<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1996
REGISTRATION NO. 333-06285
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
VISIGENIC SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 94-3173927
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
951 MARINER'S ISLAND BLVD.
SUITE 120
SAN MATEO, CA 94404
(415) 286-1900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
ROGER J. SIPPL
CHIEF EXECUTIVE OFFICER
VISIGENIC SOFTWARE, INC.
951 MARINER'S ISLAND BLVD.
SUITE 120
SAN MATEO, CA 94404
(415) 286-1900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
THOMAS W. FURLONG, ESQ. MARK C. STEVENS, ESQ.
DAVID A. HUBB, ESQ. JEFFREY R. VETTER, ESQ.
GILBERT GALLARDO, ESQ. MICHAEL J. MCADAM, ESQ.
GRAY CARY WARE & FREIDENRICH FENWICK & WEST LLP
A PROFESSIONAL CORPORATION TWO PALO ALTO SQUARE
400 HAMILTON AVENUE PALO ALTO, CA 94306
PALO ALTO, CA 94301-1825 (415) 494-0600
(415) 328-6561
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
VISIGENIC SOFTWARE, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1.
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
------------------------------- ----------------------
<S> <C>
1. Forepart of this Registration
Statement and Outside Front
Cover Page of Prospectus....... Facing Page of this Registration Statement
and Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus...... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges............... Prospectus Summary; Risk Factors
4. Use of Proceeds................ Prospectus Summary; Use of Proceeds
5. Determination of Offering
Price.......................... Outside Front Cover Page; Underwriting
6. Dilution....................... Dilution
7. Selling Security Holders....... Principal and Selling Stockholders
8. Plan of Distribution........... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered..................... Prospectus Summary; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and
Counsel........................ Legal Matters
11. Information with Respect to the
Registrant..................... Outside Front and Inside Front Cover Pages;
Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Financial Statements
12. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities..... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 7, 1996
PROSPECTUS
2,100,000 SHARES
[LOGO OF VISIGENIC SOFTWARE, INC. APPEARS HERE]
COMMON STOCK
Of the 2,100,000 shares of Common Stock offered hereby, 1,700,000 shares are
being sold by the Company and 400,000 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
the shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $9.00 and $11.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol VSGN.
-----------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 6.
-----------
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.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
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Total (3).............. $ $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $750,000.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 315,000 additional shares of Common Stock
solely to cover over-allotments, if any. If all such shares are purchased,
the total Price to Public, Underwriting Discount, 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, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1996, at the office of the agent of Hambrecht &
Quist LLC in New York, New York.
HAMBRECHT & QUIST ROBERTSON, STEPHENS & COMPANY
, 1996
<PAGE>
[Examples of applications which embed Visigenic's database
connectivity and distributed object connectivity products
appear in color here]
Visigenic, the Visigenic logo, VisiBroker, VisiODBC and VisiChannel are
trademarks of the Company. This Prospectus also includes trademarks of
companies other than the Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET THE OVER-THE-
COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
Digitalized artwork illustrating how the Visigenic database connectivity and
distributed object connectivity products simplify the development, deployment
and management of reliable and flexible distributed applications while enabling
enterprise users, customers, suppliers and other business partners to easily
access enterprise data.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
See "Risk Factors" for a discussion of certain factors to be considered by
prospective investors.
THE COMPANY
Visigenic Software, Inc. ("Visigenic" or the "Company") is a leading provider
of software tools for database and distributed object connectivity for the
Internet, Intranet and enterprise computing environments. The Company's
standards-based products facilitate the development, deployment and management
of distributed applications by providing database-independent access to leading
databases and the communications infrastructure for distributed object-oriented
applications.
In today's complex computing environment, enterprises require flexible access
to data and applications, regardless of whether the data and applications are
located at the central office, a remote office or across the Internet.
Enterprise computing environments are increasingly using multiple database
management systems ("DBMSs"), operating systems, networks and hardware
platforms and relying on object-oriented technologies to develop and deploy
distributed applications for these heterogeneous environments. The rapid growth
of the Internet and Intranets, both of which are heterogeneous distributed
computing environments, is accelerating the need for tools to develop, deploy
and manage distributed applications.
The Visigenic solution provides key components of the software infrastructure
that enables developers and information technology ("IT") professionals to
develop, deploy and manage distributed applications. The Company believes
business applications increasingly will be comprised of objects, Java applets
and databases that are distributed on networks and dynamically assembled into
highly customized distributed solutions. The Company's products enable the
enterprise to adapt its application architecture to meet changing business and
computing requirements by simplifying the development and deployment of
distributed database and object-oriented applications. Visigenic's products
support existing and emerging industry standards, making the Company's
solutions open, flexible and interoperable across multiple operating
environments. The Company believes that its products are especially well suited
for large distributed computing environments such as the Internet and
Intranets.
The Company's strategy is to become the premier provider of software tools
which enable developers and IT professionals to develop, deploy and manage
distributed applications for Internet, Intranet and enterprise computing
environments. Visigenic supports and contributes to the enhancement of open
industry standards through active participation in several standards setting
organizations. The Company intends to continue to develop strategic
relationships with leading technology companies to promote the widespread
acceptance and distribution of Visigenic products. Visigenic has established
strategic relationships with Cisco, Hitachi, Microsoft, Netscape and Platinum
technology. Additionally, the Company intends to leverage its products and
expertise to exploit the emergence of the Internet and Intranets.
The Company markets and sells its software through its direct sales and
telesales forces, independent software vendors ("ISVs"), value added resellers
("VARs"), international distributors and on-line Internet sales in North
America, Europe and Asia. The Company's customers include ASCII Corporation,
Cisco, Compuware, Borland, Healtheon, Hewlett-Packard, Hitachi, Merrill Lynch,
MCI Telecommunications, Microsoft, Netscape, Oracle, Platinum technology and
Software AG.
In May 1996, the Company acquired PostModern Computing Technologies, Inc.
("PostModern"), a supplier of distributed object connectivity software.
PostModern had revenue of $1.0 million and net income of
3
<PAGE>
$58,849 in the year ended March 31, 1996, and had total assets of $473,771 at
March 31, 1996. In the acquisition, which was structured as a merger, the
Company issued 3,099,821 shares of its Common Stock and paid a total of $2.3
million in exchange for all PostModern shares. The Company also assumed
PostModern's outstanding stock options and made cash payments, subject to one-
year vesting, totaling $1.5 million, to certain PostModern employees. A portion
of the proceeds from the Company's issuance of its Series C Preferred Stock and
convertible notes to three investors in May 1996 was used to finance the cash
portion of the acquisition.
The Company was incorporated in February 1993. The Company's principal
executive offices are located at 951 Mariner's Island Boulevard, Suite 120, San
Mateo, California, 94404. Its telephone number is (415) 286-1900. Its email
address is [email protected] and its World Wide Web site is located at
http://www.visigenic.com. Information contained on the Company's Web site shall
not be deemed to be a part of this Prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................... 1,700,000 shares
Common Stock offered by the Selling Stockholders....... 400,000 shares
Common Stock to be outstanding after the offering...... 12,169,971 shares (1)
Use of proceeds........................................ General corporate purposes,
including working capital and
possible repayment of revolving and
bridge credit facilities
Proposed Nasdaq National Market symbol................. VSGN
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, QUARTER ENDED JUNE 30,
--------------------------------------- ------------------------------
1996 1996
--------------------- ----------------------
PRO FORMA PRO FORMA
1994 1995 ACTUAL COMBINED (2) 1995 ACTUAL COMBINED (2)
------- ------- ------- ------------ ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue................. -- $ 1,115 $ 5,575 $ 6,577 $ 911 $ 2,961 $ 3,093
Gross profit............ -- 820 4,564 5,303 722 2,528 2,584
Loss from operations.... (2,496) (4,723) (4,464) (6,422) (978) (13,665) (13,901)
Net loss................ $(2,454) $(4,629) $(4,379) $(6,337) $ (977) $(13,659) $(13,895)
Pro forma net loss per
share (3).............. -- -- $ (.39) $ (.57) $ (.09) $ (1.21) $ (1.23)
Pro forma weighted
average common and
common equivalent
shares (3)............. -- -- 11,120 11,120 10,602 11,289 11,289
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------
PRO
ACTUAL FORMA (4) AS ADJUSTED (5)
------ --------- ---------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................... $1,890 $1,890 $16,426
Working capital............................... 2,331 2,331 17,391
Total assets.................................. 9,962 9,962 24,498
Convertible notes payable to stockholders..... 2,000 -- --
Stockholders' equity.......................... 3,111 5,111 20,171
</TABLE>
- -------------
(1) Excludes 1,449,285 shares of Common Stock issuable upon exercise of options
outstanding as of June 30, 1996 with a weighted average exercise price of
$1.76 per share. See "Capitalization" and "Management--Stock Plans."
(2) The pro forma combined statement of operations data gives effect to the May
1996 acquisition of PostModern Computing Technologies Inc. as if it had
occurred on April 1, 1995. The acquisition was accounted for as a purchase
and resulted in the write-off of approximately $12.0 million of in process
product development in the quarter ended June 30, 1996. The pro forma
combined statement of operations data for the year ended March 31, 1996
does not give effect to this write-off. See Note 9 of Notes to Consolidated
Financial Statements of Visigenic and Pro Forma Condensed Combined
Financial Statements.
(3) See Note 2 of Notes to Consolidated Financial Statements of Visigenic for
an explanation of the method used to determine the number of shares used to
compute per share amounts.
(4) Gives pro forma effect to the conversion upon the closing of this offering
of all outstanding shares of Preferred Stock and convertible notes into
shares of Common Stock.
(5) Adjusted to reflect the sale of 1,700,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $10.00 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
---------------
Except as otherwise noted herein, information in this Prospectus assumes (i)
no exercise of the Underwriters' over-allotment option, (ii) the amendment and
restatement of the Company's Certificate of Incorporation prior to the
effective date of this offering effecting a 1 for 2 reverse stock split, (iii)
the conversion of outstanding convertible notes into an aggregate of
approximately 200,000 shares of Common Stock upon the consummation of this
offering, and (iv) the conversion of all outstanding shares of Preferred Stock
of the Company into an aggregate of 4,119,069 shares of Common Stock upon the
consummation of this offering. See "Capitalization," "Description of Capital
Stock" and "Underwriting."
5
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the Common
Stock offered hereby. This Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result
of the risk factors set forth below and elsewhere in this Prospectus.
Limited Operating History; History of Losses; Recent Acquisition of
Distributed Object Connectivity Business. The Company was incorporated in 1993
and commenced shipment of its initial products in November 1994. In May 1996,
the Company acquired PostModern Computing Technologies Inc. ("PostModern"), a
developer of distributed object connectivity software. PostModern was founded
in 1991, commenced shipment of its initial products in 1992 and had very
limited product sales prior to the acquisition. Accordingly, the Company has
only a limited operating history, particularly with respect to its newly
acquired distributed object connectivity business, upon which an evaluation of
the Company and its future operating results can be based.
Since inception, the Company has incurred significant losses and negative
cash flow. At June 30, 1996, the Company had cumulative operating losses of
$25.1 million, with net losses of $2.5 million, $4.6 million, $4.4 million and
$13.7 milion for fiscal 1994, fiscal 1995, fiscal 1996 and the quarter ended
June 30, 1996, respectively. A substantial portion of the accumulated deficit
is due to the significant commitment of resources to the Company's product
development and sales and marketing activities and the write-off of
approximately $12.0 million of in process product development in the quarter
ended June 30, 1996 in connection with the acquisition of PostModern. The
Company expects to continue to devote substantial resources in these areas and
as a result will need to generate significant revenue in order to achieve
profitability. The Company currently anticipates that it will operate at a
loss through at least the end of 1997. The Company has experienced substantial
growth in revenue in fiscal 1996. The Company expects that prior growth rates
of the Company's software product revenue will not be sustainable in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company, which prior to the acquisition of PostModern did not provide
distributed object connectivity software, expects that its revenue growth
commencing in the current fiscal year will be dependent, in part, on sales of
distributed object connectivity products. The Company's ability to develop a
distributed object connectivity software business will depend upon several
factors, including, but not limited to, its ability to integrate the
operations and personnel of PostModern into the Company, the ability of the
Company's sales personnel and distribution channels to sell distributed object
connectivity software and the commercial acceptance of the Company's
distributed object connectivity software. Because the market for distributed
object technology is new and emerging and customers' expertise about this
technology is limited, the Company believes that customer support is critical
to achieving sales of the Company's distributed object connectivity products.
