----------------------
contractors. Nothing contained herein or done in pursuance of this Agreement
shall constitute either party the agent of the other part for any purpose or in
any sense whatsoever, or constitute the parties as partners or joint venturers.
Each part is solely responsible for all of its employees land agents and its
labor costs and expenses arising in connection herewith.
10. ASSIGNMENT. This Agreement and the rights hereunder are not
----------
transferable or assignable without the prior written consent of the parties
hereto, except for rights to payment and except to a person or entity who
acquires all or substantially all of the assets or business of a party, whether
by sale, merger or otherwise. The license provided hereunder is not
sublicensable or transferable by Aurum except that Aurum may provide licenses to
end-users in accordance with the provisions of this Agreement and may use
subdistributors to do so.
11. TERM AND TERMINATION.
--------------------
11.1 Term. This Agreement shall have a term of twelve (12) months
----
(commencing on the Effective Date) unless terminated earlier as provided herein.
11.2 Term of Exclusivity. The Term of Exclusivity shall commence on the
-------------------
Effective Date and shall terminate on September 30, 1996. An extension to the
Term of Exclusivity will be mutual and will be negotiated in good faith by both
parties.
11.3 Termination. Either party shall have the right to terminate this
-----------
Agreement immediately, upon written notice, in the event the other party: (i)
materially breaches a material provision of this Agreement and fails to cure
such breach within thirty (30) days of written notice; (ii) terminates or
suspends its business for a period of more than 3 calendar months; or (iii)
becomes subject to any bankruptcy or insolvency proceeding under federal or
state statute, provided, however, that the parties specifically agree that they
and any Trustee in Bankruptcy shall abide by the terms of Section 365(n) of the
Bankruptcy Code with respect to the licenses granted pursuant to this Agreement.
11.4 Effect of Termination.
---------------------
a. Upon expiration or termination to this Agreement, then:
(i) all rights and licenses granted herein shall
terminate except that end user licenses granted by Aurum or its subdistributors
prior to termination shall remain in effect in accordance with their terms and
except that Aurum and its subdistributors may continue to distribute the
Products for a period of one hundred eighty (180) days to meet bona-fide orders
granted prior to termination, and to sublicense existing inventory of packaged
Products, and subject to Aurum's obligation to make payments hereunder. Aurum's
license to use the Products shall also continue in effect only to the extent
necessary to provide support and maintain existing customers;
-8-
<PAGE>
(ii) Aurum shall return to First Floor, or destroy, all of
First Floor's Proprietary Information; and
(iii) the provisions of Sections 2.3, 2.4, and 6 through 13
shall remain in effect.
b. Remedy. Termination is not the sole remedy under this
------
agreement and, whether or not termination is effected, all other remedies will
remain available.
12. INFRINGEMENT. While First Floor has conducted no investigations
------------
whatsoever, it is not aware of any infringement that will result from
distribution of Licensed Products in accordance with the terms hereof. If Aurum
becomes aware of a potential infringement or claim thereof, it will immediately
notify First Floor. First Floor agrees to defend Aurum from any claim, suit or
proceeding alleging that the Products (Indemnified Items"), when used and
distributed in accordance with the terms and conditions of this Agreement,
infringes any patent, copyright, trade secret, trademark or other intellectual
property right of any third party and agrees to pay any liabilities, damages,
costs and expenses (including the actual fees of attorneys and other
professionals and all related costs and expenses) awarded in any such claim,
suit or proceeding provided that Aurum gives First Floor prompt written notice
of any such claim, grants First Floor the sole control of the defense and any
related settlement negotiations, cooperates with First Floor in the defense of
any such claim and does not agree to settle any such claim without First Floor's
prior written consent. If it is adjudicatively determined that the Products, or
any part thereof, infringe any patent, copyright, trade secret, trademark or
other intellectual property right, or is the use of the Products, or any part
thereof, is, as a result, enjoined, then First Floor may, at its expense ,
either (i) procure for Aurum the right to use and distribute the Products as
provided herein (ii) replace the Products with other non-infringing products
which substantially meet the specifications for the Products; or (iii) suitably
modify the Product so that they are not infringing; provided that the modified
software substantially meets the specifications for such Products.