The Company currently has few dedicated support engineers capable of providing
the required level of customer support with respect to its distributed object
technology business. If the Company is unsuccessful at attracting additional
support and engineering personnel, this is likely to have a material adverse
effect on the Company's distributed object connectivity business. There can be
no assurance, particularly in light of the recent acquisition of PostModern by
the Company and the limited operating history of PostModern itself, that the
Company's distributed object connectivity software business will be
successful. Any failure by the Company to develop a successful distributed
object connectivity software business would have a material adverse effect on
the Company's business, results of operations and financial condition.
The process of integrating PostModern into the Company may result in
unforeseen operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of the Company's business. Moreover, there can be no assurance that the
anticipated benefits of this acquisition will be realized.
Potential Fluctuations in Operating Results. The Company's revenue and
results of operations have varied on a quarterly basis in the past and are
expected to vary significantly in the future. Accordingly, the Company
6
<PAGE>
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. The Company's revenue and results of operations are
difficult to forecast and could be adversely affected by many factors,
including, among others, the size, timing and terms of individual license
transactions; the relatively long sales and implementation cycles for the
Company's products; the delay or deferral of customer implementations; changes
in the Company's operating expenses; the ability of the Company to develop and
market new products and control costs; market acceptance of new products;
timing of introduction or enhancement of products by the Company or its
competitors; the level of product and price competition; the ability of the
Company to expand its direct sales and telesales forces, its indirect
distribution channels and its customer support capabilities; activities of and
acquisitions by competitors; changes in connectivity software, database
technology and industry standards; changes in the mix of products and services
sold; changes in the mix of channels through which products and services are
sold; levels of international sales; personnel changes and difficulties in
attracting and retaining qualified sales, marketing and technical personnel;
changes in customers' budgeting cycles; foreign currency exchange rates;
quality control of products sold; and general economic conditions. In
particular, the ability of the Company to achieve revenue growth in the future
will depend on its success in adding a substantial number of sales and sales
support personnel in fiscal 1997. Competition for such personnel is intense
and there can be no assurance the Company will be able to attract and retain
these personnel.
Licensing of the Company's software products historically has accounted for
the substantial majority of the Company's revenue, and the Company anticipates
that this trend will continue for the foreseeable future. The Company's
software products revenue is difficult to forecast for a number of reasons.
The Company typically does not have a material backlog of unfilled orders, and
revenue in any quarter is substantially dependent on contracts received in
that quarter. A significant portion of the Company's revenue in prior periods
has been derived from relatively large sales to a limited number of customers,
and the Company currently anticipates that future quarters will continue to
reflect this trend. In fiscal 1996, approximately 78% of the Company's revenue
was derived from ten customers and revenue from one customer, Platinum
technology, Inc., accounted for approximately 25% of the Company's total
revenue. For the quarter ended June 30, 1996, approximately 75% of the
Company's revenue was derived from ten customers, and revenue from one
customer, Cisco Systems, Inc., accounted for approximately 34% of the
Company's total revenue. Sales cycles for the Company's products typically
range from six to twelve months, and the terms and conditions of individual
license transactions, including prices and discounts, are often highly
negotiated based on volumes and commitments and vary considerably from
customer to customer. In addition, the Company has generally recognized a
substantial portion of its revenue in the last month of each quarter, with
this revenue concentrated in the last weeks of the quarter. Accordingly, the
cancellation or deferral of even a small number of purchases of the Company's
products has in the past and could in the future have a material adverse
effect on the Company's business, results of operations and financial
condition in any particular quarter. Cancellations or deferrals of orders may
be caused by any of a number of factors, including delays in new or enhanced
product shipments. To the extent that significant sales occur earlier than
expected, operating results for subsequent quarters may be adversely affected.
A significant portion of the Company's revenue has been and is expected in the
future to continue to be based upon sales to third party vendors, who will
incorporate the Company's products in their own products. This revenue depends
upon the success of third parties, and as a result is difficult for the
Company to predict and may be subject to extreme fluctuation.
The Company's expense levels are based, in part, on its expectations as to
future revenue and to a large extent are fixed in the short term. The Company
may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any significant shortfall of
revenue in relation to the Company's expectations would have an almost
immediate adverse effect on the Company's business, financial condition and
results of operations. Further, the Company intends to continue to expand its
development teams and its sales and marketing force. The timing of such
expansion and the rate at which new development and sales and marketing
personnel become productive could cause material fluctuations in quarterly
results of operations.
7
<PAGE>
As a result of the foregoing or other factors, it is likely that in some
future period the Company's results of operations will fail to meet the
expectations of public market analysts or investors, and the price of the
Company's Common Stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Product Concentration. Prior to the acquisition of PostModern in May 1996,
the Company derived all of its revenue from the licensing of its database
connectivity software products, particularly its Open Database Connectivity
("ODBC") product line, and fees from related services. These products and
services are expected to continue to account for a substantial majority of the
Company's revenue for the foreseeable future. As a result, a reduction in
demand or increase in competition for these products, or a decline in sales of
such products, would have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Products."
Dependence on Emerging Markets and Evolving Standards; Acceptance of the
Company's Products. The Company's future financial performance will depend on
the growth in demand for standards-based database connectivity and distributed
object connectivity software products. These markets are new and emerging, are
rapidly evolving, are characterized by an increasing number of market entrants
and will be subject to frequent and continuing changes in customers'
preferences and technology. As is typical in new and evolving markets, demand
and market acceptance for products are subject to a high level of uncertainty.
To date, substantially all of the Company's revenue is derived from the
licensing of database connectivity products and fees for related services.
These products are based on the ODBC standard, which was developed to enable
applications to access data from all ODBC-compliant data sources. While the
ODBC standard is supported by most of the major database and software vendors,
it is a recent standard that has not yet gained widespread acceptance and that
currently co-exists with proprietary database connectivity solutions from many
of these same database and software vendors.
With the acquisition of PostModern in May 1996, the Company began to offer
standards-based distributed object connectivity products. The Company's
current distributed object connectivity products are based on several
standards, including the Common Object Request Broker Architecture ("CORBA")
and the Internet Inter-ORB Protocol ("IIOP"). These standards are intended to
facilitate the management and communication of applications created in object-
oriented programming languages such as C++ and Java. These standards are new,
have not yet gained widespread acceptance and compete with proprietary
solutions such as Microsoft's ActiveX and Distributed Component Object Model
("DCOM"). The distributed object connectivity software market is relatively
young and there are few proven products. Further, some of the Company's
distributed object connectivity products are designed specifically for use in
applications for the Internet and Intranets. Because critical issues
concerning the Internet and Intranets -- including security, reliability,
cost, ease of use and access and quality of service -- remain unresolved, the
growth of applications targeted at the Internet and Intranets is uncertain and
difficult to predict.
Because the markets for the Company's products are new and evolving, it is
difficult to assess or predict with any assurance the size or growth rate, if
any, of these markets. There can be no assurance that the markets for the
Company's products will develop, or that the Company's products will be
adopted. If these markets fail to develop, develop more slowly than expected
or attract new competitors, or if the Company's products do not achieve market
acceptance, the Company's business, results of operations and financial
condition could be materially adversely affected. Because the Company's
strategy is to develop standards-based products and these standards are
relatively new, not widely accepted and compete with other emerging standards,
to the extent that these standards are not commercially successful, this will
have a material adverse affect on the Company's business, results of
operations and financial condition. Competing or alternative technologies are
being or are likely in the future to be promoted by current and potential
competitors of the Company, some of which have well-established relationships
with the current and potential customers of the Company and have extensive
knowledge of the markets served by the Company, better name recognition and
more extensive development, sales and marketing resources than the Company.
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While the Company has licensed its products to numerous customers, most of
these customers are currently developing applications that incorporate the
Company's products, and only a very limited number of them have deployed or
shipped such applications. To the extent these customers are unable to or
otherwise do not deploy or ship applications that incorporate the Company's
products, or if these applications are not successful, this will have a
material adverse effect on the Company's business, results of operations and
financial condition. See "--Intense Competition" and "Business--Industry
Background."
Reliance on VARs and ISVs. A significant element of the Company's strategy
is to embed its technology in products offered by the Company's VAR and ISV
customers, such as Cisco, Healtheon, Hewlett-Packard, Microsoft, Netscape,
Oracle and Platinum technology. A relatively small number of VAR and ISV
customers have accounted for a significant percentage of the Company's
revenue. In fiscal 1996, ten VAR and ISV customers accounted for approximately
78% of the Company's revenue, while in the first quarter of fiscal 1997, ten
VAR and ISV customers accounted for approximately 75% of the Company's
revenue. The Company intends to seek similar distribution arrangements with
other VARs and ISVs to embed the Company's technology in their products and
expects that these arrangements will account for a significant portion of the
Company's revenue in future periods. To date, the terms and conditions,
including prices and discounts, of the Company's agreements with its VAR and
ISV customers have been highly negotiated and vary significantly between
customers, however, all of these agreements are non-exclusive and do not
require the VAR or ISV to make minimum purchases. Many of the markets for the
VAR and ISV products in which the Company's technology are being embedded are
new and evolving and, therefore, subject to the same risks faced by the
Company in the markets for its own products. If the Company is unsuccessful in
securing license agreements with additional VARs and ISVs on commercially
reasonable terms or at all, or if the Company's VAR and ISV customers are
unsuccessful in selling their products, this would have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Dependence on the Internet and Intranets. The Company believes that sales of
its connectivity products, particularly its distributed object connectivity
products, will depend in large part upon the adoption by businesses and end-
users of the Internet and Intranets for commerce and communications. The
Internet and Intranets are new and evolving, and there can be no assurance of
their widespread adoption. Critical issues concerning the Internet and
Intranets, including security, reliability, cost, ease of use and access and
quality of service, remain unresolved at this time, inhibiting adoption by
many enterprises and end-users. If the Internet and Intranets are not widely
used by businesses and end-users, this will have a material adverse effect on
the Company's business, results of operations and financial condition.
Dependence on Java; Risks Associated with Encryption Technology. Certain of
the Company's products are based on Java, an object-oriented programming
language developed by JavaSoft, a subsidiary of Sun Microsystems. Java was
developed primarily for Internet and Intranet applications. Java was only
recently introduced and does not yet have sufficient history to establish its
reliability, thereby inhibiting adoption of Java. To date, there have been
only a very limited number of commercially significant Java-based products,
and it is too early to determine whether Java will become a significant
technology. Alternatives to Java have been announced by several companies,
including Microsoft. To the extent that Java is not adopted or is adopted more
slowly than anticipated, this could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company plans to use encryption technology in certain of its future
products to provide the security required for the exchange of confidential
information. Encryption technologies have been breached in the past. There can
be no assurance that there will not be a compromise or breach of the security
technology used by the Company. If any such compromise or breach were to
occur, it could have a material adverse effect on the Company's business,
results of operations and financial condition.
Need to Develop New Software Products and Enhancements. The markets for the
Company's products are characterized by rapid technological developments,
evolving industry standards, swift changes in customer
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requirements, computer operating environments and software applications, and
frequent new product introductions and enhancements. As a result, the
Company's success depends substantially upon its ability to anticipate changes
and continue to enhance its existing products, develop and introduce in a
timely manner new products incorporating technological advances, comply with
emerging industry standards and meet increasing customer expectations. The
Company's products may be rendered obsolete if the Company fails to anticipate
or react to change. To the extent one or more of the Company's competitors
introduce products that better address customer needs, the Company's business,
results of operations and financial condition could be materially adversely
affected. There can be no assurance that the Company will be successful in
developing and marketing new products or enhancements to its existing products
on a timely basis or at all or that any new or enhanced products will
adequately address the changing needs of the marketplace. The Company has in
the past incurred product development expenses and sales and marketing
expenses in connection with product development activities that did not result
in commercially introduced products. Some of the Company's products are based
on technology from third parties and the Company therefore has limited control
over whether and when these technologies are enhanced. For instance, the
VisiODBC Software Developers Kit ("SDK") products are based upon ODBC software
licensed from Microsoft. The failure or delay in enhancements of technology
from third parties used in the Company's products could have a material
adverse effect on the Company's ability to develop and enhance its own
products. Also, negative reviews of the Company's new products or product
versions in industry publications could have a material adverse effect on the
Company's sales. The Company has in the past experienced delays in the
development of new products and product versions. If the Company is unable to
develop and introduce new products or enhancements to existing products in a
timely manner in response to changing market conditions or customer
requirements, the Company's business, results of operations and financial
condition would be materially and adversely affected.
The Company has in the past engaged and expects that it will continue in the
future to engage in joint development projects with third parties. Currently,
the Company is engaged in joint development with Hitachi of distributed object
connectivity software targeted at transaction processing applications. Joint
development creates several risks for the Company, including loss of control
over the development of aspects of the jointly developed product and over the
timing of product availability. There can be no assurance that joint
development activities will result in products, or that any products developed
will be commercially successful.
Dependence on Key Personnel; Need to Increase Technical, Sales and Marketing
and Managerial Personnel. The Company's future performance depends to a
significant extent upon the continued service of its key technical, sales and
marketing and senior management personnel. The loss of the services of any of
these individuals would have a material adverse effect on the Company. All
employees are employed at-will, and the Company has no fixed term employment
agreements with any of its employees. The Company's future success also
depends on its continuing ability to attract, train and retain highly
qualified technical, sales and marketing and managerial personnel. In
particular, the Company currently has a very limited technical staff devoted
to its distributed object connectivity business. An increase in the technical
staff will be required to rapidly develop the database connectivity and
distributed object connectivity products currently being planned, while an
increase in the sales and marketing staff will be required to expand both the
Company's direct and indirect sales activities and achieve revenue growth. The
Company intends to hire a significant number of additional technical and sales
and marketing personnel in fiscal 1997 and beyond. Competition for such
personnel is intense, and there can be no assurance that the Company can
attract, assimilate or retain such personnel. Because of the complexity of
database connectivity and distributed object connectivity software products,
the Company has in the past experienced and expects to continue in the future
to experience a time lag between the date technical and sales personnel are
hired and the date such persons become fully productive. If the Company is
unable to hire and train such personnel on a timely basis in the future, the
Company's business, results of operations and financial condition could be
materially adversely affected.
Management of Growth; Need to Increase Financial Personnel and Implement
Policies. The Company's business has grown rapidly in recent periods, with
revenue increasing from $1.1 million in fiscal 1995 to $5.6 million in fiscal
1996. In addition, the Company acquired PostModern in May 1996 as part of its
strategy of
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adding distributed object connectivity products to its product line. The
growth of the Company's business, the expansion of the Company's customer base
and the recent acquisition and integration of PostModern have placed a
significant strain on the Company's management, operations and financial
systems, policies and procedures. The Company's recent expansion has also
resulted in substantial growth in the number of its employees, the scope of
its operating and financial systems and the geographic area of its operations,
resulting in increased responsibility for management personnel. The Company's
future results of operations will depend in part on the ability of its
officers and other key employees to continue to implement its operational,
customer support and financial control systems and to expand, train and manage
its employee base. The Company hired a new Chief Financial Officer and a new
controller in July 1996. The Company's current financial systems, policies and
procedures are limited. The Company is in the process of developing a more
comprehensive set of written financial policies and procedures to supplement
its limited current policies and procedures and still must hire additional
accounting staff experienced in the software industry. There can be no
assurance that the Company will be able to manage any future expansion of its
business, if any, successfully, or that its management, personnel, procedures
and systems will be adequate to support the Company's operations. Any such
inabilities or inadequacies to do so would have a material adverse effect on
the Company's business, results of operations and financial condition.
Potential Acquisitions. If appropriate opportunities present themselves, the
Company intends to acquire businesses, products or technology that the Company
believes are strategic, although the Company currently has no understandings,
commitments or agreements with respect to any material acquisition and no
material acquisition is currently being pursued. There can be no assurance
that the Company will be able to successfully identify, negotiate or finance
such acquisitions, or to integrate such acquisitions with its current
business. The process of integrating an acquired business, product or
technology into the Company may result in unforeseen operating difficulties
and expenditures and may absorb significant management attention that would
otherwise be available for ongoing development of the Company's business.
Moreover, there can be no assurance that the anticipated benefits of any
acquisition will be realized. Acquisitions could result in potentially
dilutive issuances of equity securities, the incurrence of debt and contingent
liabilities and amortization expenses related to goodwill and other intangible
assets, which could materially adversely affect the Company's business,
results of operations and financial condition. Any such future growth and any
acquisitions of other technologies, products or companies may require the
Company to obtain additional equity or debt financing, which may not be
available or may be dilutive.
Intense Competition. The Company's products are targeted at the emerging
markets for standards-based database connectivity software and standards-based
distributed object connectivity software. The markets for the Company's
products are intensely competitive, subject to rapid change and significantly
affected by new product introductions and other market activities of industry
participants. The Company believes that the principal competitive factors in
these markets are product quality, performance and price, vendor and product
reputation, product architecture and quality of support.
In the standards-based database connectivity market, the Company competes
principally against Intersolv. The Company's database connectivity products
also indirectly compete against proprietary database connectivity solutions
from database vendors. In the standards-based distributed object connectivity
market, the Company competes principally against two private companies, Iona
and Expersoft. The Company's distributed object connectivity products also
compete against existing or proposed distributed object connectivity solutions
from hardware vendors such as DEC, Hewlett-Packard, IBM and Sun. In addition,
because there are relatively low barriers to entry in the software market and
because the Company's products are based on publicly available standards, the
Company expects to experience additional competition in the future from other
established and emerging companies if the market for database connectivity and
distributed object connectivity software continues to develop and expand. In
particular, relational database vendors including Informix, Microsoft, Oracle
and Sybase may offer standards-based database connectivity software to their
customers, eliminating or reducing demand for the Company's products.
Similarly, operating system vendors such as DEC, Hewlett-Packard, IBM,
Microsoft and Sun may offer standards-based distributed object connectivity
products bundled with their
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operating systems. For instance, Microsoft has announced plans to introduce
DCOM, which would eliminate the need for CORBA-compliant ORBs, such as those
offered by the Company, for Microsoft operating systems. Many of these current
and potential competitors have well-established relationships with the current
and potential customers of the Company, have extensive knowledge of the
markets serviced by the Company, better name recognition and more extensive
development, sales and marketing resources and are capable of offering single
vendor solutions. As a result, these current and potential competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products, than the Company. It is also possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share. The Company also expects that competition
will increase as a result of software industry consolidations.
The Company expects that it will face increasing pricing pressures from its
current competitors and new market entrants. Increased price competition may
result in price reductions, reduced gross margins and loss of market share,
any of which could materially adversely affect the Company's business,
financial condition or results of operations. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors or that competitive pressures will not materially and adversely
affect its business, results of operations and financial condition. See
"Business--Competition."
Risk of Product Defects. Software products as complex as those offered by
the Company frequently contain undetected errors or failures that may be
detected at any point in the product's life cycle. The Company has in the past
discovered software errors in certain of its new products and enhancements and
has experienced delays in shipment of products during the period required to
correct these errors. There can be no assurance that, despite testing by the
Company and potential customers, errors will not occur, resulting in loss of
or delay in market acceptance and sales, diversion of development resources,
injury to the Company's reputation or increased service and warranty costs,
any of which could have a material adverse effect on the Company's business,
results of operations and financial condition. This risk is amplified for the
Company because a significant portion of its future sales are expected to be
derived from arrangements under which third parties embed the Company's
products in their own products. Any significant errors in the Company's
products, or in the products of VARs or ISVs which embed the Company's
products, might discourage such third parties or other customers from
utilizing the Company's products, which would have a material adverse effect
on the Company's business, results of operations and financial condition.
Although the Company generally attempts to limit by contract its exposure to
incidental and consequential damages, and to cap the Company's liabilities to
its proceeds under a contract, if a court failed to enforce the liability
limiting provisions of the Company's contracts for any reason, or if
liabilities arose which were not effectively limited, the Company's business,
results of operations and financial condition could be materially and
adversely affected. See "Business--Product Development."
Dependence on Company and Third Party Proprietary Technology. The Company's
success is dependent in part upon its proprietary technology. While the
Company relies on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights, the Company believes that factors such as the technical
and creative skills of its personnel, new product developments, frequent
product enhancements, name recognition and reliable products and product
support are more essential to establishing and maintaining a technology
leadership position, particularly because the Company is supplying standards-
based products. The Company seeks to protect its software, published data,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. The Company has granted limited
access to its source code to third parties under confidentiality obligations.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and while
the Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a
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persistent problem. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to as great an extent as do the laws
of the United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology. The Company
distributes its products electronically through the Internet. Distributing the
Company's products through the Internet makes the Company's software more
susceptible than other software to unauthorized copying and use. The Company
has historically allowed and currently intends to continue to allow, customers
to electronically download its client and server software. If as a result of
changing legal interpretations of liability for unauthorized use of the
Company's software or otherwise, users were to become less sensitive to
avoiding copyright infringement, the Company's business, results of operations
and financial condition could be materially adversely affected.
The Company is not aware that any of its products infringes 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 developers will
increasingly be subject to infringement claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to the Company or at all, which could
have a material adverse effect upon the Company's business, results of
operations and financial condition.
In addition, the Company relies on certain software that it licenses from
third parties, including software that is integrated with internally developed
software and used in the Company's products to perform key functions. The
Company licenses from Microsoft the base technology for the VisiODBC SDK
products and licenses from RSA Data Security, Inc. ("RSA") security technology
it plans to use in several of its future products. Microsoft has the right to
terminate its license with the Company at any time after delivery to the
Company of the Microsoft SDK for ODBC 3.0, which is expected to occur in the
second half of 1996. While certain licenses from Microsoft are granted to the
Company on an exclusive basis, Microsoft has the right to convert such
licenses to non-exclusive licenses. The Company's license with RSA may only be
terminated for breach. The Company has entered into a joint technology
agreement with JavaSoft, a subsidiary of Sun Microsystems, that grants the
Company the right to sublicense JavaSoft's Java database connectivity ("JDBC")
test suites and ODBC bridge. There can be no assurances that such firms will
remain in business, that they will continue to support their technology or
that their technology will otherwise continue to be available to the Company
on commercially reasonable terms. The loss of or inability to maintain any of
these software licenses could result in delays or cancellations in product
shipments until equivalent software can be identified and licensed or
developed and integrated with the Company's products. Any such delay or
cancellation could materially adversely affect the Company's business, results
of operations and financial condition. See "Business--Intellectual Property
and Other Proprietary Rights."
International Sales. The Company's export sales accounted for approximately
10% and 4% of the Company's total revenue in fiscal 1996 and the first quarter
of fiscal 1997, respectively. The Company had no material export sales in
fiscal 1994 or 1995. The Company expects to increase its emphasis on export
sales. Revenue derived from export sales may account for a growing percentage
of the Company's revenue in future periods, although there can be no assurance
that the Company will achieve significant penetration in any international
market. The Company has only one international sales office, which is located
in Paris, France. The Company believes that its continued growth will require
expansion of its international operations and export sales. To successfully
expand export sales, the Company must establish additional foreign sales
offices, hire additional personnel and recruit additional international
resellers. To the extent the Company is unable to do so in a timely manner,
the Company's growth in export sales, if any, will be limited, and the
Company's business, results of operations and financial condition could be
materially adversely affected. The Company has granted exclusive distribution
rights in Japan for the Japanese versions of its ODBC products to ASCII
Corporation, a Japanese software distributor. The Company may not terminate
these exclusive rights unless ASCII fails to meet
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certain minimum annual sales objectives commencing in fiscal year 1998 or
otherwise breaches the agreement. There can be no assurance that ASCII will be
successful selling the Company's products.
There are a number of risks inherent in the Company's international business
activities, including unexpected changes in regulatory requirements, tariffs
and other trade barriers, costs and risks of localizing and internationalizing
products for foreign countries, longer accounts receivable payment cycles,
potentially adverse tax consequences, repatriation of earnings and the burdens
of complying with a wide variety of foreign laws. None of the Company's
products is currently a "double byte" product, which is required to localize
these products in certain non-English character set markets such as Asia. The
Company believes that it will be required to develop double byte versions of
its products and engage in other internationalization and localization
activities. There can be no assurance the Company will successfully complete
these activities in a timely manner. All of the Company's sales are currently
denominated in U.S. dollars and, therefore, increases in the value of the U.S.
dollar relative to foreign currencies could make the Company's products less
competitive in foreign markets. In addition, revenue of the Company earned in
various countries where the Company does business may be subject to taxation
by more than one jurisdiction, thereby adversely affecting the Company's
earnings. There can be no assurance that such factors will not have an adverse
effect on the revenue from the Company's future international sales and,
consequently, the Company's financial condition or results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Sales and Marketing."
Concentration of Share Ownership and Voting Power; Anti-Takeover
Provisions. Upon completion of this offering (assuming no exercise of the
Underwriters' over-allotment option), officers, directors and affiliates of
the Company will beneficially own approximately 54.1% of the Company's
outstanding Common Stock. As a result, these stockholders as a group will be
able to control the management and affairs of the Company and all matters
requiring stockholder approval, including election of directors, any merger,
consolidation or sale of all or substantially all of the Company's assets and
any other significant corporate transactions. The concentration of ownership
could have the effect of delaying or preventing a change in control of the
Company, reducing the likelihood of any acquisition of the Company at a
premium price. See "Principal and Selling Stockholders."