Notwithstanding the foregoing, First Floor shall have no liability to Aurum if
the infringement results form (a) use of the Product in combination with other
software if the Product alone would not have been so infringing, (b)
modifications to the Product not made by First Floor if such infringement would
have been avoided by the absence of such modification or (c) use of other than
the version of the Product most recently offered to Aurum if such infringement
would have been avoided by use of current version.
13. GENERAL
-------
a. Amendment and Waiver. Except as otherwise expressly provided
--------------------
herein, any provision of this Agreement may be amended and the observance of any
provision of this Agreement may be waived (either generally or in any particular
instance and either retroactively or prospectively) only with the written
consent of the parties. However, it is the intention of the parties that this
Agreement be controlling over additional or different terms of any purchase
order, confirmation, invoice or similar document, even if accepted in writing by
both parties, and that waivers and amendments shall be effective only if made by
non-pre-printed agreements clearly understood by both parties to be an amendment
or waiver.
-9-
<PAGE>
b. Governing Law and Legal Actions. This Agreement shall be
-------------------------------
governed by and construed under the laws of the State of California and the
United States without regard to conflicts of laws provisions thereof and without
regard to the United Nations Convention on Contracts for the International Sale
of Goods. The sole jurisdiction and venue for actions related to the subject
matter hereof shall be the California state and U.S. federal courts having
within their jurisdiction Santa Clara County. Both parties consent to the
jurisdiction of such courts and agree that process may be served in the manner
provided herein for giving of notices or otherwise as allowed by California
state or U.S. federal law. In any action or proceeding to enforce rights under
this Agreement, the prevailing party shall be entitled to recover costs and
attorneys' fees.
c. Headings. Headings and captions are for convenience only and are
--------
not to be used in the interpretation of this Agreement.
d. Notices. Notices, consents and approvals under this Agreement
--------
shall be sufficient only if in writing personally delivered, delivered by a
major commercial rapid delivery courier service or mailed by certified or
registered mail, return receipt requested to a party at its addresses first set
forth herein or as amended by notice pursuant to this subsection. If not
received sooner, notice by mail shall be deemed received 5 days after deposit in
the U.S. mails.
e. Entire Agreement. This Agreement supersedes all proposals, oral
----------------
or written, all negotiations, conversations, or discussions between or among
parties relating to the subject matter of this Agreement and all past dealing or
industry custom.
f. Severability. If any provision of this Agreement is held to be
------------
illegal or unenforceable, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
g. Nondisclosure of Terms. Except to the extent required by law or
----------------------
in connection with required disclosures to prospective investors or otherwise in
connection with an acquisition, merger, financing or public offering, neither
party will disclose the terms of this Agreement without written approval from
the other party.
h. Export Control. Aurum shall comply with all export laws and
--------------
restrictions and regulations of the Department of Commerce of other United
States or foreign agency or authority, and shall not export or reexport, and
shall cause each of its distributors to agree not to export or reexport, any
Product or any direct product thereof in violation of any such restrictions,
laws or regulations, or to Cuba, Libya, North Korea, Iran, Iraq or any country
for which the U.S. has imposed an embargo on export of commodities; Aurum shall
obtain any necessary licenses and/or exemptions with respect to the export from
the U.S. of all material or items deliverable by First Floor and shall
demonstrate to First Floor compliance with all applicable laws and regulations.
i. Recitals and Attachments. The recitals set forth above and the
------------------------
attached Attachments and Schedules shall be deemed to be a part of this
Agreement as though such provisions and attachments had been set forth in full
in this Agreement.
-10-
<PAGE>
j. Counterparts. This Agreement may be executed in any number of
------------
counter parts, each of which shall be deemed an original instrument, by all of
which together shall constitute only one and the same instrument. Execution and
delivery of this Agreement by exchange of facsimile copies bearing the facsimile
signature of a party hereto shall constitute a valid and binding execution and
delivery of this Agreement by such party. Such facsimile copies shall
constitute enforceable original documents.
AURUM:
By: /s/ Mary E. Coleman
-----------------------------------------
Name Mary E. Coleman
----------------------------------------
Title CEO
---------------------------------------
Date 6/10/96
----------------------------------------
FIRST FLOOR SOFTWARE, INC.