Upon the closing of this offering, the Company's Board of Directors ("Board
of Directors" or "Board") has the authority to issue up to 2,000,000 shares of
Preferred Stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of shares of Preferred Stock, while
potentially providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. The Company has no present intention to issue
shares of Preferred Stock. In addition, certain provisions of the Company's
Restated Certificate of Incorporation may have the effect of delaying or
preventing a change of control of the Company, which could adversely affect
the market price of the Company's Common Stock. These provisions provide,
among other things, that the Board of Directors is divided into three classes
to serve for staggered three-year terms, that a director may be removed from
the Board of Directors only for cause and only upon the vote of at least 66
2/3% of the voting power of all outstanding shares of the Company's capital
stock, that stockholders may not take action by written consent, that the
ability of stockholders to call special meetings of stockholders and to raise
matters at meetings of stockholders is restricted and that certain amendments
of the Company's Restated Certificate of Incorporation, and all amendments by
the stockholders of the Company's Amended and Restated Bylaws, require the
approval of holders of at least 66 2/3% of the voting power of all outstanding
shares. In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which will prohibit the
Company from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. The application of Section 203
also could have the effect of delaying or preventing a change of control of
the Company. See "Description of Capital Stock."
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Broad Management Discretion over Use of Proceeds. The primary purposes of
this offering are to increase the Company's equity capital, to create a public
market for the Company's Common Stock and to facilitate future access by the
Company to public capital markets. A significant portion of the anticipated
net proceeds to the Company from this offering have not been designated for
specific uses. Accordingly, management of the Company will have broad
discretion with respect to the use of these funds. See "Use of Proceeds."
Benefits of the Offering to Current Stockholders. Current stockholders of
the Company will realize certain benefits from this offering. Prior to this
offering there has been no public market for the Common Stock of the Company.
Certain stockholders of the Company will be selling shares in this offering.
See "Principal and Selling Stockholders." After the offering, a public market
will exist for the Company's stockholders to sell their shares. Sales of a
substantial amount of Common Stock in the public market following this
offering could have an adverse effect on the price of the Common Stock. See
"--Shares Eligible for Future Sale; Registration Rights," and "Shares Eligible
for Future Sale." In addition, certain holders of outstanding shares of the
Company's Common Stock and Preferred Stock, and certain holders of options to
purchase the Company's Common Stock, will have a substantial unrealized gain
in value of equity based upon the difference between the price of their shares
and the initial offering price. For example, a holder of an option to acquire
1,000 shares of the Company's Common Stock at an exercise price of $0.40 per
share will have an unrealized gain in value of equity of $9,600, assuming an
initial offering price of $10.00 per share. Although current stockholders will
benefit from this offering, investors purchasing Common Stock will suffer
immediate dilution. See "--Immediate and Substantial Dilution to New
Investors" and "Dilution."
No Prior Market; Possible Volatility. 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 among the Company, the
Selling Stockholders 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 variations in operating results, announcements of
technological innovations, the introduction of new products or changes in
product pricing policies by the Company or its competitors, proprietary rights
or other litigation, changes in earnings estimates by market analysts 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 operating results.
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. See "--
Potential Fluctuations in Operating Results."
Shares Eligible for Future Sale; Registration Rights. Sale of substantial
amounts of Common Stock in the public market following this offering could
have an adverse effect on the price of the Common Stock. Immediately upon the
effectiveness of this offering, 2,100,000 shares will be freely tradeable.
Commencing 180 days following the date of this offering, 8,048,789 additional
shares will become freely tradeable upon the expiration of agreements not to
sell such shares, subject to compliance with Rule 144. Hambrecht & Quist LLC
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to such agreements. The remaining 2,021,182
shares held by existing stockholders become eligible for sale at various times
over a period of less than two years, subject to the limitations of Rule 144.
Immediately after this offering, the Company intends to register approximately
3,150,000 shares of the Company's Common Stock reserved for issuance under its
stock option and purchase plans. See "Shares Eligible for Future Sale."
As of the effective date of the Registration Statement, the holders of
6,789,050 shares of the Company's Common Stock will be entitled to certain
piggyback registration rights with respect to such shares. If the Company were
required to include in a Company initiated registration shares held by such
holders pursuant to the exercise of their piggyback registration rights, such
sale might have an adverse effect on the Company's ability to raise needed
capital. See "Description of Capital Stock."
Immediate and Substantial Dilution to New Investors. The initial public
offering price is substantially higher than the book value per outstanding
share of Common Stock. Investors purchasing Common Stock in this offering
will, therefore, incur immediate dilution of $8.42 in net tangible book value
per share of Common Stock from the initial public offering price and may incur
additional dilution upon the exercise of outstanding stock options. See
"Dilution."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,700,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$15,060,000 (approximately $17,431,500 if the Underwriters' over-allotment
option is exercised in full), assuming the shares offered hereby are sold at a
public offering price of $10.00 per share. The principal purposes of the
offering are to obtain additional working capital, establish a public market
for the Company's Common Stock and facilitate future access to public markets.
The Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders.
The Company expects the net proceeds to be used for general corporate
purposes, including working capital and possible repayment of borrowings under
the Company's revolving and bridge credit facilities. As of June 30, 1996 the
Company had outstanding borrowings of $524,000 under its $3.0 million
revolving credit facility and no borrowings outstanding under its $2.0 million
bridge credit facility. The Company's revolving line of credit and its bridge
credit facilities bear interest at the bank's prime lending rate plus 1.0%.
The Company's revolving credit facility expires on July 15, 1997, while
amounts borrowed under the bridge facility would be due on the earlier of 120
days following the loan advance or November 28, 1996. The Company has borrowed
under its credit facilities to provide working capital. A portion of the net
proceeds may also be used to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies. While from
time to time the Company evaluates potential acquisitions of such businesses,
products or technologies, and anticipates continuing to make such evaluations,
there are no present understandings, commitments or agreements with respect to
any acquisition of other businesses, products or technologies. Pending such
uses, the proceeds will be invested in interest-bearing securities.
DIVIDEND POLICY
The Company has never paid or declared any cash dividends. It is the present
policy of the Company to retain earnings to finance the growth and development
of the business and, therefore, the Company does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. In addition, the
Company's bank credit facilities contain covenants that prohibit the Company
from paying dividends without prior bank consent.
16
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at June 30, 1996, (ii) the pro forma capitalization to reflect conversion upon
the closing of this offering of all outstanding shares of Preferred Stock and
convertible notes into shares of Common Stock, and (iii) the pro forma
capitalization as adjusted to reflect the sale of 1,700,000 shares of Common
Stock offered by the Company hereby (assuming an initial public offering price
of $10.00) and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt (1)...................... $ 524 $ 524 $ --
======== ======== ========
Long-term debt (2)....................... $ 2,000 $ -- $ --
-------- -------- --------
Stockholders' equity (3):
Preferred stock, $0.001 par value,
10,000,000 shares authorized, 4,119,069
shares issued and outstanding actual;
none issued and outstanding pro forma
and as adjusted......................... 4 -- --
Common stock, $0.001 par value,
30,000,000 shares authorized, 6,150,902
shares issued and outstanding actual;
30,000,000 shares authorized, 10,469,971
shares issued and outstanding pro forma;
50,000,000 shares authorized, 12,169,971
shares issued and outstanding
as adjusted............................. 6 10 12
Additional paid in capital............... 28,222 30,222 45,280
Accumulated deficit...................... (25,121) (25,121) (25,121)
-------- -------- --------
Stockholders' equity .................. 3,111 5,111 20,171
-------- -------- --------
Total capitalization................. $ 5,111 $ 5,111 $ 20,171
======== ======== ========
</TABLE>
- --------
(1) See Note 3 of Notes to Consolidated Financial Statements of Visigenic.
(2) See Note 9 of Notes to Consolidated Financial Statements of Visigenic.
(3) Excludes shares of Common Stock reserved for future issuance pursuant to
the Company's stock plans. As of June 30, 1996, options to purchase
1,449,285 shares at a weighted average exercise price of $1.76 per share
were outstanding. See Note 6 of Notes to Consolidated Financial Statements
of Visigenic.
17
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1996 was $4.1
million or $.39 per share of Common Stock. Net tangible book value per share
represents the amount of total tangible assets of the Company reduced by the
amount of its total liabilities and divided by the total number of shares of
Common Stock outstanding (reflecting the conversion of all outstanding
Preferred Stock and convertible notes into shares of Common Stock upon the
closing of the offering made hereby). Without taking into account any other
change in such net tangible book value after June 30, 1996, other than to give
effect to the sale by the Company of 1,700,000 shares offered hereby at an
assumed initial public offering price of $10.00 per share and receipt of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company as of June 30, 1996 would have been approximately $19.2 million, or
$1.58 per share. This represents an immediate increase in such net tangible
book value of $1.19 per share to existing stockholders and an immediate
dilution of $8.42 per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $10.00
Net tangible book value per share as of June 30, 1996 before
the offering................................................ $ .39
Increase per share attributable to new investors............. 1.19
-----
Pro forma net tangible book value per share after the
offering...................................................... 1.58
------
Dilution per share to new investors............................ $ 8.42
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the differences between the existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid to the Company and the average price per share
paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Existing stockholders(1)... 10,469,971 86.0% $30,232,000 64.0% $ 2.89
New investors(1)........... 1,700,000 14.0 17,000,000 36.0 $10.00
---------- ----- ----------- -----
Total.................... 12,169,971 100.0% $47,232,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Sales by Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 10,069,971 or approximately 82.7%
of the total number of shares of Common Stock outstanding after this
offering (10,009,971 or 80.6% if the Underwriters' over-allotment option
is exercised in full), and will increase the number of shares held by new
investors to 2,100,000 or approximately 17.3% of the total number of
shares of Common Stock outstanding after the offering (2,415,000 or 19.4%
if the Underwriters' over-allotment option is exercised in full). See
"Principal and Selling Stockholders."
The above computations assume no exercise of options after June 30, 1996. As
of June 30, 1996, there were outstanding options to purchase 1,449,285 shares
of Common Stock at a weighted average exercise price of $1.76 per share. To
the extent outstanding options are exercised, there will be further dilution
to new investors. See Note 6 of Notes to Financial Statements of Visigenic.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data at March 31, 1995 and
1996 and for the years ended March 31, 1994, 1995, and 1996 have been derived
from the audited financial statements of the Company included elsewhere in
this Prospectus. The consolidated balance sheet data at March 31, 1994 are
derived from audited financial statements not included herein. The following
selected financial data at June 30, 1996 and for the quarters ended June 30,
1995 and 1996 have been derived from unaudited financial statements of the
Company included elsewhere in this Prospectus and which include all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of its financial position and
results of operations for these periods. The following selected pro forma
combined statement of operations data for the year ended March 31, 1996 and
the quarter ended June 30, 1996 has been derived from the unaudited pro forma
condensed combined financial statements of the Company and PostModern included
elsewhere in this Prospectus. The results of operations for the quarter ended
June 30, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 1997 or any other period. The
data set forth below is qualified by reference to, and should be read in
conjunction with the financial statements and notes thereto and the discussion
thereof included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, QUARTER ENDED JUNE 30,
-------------------------------------- -----------------------------
1996 1996
-------------------- ---------------------
PRO FORMA PRO FORMA
1994(1) 1995 ACTUAL COMBINED(2) 1995 ACTUAL COMBINED(2)
------- ------- ------- ----------- ------ -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue:
Software products..... $ -- $ 892 $ 4,479 $ 4,783 $ 544 $ 2,505 $ 2,529
Service and other..... -- 223 1,096 1,794 367 456 564
------- ------- ------- ------- ------ -------- --------
Total revenue....... -- 1,115 5,575 6,577 911 2,961 3,093
------- ------- ------- ------- ------ -------- --------
Cost of revenue:
Software products..... -- 36 284 328 43 138 149
Service and other..... -- 259 727 946 146 295 360
------- ------- ------- ------- ------ -------- --------
Total cost of
revenue............ -- 295 1,011 1,274 189 433 509
------- ------- ------- ------- ------ -------- --------
Gross profit............ -- 820 4,564 5,303 722 2,528 2,584
------- ------- ------- ------- ------ -------- --------
Operating expenses:
Product development... 1,393 3,160 4,348 5,888 729 1,657 1,721
Sales and marketing... 503 1,511 3,215 3,638 636 2,006 2,074
General and
administrative....... 600 872 1,465 1,677 335 473 547
Purchased in process
product development.. -- -- -- -- -- 12,014 12,014
Amortization of excess
of purchase price
over net assets
acquired............. -- -- -- 522 -- 43 129
------- ------- ------- ------- ------ -------- --------
Total operating
expenses........... 2,496 5,543 9,028 11,725 1,700 16,193 16,485
------- ------- ------- ------- ------ -------- --------
Loss from
operations......... (2,496) (4,723) (4,464) (6,422) (978) (13,665) (13,901)
Interest and other
income, net............ 42 94 85 85 1 6 6
------- ------- ------- ------- ------ -------- --------
Net loss................ $(2,454) $(4,629) $(4,379) $(6,337) $ (977) $(13,659) $(13,895)
======= ======= ======= ======= ====== ======== ========
Pro forma net loss per
share (3).............. $ (.39) $ (.57) $ (.09) $ (1.21) $ (1.23)
======= ======= ====== ======== ========
Pro forma weighted
average common and
common equivalent
shares (3)............. 11,120 11,120 10,602 11,289 11,289
======= ======= ====== ======== ========
<CAPTION>
MARCH 31,
---------------------------
JUNE 30,
1994 1995 1996 1996
------- ----------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............... $ 2,901 $ 553 $2,399 $ 1,890
Working capital......................... 2,722 488 816 2,331
Total assets............................ 3,346 1,829 4,820 9,962
Convertible notes payable to
stockholders........................... -- -- -- 2,000
Stockholders' equity.................... 3,132 1,117 2,220 3,111
</TABLE>
- -------
(1) The statement of operations data for the year ended March 31, 1994 is
presented for the period from inception (February 12, 1993) to March 31,
1994. See Note 1 of Notes to Consolidated Financial Statements of
Visigenic.
(2) The pro forma combined statement of operations data gives effect to the
May 1996 acquisition of PostModern as if it had occurred on April 1, 1995.
The acquisition was accounted for as a purchase and resulted in the write-
off of approximately $12.0 million of in process product development in
the quarter ended June 30, 1996. The pro forma combined statement of
operations data for the year ended March 31, 1996 does not give effect to
this write-off. See Note 9 of Notes to Consolidated Financial Statements
of Visigenic and Pro Forma Condensed Combined Financial Statements.
(3) See Note 2 of Notes to Consolidated Financial Statements of Visigenic for
an explanation of the method used to determine the number of shares used
to compute per share amounts.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the risks described below and elsewhere in this Prospectus.
OVERVIEW
The Company commenced operations in February 1993 and was engaged
principally in product and market research and product development until the
launch of its initial products in November 1994. The Company shipped version
1.0 of the VisiODBC Software Development Kit ("SDK") and the VisiODBC Drivers
and DriverSets in November 1994, version 1.0 of its VisiChannel product in
March 1996 and version 2.0 of its VisiODBC product line in June 1996. The
Company first recognized material revenue in the fourth quarter of fiscal
1995.
The Company's revenue is derived from license fees from licensing its
products, royalties from VARs, ISVs and distributors, and fees for services
related to its products, including software maintenance, development
contracts, consulting and training. License fees for the Company's products
vary according to the specific products licensed. Terms and conditions of
individual license transactions, including prices and discounts, are often
highly negotiated based on volumes and commitments and vary considerably from
customer to customer. Certain of the Company's license arrangements with VARs
and ISVs provide for sublicense fees payable to the Company based on a percent
of the VAR's or ISV's net revenue. Certain of the Company's license
arrangements with VARs and ISVs provide for fixed fees for the right to make
and distribute an unlimited number of copies of the Company's product for a
specified period of time. Service revenue is primarily attributable to lower
margin maintenance and other revenue, including training revenue and
engineering development fees. Most of the Company's license revenue to date is
attributable to non-recurring license fees for its database connectivity
products, particularly its VisiODBC product line, and fees from related
services. The Company currently expects that license revenue from its database
connectivity products will account for a substantial majority of its revenue
for the remainder of fiscal 1997 and for the foreseeable future. Factors
adversely affecting the pricing of or demand for its products could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company generally recognizes revenue from license and pre-paid royalty
fees upon delivery of software products if there are no significant post-
delivery obligations, if collection is probable and if the license agreement
requires payment within 90 days. If significant post-delivery obligations
exist or if a product is subject to customer acceptance, revenue is deferred
until no significant obligations remain or acceptance has occurred. Royalty
revenue (other than from pre-paid royalties) is recognized when it is reported
by VARs, ISVs and distributors. Maintenance revenue from ongoing customer
support and product upgrades is recognized ratably over the term of the
applicable maintenance period, which is typically 12 months. Consulting and
training revenue is generally recognized as services are performed over the
term of the agreement. If maintenance revenue is included in a license
agreement, such amount is unbundled from the license fee at its fair market
value. Revenue from engineering development work is generally recognized on a
percentage of completion basis. If a transaction includes both license and
service elements, license fee revenue is recognized upon shipment of the
software, provided services do not include significant customization or
modification of the base product and payment terms are not subject to
acceptance criteria. In cases where license fee payments are contingent upon
the acceptance of services, revenues from both the license and service
elements are deferred until the acceptance criteria are met. See Note 2 of
Notes to Consolidated Financial Statements of Visigenic.
The Company licenses its products to VARs and ISVs, who include the
Company's products in their own products, and to end users, who deploy the
Company's products in their own computing environments. A substantial portion
of the Company's license revenue to date is attributable to licenses to VARs
and ISVs. A relatively small number of VAR and ISV customers have accounted
for a significant percentage of the
20
<PAGE>
Company's license revenue. For fiscal 1996, licenses to the Company's ten
largest customers accounted for approximately 78% of the Company's total
revenue and licenses to one customer, Platinum technology, Inc., accounted for
approximately 25% of the Company's total revenue. For the first quarter of
fiscal 1997, licenses to the Company's ten largest customers accounted for
approximately 75% of the Company's total revenue and licenses to one customer,
Cisco, accounted for approximately 34% of the Company's total revenue. The
Company expects that licenses to a limited number of VAR and ISV customers
will continue to account for a large percentage of revenue for the foreseeable
future.
The sales cycles associated with the license of the Company's products is
often lengthy (typically ranging from six to twelve months) and is subject to
a number of significant delays over which the Company has little or no
control. In some cases, the license of the Company's software products is an
enterprise-wide decision by prospective end user customers or a product
strategy decision by VARs and ISVs. Generally, the Company must provide a
significant amount of information to prospective customers regarding the use
and benefits of the Company's products as part of its sales efforts. In
addition, the implementation of some of the Company's products involves a
significant commitment of resources by prospective customers and may require
substantial reengineering of customers' computing environments. The cost to
the customer of the Company's product is typically only a portion of the
related hardware, software, development, training and integration costs of
implementing a large scale system. Given these factors and the expected
continued dependence on a limited number of customers for a substantial part
of license revenue, the loss of a major customer or any reduction or delay in
sales to or implementations by such customers could have a material adverse
effect on the Company's business, results of operations, and financial
condition.
The Company markets its products in North America through its direct sales
and telesales organizations and through VARs and ISVs. Throughout the rest of
the world, the Company markets its products through distributors, VARs and
ISVs. International revenue accounted for approximately 10% of total revenue
in fiscal 1996 and approximately 4% of total revenue for the first quarter of
fiscal 1997. In February 1996, the Company opened a European sales office in
France. The Company intends to increase its international sales force and
focus on establishing additional international distributor, VAR and ISV
relationships. The Company expects that international revenue will account for
an increasing portion of total revenue in the future. As a result, failure to
manage international sales appropriately could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Risk Factors--International Sales."
With the exception of the third quarter of fiscal 1996, the Company's
revenue has increased in each of the last six quarters. The Company's limited
operating history, however, makes the prediction of future operating results
difficult. The Company expects that prior growth rates of the Company's
software products revenue will not be sustainable in the future. The Company's
future operating results will depend on many factors, including the size,
timing and terms and conditions of individual license transactions; the
relatively long sales and implementation cycles for the Company's products;
the delay or deferral of customer implementations; changes in the Company's
operating expenses; the ability of the Company to develop and market new
products and control costs; market acceptance of new products; timing of
introduction or enhancement of products by the Company or its competitors; the
level of product and price competition; the ability of the Company to expand
its direct sales and telesales force, its indirect distribution channels and
its customer support capabilities; activities of and acquisitions by
competitors; changes in connectivity software, database technology and
industry standards; changes in the mix of products and services sold; changes
in the mix of channels through which products and services are sold; levels of
international sales; personnel changes and difficulties in attracting and
retaining qualified sales, marketing and technical personnel; changes in
customers' budgeting cycles; foreign currency exchange rates; quality control
of products sold; and general economic conditions. The Company has not been
profitable to date and the Company currently anticipates that it will operate
at a loss through at least the end of 1997. There can be no assurance that any
of the Company's business or strategies will be successful or that the Company
will be able to achieve or sustain profitability on a quarterly or annual
basis.
The Company's sales generally reflect a relatively high amount of revenue
per order. The loss or delay of individual orders, therefore, can have a
significant impact on the revenue and quarterly results of the Company.
21
<PAGE>
Because the Company's operating expenses are relatively fixed, a delay in the
recognition of revenue from a limited number of license transactions could
cause significant variations in operating results from quarter to quarter and
could result in significant losses. To the extent such expenses precede, or
are not subsequently followed by, increased revenue, the Company's operating
results would be materially adversely affected. As a result of these and other
factors, revenue for any quarter is subject to significant variation, and 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. It is likely that in some future quarter
the Company's operating results will be below the expectations of market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected.
The Company acquired PostModern effective May 31, 1996. The transaction was
accounted for as a purchase. Except for certain combined condensed financial
statements included elsewhere in this Prospectus and for the presentation of
certain pro forma revenue amounts herein, PostModern's financial results prior
to the effective date of the acquisition are not included in the Company's
financial results presented herein. The operating results of the PostModern
business are included in the Company's results of operations for the last
month of the first quarter of fiscal 1997. The Company's ability to
successfully integrate PostModern will depend upon several factors, including
but not limited to, successful integration of the products and operations of
PostModern into the Company. See "Risk Factors -- Limited Operating History;
History of Losses; Recent Acquisition of Distributed Object Connectivity
Business."
22
<PAGE>
RESULTS OF OPERATIONS
The Company first recognized material revenue in the fourth quarter of
fiscal 1995 after the Company shipped version 1.0 of its VisiODBC product
line. As a result, the Company believes that period-to-period comparisons of
annual operating results are less meaningful than an analysis of recent
quarterly results.
The following tables set forth statements of operations for each of the six
quarters ended June 30, 1996, including such amounts expressed as a percentage
of total revenue. This quarterly information is unaudited, but has been
prepared on the same basis as the annual consolidated financial statements
and, in the opinion of the Company's management, reflects all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
representation of the information for the periods presented. Such statements
of operations should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto included elsewhere herein.
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,
1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Software products...... $ 500 $ 544 $ 1,033 $ 840 $2,062 $ 2,505
Service and other...... 155 367 268 253 208 456
------- ------ ------- ------- ------ --------
Total revenue........ 655 911 1,301 1,093 2,270 2,961
------- ------ ------- ------- ------ --------
Cost of revenue:
Software products...... 34 43 62 107 72 138
Service and other...... 105 146 180 200 201 295
------- ------ ------- ------- ------ --------
Total cost of
revenue............. 139 189 242 307 273 433
------- ------ ------- ------- ------ --------
Gross profit............ 516 722 1,059 786 1,997 2,528
------- ------ ------- ------- ------ --------
Operating expenses:
Product development.... 660 729 972 1,429 1,218 1,657
Sales and marketing.... 543 636 770 732 1,077 2,006
General and
administrative........ 324 335 336 371 423 473
Purchased in process
product development... -- -- -- -- -- 12,014
Amortization of excess
of purchase price
over net assets
acquired.............. -- -- -- -- -- 43
------- ------ ------- ------- ------ --------
Total operating
expenses............ 1,527 1,700 2,078 2,532 2,718 16,193
------- ------ ------- ------- ------ --------
Loss from
operations.......... (1,011) (978) (1,019) (1,746) (721) (13,665)
Interest and other
income, net............ 4 1 28 48 8 6
------- ------ ------- ------- ------ --------
Net loss................ $(1,007) $ (977) $ (991) $(1,698) $ (713) $(13,659)
======= ====== ======= ======= ====== ========
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Software products...... 76.3% 59.7% 79.4% 76.9% 90.8% 84.6%
Service and other...... 23.7 40.3 20.6 23.1 9.2 15.4
------- ------ ------- ------- ------ --------
Total revenue........ 100.0 100.0 100.0 100.0 100.0 100.0
------- ------ ------- ------- ------ --------
Cost of revenue:
Software products...... 5.2 4.7 4.8 9.8 3.2 4.6
Service and other...... 16.0 16.0 13.8 18.3 8.8 10.0
------- ------ ------- ------- ------ --------
Total cost of
revenue............. 21.2 20.7 18.6 28.1 12.0 14.6
------- ------ ------- ------- ------ --------
Gross profit............ 78.8 79.3 81.4 71.9 88.0 85.4
------- ------ ------- ------- ------ --------
Operating expenses:
Product development.... 100.8 80.1 74.7 130.7 53.7 56.0
Sales and marketing.... 82.9 69.8 59.2 67.0 47.4 67.7
General and
administrative........ 49.4 36.8 25.8 33.9 18.6 16.0
Purchased in process
product development... -- -- -- -- -- 405.7
Amortization of excess
of purchase price
over net assets
acquired.............. -- -- -- -- -- 1.5
------- ------ ------- ------- ------ --------
Total operating
expenses............ 233.1 186.7 159.7 231.6 119.7 546.9
------- ------ ------- ------- ------ --------
Loss from
operations.......... (154.3) (107.4) (78.3) (159.7) (31.7) (461.5)
Interest and other
income, net............ 0.6 0.2 2.1 4.3 0.3 0.2
------- ------ ------- ------- ------ --------
Net loss................ (153.7)% (107.2)% (76.2)% (155.4)% (31.4)% (461.3)%
======= ====== ======= ======= ====== ========
</TABLE>
23
<PAGE>
REVENUE
Software Products. Software products revenue increased by 402% from $892,000
in fiscal 1995 to $4.5 million in fiscal 1996 and increased by 360% from
$544,000 in the first quarter of fiscal 1996 to $2.5 million in the first
quarter of fiscal 1997. The Company had no software products revenue in fiscal
1994. The revenue increases from fiscal 1995 to fiscal 1996 and from the first
quarter of fiscal 1996 to the first quarter of fiscal 1997 were primarily due
to an increased volume of licensing of the Company's database connectivity
products, resulting from an increase in the number of products offered and the
expansion of the Company's direct sales and telesales organizations. The
decline in software products revenue in the third quarter of fiscal 1996
resulted primarily from the delay in completion of a large sale which closed
in the fourth quarter.