By /s/ Alex Blum
------------------------------------------
Name Alex Blum
----------------------------------------
Title V.P. Business Dev.
---------------------------------------
Date 6/3/96
----------------------------------------
-11-
<PAGE>
ATTACHMENT A
COMPETITORS
Siebel Systems
Brock Control Systems, Inc.
Saratoga Systems, Inc.
Clarify
The Vantive Corporation
SalesKit Software Corporation
Salesoft, Inc.
Scopus Technology, Inc.
Metropolis Software, Inc.
Borealis
Sales Tech
FasTech
<PAGE>
ATTACHMENT B
END USER LICENSE AGREEMENT
[Aurum's End Use License Agreement goes here]
GOVERNMENT LICENSE ATTACHMENT
This attachment relates to and is incorporated into the above referenced
Agreement. Capitalized terms in this attachment that are defined in the
Agreement have the same meaning as in the Agreement. The entire Agreement (as
modified by this Government License Attachment) must be attached to and
incorporated into any relevant government contract.
The software and accompanying documentation are deemed to be "commercial
computer software" and "commercial computer software documentation,"
respectively, pursuant to DFAR Section 227.7202 and FAR Section 12.212(b), as
applicable. Any use, modification, reproduction, release, performing, displaying
or disclosing of the software and accompanying documentation by the U.S.
Government shall be governed solely by the terms of this Agreement and shall be
prohibited except to the extent expressly permitted by the terms of this
Agreement.
<PAGE>
ATTACHMENT C
FIRST FLOOR SOFTWARE TRADEMARKS
The First Floor Trademarks shall mean the tradename "First Floor", together
with such other trademarks and logos (including trademark symbols) as may be
specified by First Floor from time to time.
Artwork and usage specifications for use of the First Floor Trademarks
shall be no more burdensome to Aurum, and at least as flexible, as those
typified by standard industry practice.
<PAGE>
ATTACHMENT D
SUPPORT AND MAINTENANCE
1. Definitions. In addition to the terms defined below, capitalized
-----------
terms used herein without definition shall have the meanings assigned to such
terms in the Agreement to which this document is attached.
(A) "Error Correction" shall mean either a software modification or
addition, that, when made or added to the Product, eliminates the adverse effect
of a Product Problem, or a procedure or routine that, when observed in the
regular operation of the Product, eliminates the practical adverse effect of a
Product Problem.
(B) "Product Problem" shall mean a reproducible error condition that
causes the Product not to function in accordance with the published
specifications then applicable to the Product.
2. Support. Aurum shall provide all "front-line" telephone, facsimile
-------
and electronic mail support to end users of the Product. First Floor will
provide Aurum with direct technical telephone support. This support will
include direct telephone support from First Floor, Monday through Friday, during
First Floor's normal business hours (First Floor holidays excepted). First
Floor may also provide support via Internet mail access, and facsimile.
(A) Each part agrees to promptly notify the other part of any
problems encountered with the Product and any resolutions arrived at for those
problems.
(B) Aurum shall use reasonable efforts to communicate to First Floor
material modifications, design changes or improvements of the Product suggested
by any customer, employee or agent.
(C) To ensure that Aurum support personnel are familiar with the
Product, First Floor will, from time to time, provide training programs for such
personnel, at no cost to Aurum. Training will be conducted at Aurum's facilities
(or such other locations as the parties may agree upon). The content of such
programs shall be determined by the parties.
3. Product Maintenance. During the term of this Agreement, First Floor
-------------------
agrees to use commercially reasonable efforts to provide Error Corrections for
all Product Problems reported by Aurum to first Floor, according the response
objectives established in this Section 3. If Aurum submits a Product Problem to
First Floor for resolution, Aurum shall provide to First Floor a detailed
description of the Product Problem. Aurum and First Floor shall prioritize any
such Product Problem submitted to First Floor for resolution in accordance with
the hierarchy described below. Aurum shall supply any additional information
reasonably requested by First Floor and Aurum shall make its support personnel
available (at no cost to First Floor) to assist in the problem identification
<PAGE>
and resolution. Aurum will use reasonable efforts to provide a focal point for
communicating Product Problems to First Floor.