Service and Other. Service and other revenue, including maintenance revenue,
development fees and consulting and training revenue, increased by 391% from
$223,000 in fiscal 1995 to $1.1 million in fiscal 1996 and increased by 24%
from $367,000 in the first quarter of fiscal 1996 to $456,000 in the first
quarter of fiscal 1997. The Company had no service and other revenue in fiscal
1994. The revenue increases from fiscal 1995 to fiscal 1996 and from the first
quarter of fiscal 1996 to the first quarter of fiscal 1997 were due to the
greater licensing of products to customers under agreements with a maintenance
component and growth in training, consulting and development activities.
COST OF REVENUE
Software Products. Cost of software products revenue includes product
packaging, documentation, production and shipping. Cost of software products
revenue increased from $36,000 in fiscal 1995 to $284,000 in fiscal 1996 and
increased from $43,000 in the first quarter of fiscal 1996 to $138,000 in the
first quarter of fiscal 1997. The increases resulted from increased volume of
licensing of the Company's products. The Company had no costs of software
products revenue in fiscal 1994.
Service and Other. Cost of service and other revenue consists primarily of
personnel and personnel related overhead allocation, facility and systems
costs incurred in providing consulting, training, customer support and
engineering development services. Cost of service and other revenue increased
from $259,000 in fiscal 1995 to $727,000 in fiscal 1996 and increased from
$146,000 in the first quarter of fiscal 1996 to $295,000 in the first quarter
of fiscal 1997. This increase reflects the effect of fixed costs resulting
from the Company's investment during fiscal 1996 and the first quarter of
fiscal 1997 in a larger customer support organization in anticipation of
entering into an increasing number of licenses with maintenance components.
The Company had no costs of service and other revenue in fiscal 1994. The
Company intends to continue investing resources in its customer support
organization. The Company currently expects that costs of service and other
revenue will increase in absolute dollar amount from the level for fiscal
1996.
OPERATING EXPENSES
Product Development. Product development expenses include expenses
associated with the development of new products, enhancements of existing
products and quality assurance activities, and consist primarily of employee
salaries, personnel-related overhead allocation, benefits, consulting costs,
the cost of technology licensed from other software companies and the cost of
software development tools. Product development expenses increased by 38% from
$3.2 million in fiscal 1995 to $4.3 million in fiscal 1996 and by 127% from
$1.4 million in fiscal 1994 to $3.2 million in fiscal 1995. Product
development expenses increased by 127% from $729,000 in the first quarter of
fiscal 1996 to $1.7 million in the first quarter of fiscal 1997. The increases
in the dollar amount of product development expenses were primarily
attributable to costs of additional personnel and full-time contractors in the
Company's product development operations and, to a lesser extent, the
licensing of existing technology from third parties which has been or will be
incorporated into the Company's products. The increase of product development
expenses in the third quarter of fiscal 1996 was the result of increased
consulting fees and licensing of third party technology which was expensed
because it was used exclusively in the development process. Of the product
development costs, approximately $1.3 million in fiscal 1994 and $1.2 million
in fiscal 1995 consisted of expenses for the development of a product the
Company later chose not to
24
<PAGE>
introduce commercially. There can be no assurance that the Company will not
devote significant resources in the future to develop and market other
products that the Company may choose not to introduce commercially. The
Company anticipates that it will continue to devote substantial resources to
product development, including acquiring or licensing technology from others,
in order to introduce new products, enhance existing products or accelerate
its time to market. The Company plans to hire a substantial number of product
development personnel in fiscal 1997. The Company currently expects that
product development expenses will increase in absolute dollar amount from the
level for fiscal 1996.
In accordance with Statement of Financial Accounting Standards No. 86, the
Company has charged all software development costs to product development
expense as incurred because expenditures which were eligible for
capitalization in prior periods were insignificant.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
personnel related overhead allocation, field office rent and related expenses,
travel and entertainment, and advertising and promotional expenses. Sales and
marketing expenses increased by 113% from $1.5 million in fiscal 1995 to $3.2
million in fiscal 1996 and by 200% from $503,000 in fiscal 1994 to $1.5
million in fiscal 1995. Sales and marketing expenses increased by 215% from
$636,000 in the first quarter of fiscal 1996 to $2.0 million in the first
quarter of fiscal 1997. The increases in sales and marketing expenditures
reflect primarily the hiring of additional sales and marketing personnel,
costs associated with expanded advertising and promotional activities,
increased sales commissions and increased costs associated with field sales
offices. Of sales and marketing costs, approximately $500,000 in fiscal 1994
and $900,000 in fiscal 1995 consisted of expenses relating to a product the
Company later chose not to introduce commercially, none of which expenses is
of a recurring nature. The Company plans to hire a substantial number of sales
and sales support personnel in fiscal 1997. The Company expects that sales and
marketing expenses will continue to increase in absolute dollar amount as the
Company continues to expand its sales and marketing efforts domestically and
internationally, establishes additional sales offices and increases
advertising and promotional activities. The Company currently expects that
sales and marketing expenses will increase in absolute dollar amount from the
level for fiscal 1996.
General and Administrative. General and administrative expenses consist
primarily of salaries and occupancy costs for administrative, executive and
finance personnel and personnel related overhead allocation. These expenses
increased by 68% from $872,000 in fiscal 1995 to $1.5 million in fiscal 1996
and by 45% from $600,000 in fiscal 1994 to $872,000 in fiscal 1995. General
and administrative expenses increased by 41% from $335,000 in the first
quarter of fiscal 1996 to $473,000 in the first quarter of fiscal 1997. The
increases in the absolute dollar amounts of general and administrative
expenses were primarily due to increased staffing and associated expenses
necessary to manage and support the Company's increased scale of operations.
The Company believes that the absolute dollar amount of its general and
administrative expenses will continue to increase as a result of the
anticipated expansion of the Company's administrative staff to support growing
operations and expenses associated with being a public company.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, is comprised primarily of interest income
earned on the Company's cash and cash equivalents. Interest and other income,
net, decreased by 10% from $94,000 in fiscal 1995 to $85,000 in fiscal 1996
and increased by 124% from $42,000 in fiscal 1994 to $94,000 in fiscal 1995.
Interest and other income, net, increased from $1,000 in the first quarter of
fiscal 1996 to $6,000 in the first quarter of fiscal 1997. The variations
reflect changing cash balances.
PROVISION FOR INCOME TAXES
As of March 31, 1996, the Company had federal and state net operating loss
carryforwards of approximately $9.8 million and $2.0 million, respectively,
which expire at various dates through 2011. In addition, as of March 31, 1996,
the Company had general business credit carryforwards of approximately
$372,000, which expire at various dates through 2011. Utilization of the net
operating loss carryforwards and business credits may
25
<PAGE>
be subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. See Note 8 of Notes to Consolidated Financial
Statements of Visigenic.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and met its capital
expenditure requirements primarily from proceeds from the private sales of
Preferred and Common Stock. Through June 30, 1996, the Company had raised
$17.8 million from the sale of Preferred and Common Stock. At June 30, 1996,
the Company's principal sources of liquidity included cash and cash
equivalents of $1.9 million and a $1.0 million revolving line of credit
agreement which expires on August 15, 1996. Advances under the agreement,
which bear interest at the bank's prime lending rate plus 1.25%, are limited
to 80% of eligible accounts receivable and are secured by substantially all of
the assets and contractual rights of the Company. After the end of fiscal
1996, the Company borrowed $524,000 under the line of credit, which bore
interest at a rate of 9.5%, as of June 30, 1996. The line of credit agreement
also contains certain financial restrictions and covenants. The Company is in
compliance with these financial restrictions and covenants. See Note 3 of
Notes to Consolidated Financial Statements of Visigenic.
On July 16, 1996 the Company executed an amended loan and security agreement
which increased the revolving line of credit to $3.0 million and extended its
term to July 15, 1997. The amended agreement also provides for a $2.0 million
bridge loan for a term ending the earlier of 120 days following the loan
advance or November 28, 1996. As consideration for the bridge loan the Company
will issue a five year warrant to purchase up to 6,666 shares of the Company's
Common Stock. Borrowings outstanding under the amended agreement will bear
interest at the bank's prime lending rate plus 1.0%.
On May 24, 1996, the Company sold 444,444 shares of its Series C Preferred
Stock at a price of $9.00 per share to three investors, for aggregate proceeds
of $4.0 million. The Company has the right to require these investors to
purchase up to an additional $4.0 million in convertible notes at any time
prior to October 31, 1996. If the Company has not completed an initial public
offering of its Common Stock by August 30, 1996, in order to require the
purchase of these convertible notes after September 30, 1996, the Company must
achieve revenue of at least $3.6 million for the quarter ended September 30,
1996. Between May 28 and June 7, 1996, the Company issued $2.0 million
principal amount of these convertible notes, bearing interest at the rate of
8.25% per annum. The principal amount of the notes and all accrued interest
are due three years after the issuance date. However, upon the closing of the
Company's initial public offering, the principal amount of each note and all
accrued interest will automatically convert into shares of the Company's
Common Stock at the lesser of $13.00 per share or the offering price per share
to the public. Upon the closing of the Company's initial public offering, the
Series C Preferred Stock will automatically convert into shares of the
Company's Common Stock. The Company used a portion of the proceeds from the
sale of the Series C Preferred Stock and the convertible notes to pay amounts
payable in connection with the closing of the acquisition of PostModern. See
"--PostModern Acquisition" and Note 9 of Notes to Consolidated Financial
Statements of Visigenic.
The Company's operating activities used cash of $2.2 million in fiscal 1994,
$4.6 million in fiscal 1995, $2.6 million in fiscal 1996 and $4.6 million in
the first quarter of fiscal 1997. The increased use of cash in fiscal 1995 as
compared with fiscal 1994 was primarily attributable to increased operating
costs and increased accounts receivable reduced by an increase in accounts
payable, accrued liabilities and deferred revenue. The decline in net cash
used in operations in fiscal 1996 as compared with fiscal 1995 was primarily
due to an increase in accounts payable, accrued liabilities and deferred
revenue. The increased use of cash in the first quarter of fiscal 1997 was
primarily due to an increase in accounts receivable.
The Company used $477,000, $378,000, $1.1 million and $2.6 million of net
cash during fiscal 1994, fiscal 1995, fiscal 1996 and the first quarter of
fiscal 1997, respectively, for investing activities, due primarily to
purchases of property and equipment. Financing activities provided $5.6
million, $2.6 million, $5.5 million and $6.7 million of net cash during fiscal
1994, fiscal 1995, fiscal 1996 and the first quarter of fiscal 1997,
respectively, due to the issuance of Preferred and Common Stock and
convertible notes and debt financing.
26
<PAGE>
Deferred revenue consists primarily of the unrecognized portion of revenue
under maintenance and support contracts (which revenue is deferred and
recognized ratably over the term of such contracts) and advance payment of
software development fees and software license fees. The Company expects
deferred revenue of $560,000 from maintenance and support contracts and
$400,000 from software development and software license fees to be realized in
the next twelve months. Capital expenditures were primarily for computers,
furniture and equipment. The Company expects that its capital expenditures
will increase as the Company's employee base grows, and has budgeted $1.4
million for such capital expenditures for fiscal 1997. As of June 30, 1996,
the Company did not have any material commitments for capital expenditures.
The Company believes that the proceeds from the sale of the Common Stock
offered hereby, together with its existing sources of liquidity and cash
generated from operations, will satisfy the Company's projected working
capital and other cash requirements for at least the next twelve months.
Although operating activities may provide cash in certain periods, to the
extent the Company experiences growth in the future, the Company anticipates
that its operating and investing activities will use cash. Any such future
growth and any acquisitions of other technologies, products or companies may
require the Company to obtain additional equity or debt financing, which may
not be available or may be dilutive.
POSTMODERN ACQUISITION
In May 1996, the Company completed the acquisition of PostModern, a supplier
of distributed object connectivity software. In the acquisition, which was
structured as a merger, the Company issued 3,099,821 shares of its Common
Stock and paid a total of $2.3 million in exchange for all of PostModern's
outstanding shares. The Company also assumed PostModern's outstanding stock
options and reserved 361,785 shares of the Company's Common Stock for issuance
upon exercise of such options. The Company also incurred acquisition-related
costs of approximately $450,000, resulting in a total purchase price of
approximately $13.1 million. In addition, the Company made cash payments,
subject to one-year vesting and totaling $1.5 million, to certain PostModern
employees. The acquisition of PostModern was accounted for as a purchase in
the quarter ended June 30, 1996. The Company recorded a write-off in the
quarter ended June 30, 1996 of approximately $12.0 million of in process
product development that had not reached technological feasibility and, in
management's opinion, had no probable alternative future use. The remaining
purchase price of approximately $1.1 million will be amortized over two years.
The following pro forma revenue information gives effect to the May 1996
acquisition of PostModern as if it had occurred on April 1, 1995. This
information is unaudited and is based on the respective historical financial
statements of the Company and PostModern. The Company's acquisition of
PostModern was accounted for as a purchase under accounting rules which
require presentation of combined operating results subsequent to the
acquisition date. The following pro forma data are presented for comparison
purposes only. This data should be read in conjunction with the pro forma
condensed combined financial statements and historical financial statements
contained herein.
This revenue data has been prepared on the same basis as the annual
consolidated financial statements and, in the opinion of the Company's
management, reflects all adjustments necessary for a fair presentation of the
information for the periods presented.
<TABLE>
<CAPTION>
PRO FORMA COMBINED QUARTER ENDED
----------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1996 1996
-------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Pro Forma Revenue:
Software products........... $ 580 $1,179 $ 868 $2,156 $2,529
Service and other........... 422 605 394 373 564
------ ------ ------ ------ ------
Total revenue............. $1,002 $1,784 $1,262 $2,529 $3,093
====== ====== ====== ====== ======
</TABLE>
The majority of PostModern's revenue consisted of service and other revenue,
attributable to development, training and consulting fees.
27
<PAGE>
BUSINESS
OVERVIEW
Visigenic Software, Inc. is a leading provider of software tools for
database and distributed object connectivity for the Internet, Intranet and
enterprise computing environments. The Company's standards-based products
facilitate the development, deployment and management of distributed
applications by providing database-independent access to leading databases and
the communications infrastructure for distributed object-oriented
applications. The Company markets and sells its software through its direct
sales and telesales forces, independent software vendors ("ISVs"), value added
resellers ("VARs"), international distributors and on-line Internet sales in
North America, Europe, and Asia. The Company's customers include ASCII
Corporation, Cisco, CompuWare, Borland, Healtheon, Hewlett Packard, Hitachi
Ltd., Merrill Lynch, MCI Telecommunications, Microsoft, Netscape, Oracle,
Platinum technology and Software AG.
INDUSTRY BACKGROUND
In an increasingly complex computing environment, today's enterprises
require flexible access to data and applications, regardless of whether the
data and applications are located at the central office, a remote office or
across the Internet. This requirement is being driven by the following market
trends:
. The increasing use of multiple database management systems ("DBMSs"),
requiring DBMS-independent client/server database connectivity solutions.
. The increasing use of object-oriented technologies to provide distributed
application solutions.
. The increasing use of Internet and Intranet technologies within
mainstream commercial markets, which is increasing the demand for
applications capable of operating in distributed computing environments.
Database Connectivity
Client/server computing has given organizations the flexibility to develop
and deploy applications on a wide variety of computer platforms and DBMSs. The
computing infrastructure of the typical enterprise now consists of a
heterogeneous mix of operating systems, databases, networks and hardware. One
industry survey of Fortune 500 companies found that these companies use an
average of six different DBMSs. For example, an enterprise may support the
Windows 3.1, Windows NT, UNIX and MVS operating system platforms running
Microsoft SQL Server, Oracle and IBM DB2 DBMSs. To manage this heterogeneous,
cross-platform database environment, a common method of accessing, managing
and analyzing data from multiple databases was needed. The Open Database
Connectivity ("ODBC") standard was created to address this problem.
ODBC, originally developed by Microsoft, is an industry standard that is
based on a specification defined by the SQL Access Group, a consortium of
database, software and hardware vendors. ODBC provides a common data access
application programming interface ("API") for developers building DBMS-
independent applications. With ODBC, a single application can access multiple
databases on multiple platforms, avoiding the need for developers to write
versions of each application for each DBMS vendor's proprietary data access
API. The ODBC API is supported by most major software vendors in their
programming languages, application development tools and report writing tools,
including Microsoft Visual Basic and Visual C++, Sybase PowerBuilder and the
Oracle 2000 family, and Seagate Crystal Reports.
Although ODBC provides heterogeneous database connectivity, organizations
seeking the benefits afforded by ODBC have encountered two limitations as they
move to a more distributed computing environment. First, ODBC development
tools and ODBC drivers originally were only available for Windows platforms.
This limited the ability of enterprises to realize the multi-platform
potential of ODBC and to deploy ODBC solutions in multi-platform computing
environments such as Intranets and the Internet. Second, initial
implementations of ODBC are client-centric and are suitable for departmental
or limited enterprise deployments. These client-centric implementations
require that an ODBC driver and database-specific network libraries for each
DBMS to be accessed reside on each client system. For larger deployments,
which may involve hundreds, or even thousands,
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<PAGE>
of ODBC-enabled client systems accessing multiple DBMSs, maintaining and
managing this client/server infrastructure is expensive and difficult because
each client system must be updated for each new version of the DBMS and the
ODBC driver. The Company believes that organizations need a simplified,
server-centric ODBC database access architecture for larger deployments,
including Intranet and Internet computing environments.
Distributed Object Connectivity
In today's rapidly evolving computing environments, enterprises require
improved data access as well as improved software application architectures.
Computing environments are becoming more distributed, with numerous client and
server machines networked together within a single enterprise as well as
across the Internet. The traditional method of building applications as
monolithic programs is not suited for this distributed environment. Instead,
applications must be more modular in nature, where the application is built as
a set of modules that can be distributed over a number of client and server
systems. Enterprises can improve computing performance by distributing
application logic over these computing networks so that the appropriate
application logic resides on the most appropriate system. For example, logic
for the graphical user interface could reside on a client machine while the
business logic is located on one or more servers where the business
application resides and the logic that manipulates the data in the DBMS is
located on one or more servers where the data resides.
Object-oriented programming languages like C++ and Java have enabled
software developers to develop and deploy distributed applications more
easily. These languages are based on the concept of objects, which are
reusable software components that contain both data and the related procedures
that act upon them. Objects are modular in nature and can be arranged or
reused in many different combinations to form new applications. This modular,
self-contained characteristic makes objects ideal for distributed computing
environments because applications can now be created by linking a series of
objects that may be distributed over a number of different systems.
Significant challenges in distributed application development and deployment
include communications and interoperability between objects that are
distributed over a network. The Common Object Request Broker Architecture
("CORBA") specification, developed by the Object Management Group, a
consortium of software and hardware vendors and corporate end users, was
created to address these challenges. The CORBA specification defines an Object
Request Broker ("ORB") that manages and monitors the interactions of
distributed objects on a network. To enable interoperability among
applications using ORBs, CORBA also specifies the Internet Inter-ORB Protocol
("IIOP"), which defines a standard distributed messaging protocol for
communication between objects. CORBA-compliant objects are portable across
programming languages, development environments, computer platforms and
networks, which is an increasingly important attribute of applications in the
heterogeneous computing environments of the Internet, Intranets and
enterprises.
Before the CORBA specification, many enterprises had not undertaken the
development and deployment of distributed applications because of the lack of
software development tools that provide a distributed object communication
infrastructure. This meant that building enterprise-wide distributed
applications entailed writing a new, proprietary communication
infrastructure--a task that was difficult and time-consuming for many
enterprises. The introduction of CORBA-compliant ORBs has freed enterprises
from having to write their own communication infrastructure and allows
enterprises to focus their development efforts on business logic. The Company
believes that enterprises now need commercially available ORBs from third
party vendors that provide this communications infrastructure.
The Internet and Intranets Increase the Need for Distributed Applications
The Internet has quickly emerged as an important aspect of business
computing. Internet-based business applications have expanded beyond
electronic mail to a broad range of business applications and services,
including electronic publishing, direct-to-customer transactions, product
marketing, advertising and customer support. The widespread use of the
Internet by enterprises has also resulted in the emergence of Intranets,
internal information systems based upon the Internet infrastructure. Intranets
use Internet protocols and applications to share information and services both
within the enterprise and across the Internet. Intranets allow the enterprise
to
29
<PAGE>
distribute data and applications across geographically dispersed facilities as
well as enable customers, suppliers and other business partners to easily
access enterprise data and applications.
The Internet and Intranets are large heterogeneous distributed computing
environments, consisting of vast numbers of networked client and server
systems and distributed databases. The rapid growth of the Internet and
Intranets is accelerating the importance of distributed applications that can
access data wherever the data resides. The Company believes business
applications increasingly will be comprised of objects, Java applets and
databases that are distributed on networks and dynamically assembled into
highly customized solutions. As a result, development and deployment tools for
database access and distributed object connectivity solutions are increasingly
key components of the software infrastructure required for Internet, Intranet
and enterprise computing environments.
VISIGENIC SOLUTION
Visigenic provides key components of the software infrastructure that enable
developers and IT professionals to develop, deploy and manage distributed
applications. The Company provides software tools for database and distributed
object connectivity for Internet, Intranet and enterprise computing
environments. The Company's cross-platform database connectivity products,
based on the ODBC API, are open, flexible and cost effective for developing,
deploying and maintaining DBMS-independent applications. The Company's
distributed object connectivity products, consisting of CORBA-compliant ORBs,
provide a communication infrastructure and enable the development and
deployment of reliable, flexible and cost-effective distributed applications.
The Company's solution provides the following benefits:
Application Architecture Flexibility. Visigenic's products are designed to
enable developers and IT professionals to build applications for a variety of
enterprise architectures. The Company's database connectivity products provide
application developers with the flexibility to implement the ODBC database
connection on the client, on the server or across the Internet. The Company's
distributed object connectivity products allow developers to build
applications that can be distributed over multiple client and server machines
and can interoperate with other CORBA-compliant applications. This flexibility
allows the enterprise to adapt its application architecture to meet changing
business or computing requirements.
Simplification of Application Development. Visigenic's products simplify
application development by reducing the time and expertise required to develop
applications. The Company's database connectivity products allow developers to
access multiple DBMSs by writing to a single API rather than multiple
proprietary APIs. The Company's distributed object connectivity products
provide the developer with the communications infrastructure required for
distributed object applications, allowing the developer to focus on developing
business objects and facilitating the reuse of these objects in multiple
applications.
Simplification of Distributed Application Deployment. Visigenic's products
simplify the deployment of distributed applications. The VisiChannel product
is based on Visigenic's server-centric ODBC architecture that shifts the
database connectivity software components from clients to servers, thereby
simplifying deployment and centralizing administration. The VisiBroker for C++
and VisiBroker for Java agent-based architecture reduces the deployment and
administration effort for distributed applications by automatically launching
objects, tracking their state and adapting to their changing resource
requirements.
Support of Open Industry Standards. Visigenic's products for database and
distributed object connectivity support existing and emerging industry
standards, enabling developers and IT professionals to build solutions that
are open, flexible and interoperable across multiple operating environments.
Visigenic's products support key industry standards including database
connectivity standards such as ODBC and X/Open SQL Access and distributed
object standards such as CORBA 2.0 and IIOP. The Company is currently
developing products that support Java Database Connectivity ("JDBC") and other
de facto industry standards such as RSA data encryption technology.
30
<PAGE>
Technology Independence. Visigenic's products enable the development of
solutions for the heterogeneous computing environments confronting the
enterprise by supporting multiple operating systems, DBMSs, development
languages and hardware platforms.