(A) Definitions. The response time objectives are defined as
follows:
(i) "Critical". End User is unable to use the Product,
resulting in critical impact on operations. For example: Data is corrupted; no
obvious workaround; requires program or design changes; causes a system failure,
corrupts operating system or hardware.
(ii) "Serious". End-user is able to use the Product but is
severely restricted. For example: Causes program failure; workaround is awkward
or inefficient; misleading output. System crashes may also be classified as
serious if caused by an unusual or unlikely set of commands.
(iii) "Medium". End use can use the product with limitations
that are not critical to overall operations. For example: the workaround is
acceptable and does not seriously impact operations; prevents a user from using
a preferable procedure; confusing interface; externals not affected.
(iv) "Low". End-use can circumvent the problem and use the
product with only slight inconvenience. For example: The workaround becomes the
permanent solution; correct use is obvious.
(B) Response Objective. First Floor will respond to a reported
Product Problem as follows:
(i) With respect to a Critical Problem, First Floor will use
reasonable efforts to acknowledge (i.e. calling Aurum back to scope and define
the Product Problem and make a first attempt at problem resolution) within one
(1) working hour and provide a response (i.e. making further attempts to resolve
the problem; this may include exchange of code and documentation of trouble
shooting work completed) within one (1) working day and a solution with ten (10)
working days of receiving notice of the Product Problem. If a solution cannot
reasonably be provided within ten (10) days of receiving notice of the Product
Problem, First Floor shall develop and present a plan to Aurum to provide a
solution as soon as reasonably practical. Such plan will be mutually agreed
upon and include First Floor's best efforts for a timely solution.
(ii) With respect to a Serious Problem, First Floor will use
reasonable efforts to acknowledge within four (4) working hours and provide a
response within ten (10) working days and a solution within ten (10) working
days of receiving notice of the Product Problem. If a solution cannot
reasonably be provided within ten (10) days of receiving notice of the Product
Problem, First Floor shall develop and present a plan to Aurum to provide a
solution as soon as reasonably practical.
- 2 -
<PAGE>
(iii) With respect to a Medium or Low Problem, First Floor will
use reasonable efforts to provide an Error Correction as soon as reasonably
practical, provided, however, that if a subsequent release of the Product is
then under development, such Error Correction may be incorporated into that next
release.
(C) Ongoing Product Problem. If, after expiration of the time
periods set forth in Section 2(B) above, First Floor has not resolved a Critical
or Serious Problem, Aurum may suspend the payment of any Royalties or minimum
royalty payments payable under Section 4 of the Agree ment, until such time as
the Product Problem has been resolved. Under no circumstances are any payments
already paid or due pursuant to this Agreement ever refundable or credited as a
results of any ongoing or unresolved Product Problems.
-3-
<PAGE>
EXHIBIT 11.1
AURUM SOFTWARE, INC.
COMPUTATION OF NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
HISTORICAL:
Net loss................... $ (4,262) $ (4,388) $ (4,452) $ (3,247) $ (447)
======== ======== ======== ========= ========
Weighted average common
shares outstanding........ 960 855 1,937 1,742 2,981
Common stock and common
stock options issued
during the 12-month period
prior to the initial
public offering in
accordance with Staff
Accounting Bulletin No. 83
(using the treasury stock
method)................... 1,083 1,083 1,083 1,083 1,083
-------- -------- -------- --------- --------
2,043 1,938 3,020 2,825 4,064
======== ======== ======== ========= ========
Net loss per share(1)...... $ (2.09) $ (2.26) $ (1.47) $ (1.15) $ (0.11)
======== ======== ======== ========= ========
PRO FORMA:
Net loss................... $ (4,452) $ (447)
======== ========
Historical weighted average
shares outstanding........ 3,020 4,064
Effect of assumed
conversion of preferred
stock..................... 3,620 4,675
-------- --------
6,640 8,739
======== ========
Pro forma net loss per
share(1).................. $ (0.67) $ (0.05)
======== ========
</TABLE>
- --------
(1) Primary and fully diluted loss per share are the same for all periods
presented.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 (File
No. 333-11947) of our report dated October 14, 1996, on our audits of the
financial statements and financial statement schedule of Aurum Software, Inc.
We also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
San Jose, California
October 17, 1996