Manageability. Visigenic's products provide monitoring tools that control
the computing environment while reducing the time and resources spent on
managing distributed applications. The VisiChannel product provides a monitor
that supplies information regarding client/server database connections and
provides administrators with the ability to adjust system configuration
parameters. The Company's VisiBroker products provide monitoring capabilities
for distributed object usage and location. These monitoring tools provide
administrators with the information needed to manage and administer
distributed application environments.
VISIGENIC STRATEGY
The Company's strategy is to become the premier provider of software tools
which enable developers and IT professionals to develop, deploy and manage
distributed applications for Internet, Intranet and enterprise computing
environments. The Company's strategy incorporates the following key elements:
Support and Enhance Open Industry Standards. The Company's products are
based on existing and emerging industry standards for heterogeneous database
connectivity and distributed object connectivity. The Company actively
participates in standards-setting organizations including X/OPEN and the
Object Management Group. The Company intends to contribute to the expansion of
existing standards and the development of future standards created by these
and other standards-setting organizations. For example, the Company was
instrumental in accelerating ODBC's acceptance as a standard for heterogeneous
database access by exclusively licensing certain ODBC enabling technology from
Microsoft and providing the VisiODBC SDK on Macintosh, OS/2 and many UNIX
platforms. In addition, the Company has developed the first commercial
implementation of IIOP, defined as part of the CORBA 2.0 specification, in its
ORB products. The Company intends to promote acceptance of IIOP as the de
facto standard for distributed object messaging for the Internet and
Intranets.
Leverage Strategic Partners. The Company intends to continue to establish
close relationships with leading technology companies through technology
licensing, joint development, strategic investments, and distribution and
marketing arrangements to promote the widespread acceptance and distribution
of Visigenic products. Key partnerships include the following:
. Cisco is a strategic investor in the Company and has entered into a
license agreement to incorporate the Company's database connectivity
products in Cisco's network management product line.
. Hitachi has entered into a joint-development agreement with the Company
for the development of a transaction-enabled ORB based on the VisiBroker
for C++ and VisiBroker for Java products.
. JavaSoft, a division of Sun Microsystems, has entered into an agreement
for JDBC technology that grants the Company the right to sub-license
JavaSoft's JDBC test suites and its JDBC-to-ODBC bridge.
. Microsoft has entered into a series of agreements to incorporate certain
of the Company's VisiODBC products with certain Microsoft products and to
exclusively license to the Company the Microsoft ODBC SDK and test suites
for non-Microsoft operating systems. Such licenses may be converted into
non-exclusive licenses at Microsoft's option.
. Netscape is a strategic investor in the Company and has entered into a
license agreement to incorporate VisiBroker technology in future versions
of Netscape products.
. Oracle has entered into a license agreement with the Company to
incorporate the Company's VisiODBC products with a number of Oracle's
Transparent Gateway products.
. Platinum technology is a strategic investor in the Company and has
entered into an agreement to incorporate the Company's VisiODBC,
VisiChannel and VisiBroker products with certain Platinum products.
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<PAGE>
Provide a Broad Suite of Products and Services. The Company offers a suite
of software tools for database and distributed object connectivity, as well as
support, consulting and training services. The Company intends to develop new
products, enhance its current products and integrate its database connectivity
software products with its distributed object connectivity products to address
the requirements of the emerging Internet and Intranet distributed markets.
Maintain Technology Leadership. The Company is committed to maintaining its
technological leadership through internal product development efforts and, if
appropriate opportunities present themselves, through acquisitions of
technologies, products and companies to address the specific requirements of
distributed applications in the areas of database connectivity, distributed
object connectivity and the monitoring of distributed environments. The
Company has invested and will continue to invest in technology so that it can
react and adapt to changing technological trends and market needs.
Exploit and Develop Internet/Intranets Market Opportunities. The Company
believes that the emergence of the Internet and Intranets will significantly
increase the market for database and distributed object connectivity software.
Visigenic intends to leverage its products and expertise in heterogeneous
database connectivity and distributed object connectivity to exploit the
market opportunity for distributed applications for the Internet and
Intranets.
Expand Brand Name Awareness. Visigenic believes that the brand name
awareness of the Company and its products will be an important element of its
success. Visigenic is targeting its marketing efforts to establish and expand
the recognition of the Company and its products through advertising,
promotional activities, selected sales channels and strategic partners. The
Company believes that establishing and expanding market awareness is
particularly important given the emerging nature of the market in which it
competes.
Expand Distribution Channels Worldwide. To achieve broad distribution of its
database and distributed object connectivity software, the Company believes it
must continue to build multiple distribution channels worldwide. The Company
is expanding its direct sales and telesales forces as well as broadening its
indirect channels of distribution, including VARs, ISVs, systems integrators
("SIs"), Internet sales and international distributors. The Company's
international distribution strategy is to penetrate key international markets
by seeking additional VARs, ISVs and regional distributors and by further
developing its existing relationships with these customers.
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<PAGE>
PRODUCTS
The Company provides software tools for database connectivity and
distributed object connectivity for Internet, Intranet and enterprise
computing environments. The Company's products provide key components of the
software infrastructure that enable developers and IT professionals to
develop, deploy and manage distributed applications.
The following table identifies the Company's current products:
<TABLE>
<CAPTION>
MOST
ORIGINAL RECENT
PRODUCT RELEASE RELEASE SUPPORTED US SUGGESTED
NAMES DATE DATE PLATFORMS LIST PRICE (1)
<S> <C> <C> <C> <C>
DATABASE CONNECTIVITY
- --------------------------------------------------------------------------------
VisiODBC Drivers 11/94 6/96 Windows 3.1 $95-$150/Driver
and DriverSet Windows 95 $295-$595/DriverSet
Windows NT
UNIX
Macintosh
OS/2
- --------------------------------------------------------------------------------
VisiODBC SDK 11/94 6/96 UNIX $995/user
Macintosh
OS/2
- --------------------------------------------------------------------------------
VisiChannel 3/96 3/96 Windows 3.1 $500-$700/user
Windows 95
Windows NT
- --------------------------------------------------------------------------------
DISTRIBUTED OBJECT CONNECTIVITY
- --------------------------------------------------------------------------------
VisiBroker for Java 4/96 4/96 Windows 95 $3,000-$5,000/
Windows NT developer
UNIX $150-$250/runtime
- --------------------------------------------------------------------------------
VisiBroker for C++ 9/94 9/95 Windows 95 $3,000-$5,000/
Windows NT developer
UNIX $150-$250/runtime
</TABLE>
(1) Actual price depends upon platform selected and quantity purchased, among
other factors. The terms and conditions, including prices and discounts
from list prices, of individual license transactions are often highly
negotiated based on volumes and commitments and vary considerably from
customer to customer.
Database Connectivity Products
The Visigenic software tools for database connectivity are based on the ODBC
standard and enable data access independent of both the DBMS and platform. The
ODBC products include the VisiODBC Drivers and DriverSets (formerly Visigenic
ODBC Drivers and Driver Sets), VisiODBC Software Development Kits (formerly
Visigenic ODBC Software Development Kits) and VisiChannel (formerly Visigenic
OpenChannel).
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[ARTWORK OF VISIODBC DRIVERS APPEARS HERE]
VisiODBC Drivers and DriverSets. The VisiODBC Drivers and DriverSets
(formerly Visigenic ODBC Drivers and DriverSets) provide cross-platform access
to multiple SQL relational DBMSs--including CA-Ingres, IBM DB2, Informix,
Microsoft SQL Server, Oracle and Sybase SQL Server (DBLib and CTLib)--from any
ODBC-enabled application. The VisiODBC Driver and DriverSets are made up of
two ODBC components: the Driver Manager and a set of database drivers. The
Driver Manager loads the ODBC drivers that an ODBC-enabled application
requests. The VisiODBC drivers provide the communication link between the
ODBC-enabled application and a specific DBMS; the drivers process ODBC
function calls from the application, translate them to DBMS-specific calls and
return the results of those calls to the application. For example, to access
an Oracle DBMS, an ODBC-enabled application, such as Microsoft Excel, would
send SQL calls through the VisiODBC Oracle driver. Likewise, to access an
Informix DBMS, Microsoft Excel would send the same SQL calls through a
VisiODBC Informix driver. The Company sells VisiODBC drivers separately or as
the VisiODBC DriverSet, which consists of the full set of VisiODBC drivers
available for each platform. VisiODBC Drivers are available for Windows 3.1,
Windows NT, Windows 95, ATT GIS, HP-UX, IBM AIX, SGI Irix, SCO, Solaris, Sun
OS, Macintosh and Power Macintosh and OS/2. The Company initially released
VisiODBC Drivers and DriverSets in November 1994.
VisiODBC SDKs. VisiODBC SDKs (formerly Visigenic ODBC SDKs) allow developers
to develop vendor-independent database applications and ODBC drivers. Using
the VisiODBC SDKs, developers write database-independent C and C++
applications that communicate simultaneously with multiple databases from
different vendors. Each VisiODBC SDK comes with the Driver Manager, header
files, programmer's reference and graphical utilities.
Visigenic has ported the Microsoft ODBC 2.X SDK to ATT GIS, HP-UX, IBM AIX,
SGI Irix, SCO, Solaris, Sun OS, Macintosh, Power Macintosh and OS/2. Visigenic
currently has the exclusive right to license and port the Microsoft ODBC SDK
versions 2.X and 3.0 for Windows to all non-Microsoft platforms. The Company
released its first VisiODBC SDK in November 1994.
VisiChannel. VisiChannel (formerly Visigenic OpenChannel) provides an
architecture that simplifies database connectivity in large distributed
application environments such as the Internet, Intranets and enterprise
computing environments. The Company initially released VisiChannel in March
1996.
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[ARTWORK OF VISICHANNEL APPEARS HERE]
VisiChannel's server-centric architecture shifts the administrative burden
and processing load for ODBC-enabled applications by relocating ODBC drivers
and network libraries away from each user's individual machine to a central
server, allowing easier administration and control. A "thin" database-
independent client driver connects to any database through the VisiChannel
Server, where server-side ODBC drivers manage the actual database connections.
Since database connections are centralized, VisiChannel can reduce the time
and resources spent on deploying and managing database applications.
VisiChannel consists of the VisiChannel Client, Server and Manager. The
VisiChannel Client replaces the ODBC drivers and database vendor's proprietary
libraries on the client. The VisiChannel Server can be used to access any ODBC
data source, either through a VisiODBC Driver or other third party ODBC
drivers. The VisiChannel Server has been designed to support large numbers of
concurrent users through the use of a multi-threaded architecture, which
provides for efficient resource utilization, enhanced throughput and shared
resource integrity. The VisiChannel Manager is a monitoring tool that allows
IT professionals to monitor all VisiChannel connections and adjust system
configuration parameters from a single location.
VisiChannel can be deployed for use with existing ODBC applications without
any changes to the client application. VisiChannel is optimized for large-
scale ODBC traffic and runs over standard TCP/IP transports, enabling it to be
used for database connectivity across the Internet. The Company is developing
a version of VisiChannel that will support the JDBC API for Java applets and
applications.
The VisiChannel Server is available for Windows NT, and VisiChannel Clients
are available for Windows 3.1, Windows NT and Windows 95. The Company expects
to begin shipping VisiChannel Servers and Clients for UNIX in the second half
of 1996.
Distributed Object Connectivity Products
Visigenic develops and markets two Object Request Broker ("ORB") products:
VisiBroker for C++ and VisiBroker for Java (formerly Orbeline and BlackWidow).
Visigenic's ORBs, which are based on the Common Object Request Broker
Architecture ("CORBA") specification, provide an object-oriented solution for
the development and deployment of distributed applications.
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<PAGE>
[ARTWORK OF VISIBROKER FOR JAVAAPPEARS HERE]
VisiBroker for C++. VisiBroker for C++ (formerly ORBeline) provides a
communication framework that enables the development, deployment and
management of complex, distributed C++ applications. VisiBroker for C++
consists of two main components: a development component and a runtime
component. The development component includes a code generator that converts
object interfaces specified in CORBA's Interface Definition Language ("IDL")
into C++. The developer adds application logic and the runtime code to the
generated code to create a distributed application. The generated code is used
by the objects' application logic to interact with the VisiBroker runtime
component which manages the communication among the distributed objects.
VisiBroker for C++ operates on SunOS, Solaris, Digital UNIX, HP-UX, IBM AIX,
Windows NT and Windows 95 platforms. VisiBroker for C++ was first released in
September 1994 and the Company is currently shipping version 2.0.
VisiBroker for Java. VisiBroker for Java (formerly BlackWidow) is the
industry's first client and server Java ORB. VisiBroker for Java enables
distributed computing on the Internet and Intranets. Like VisiBroker for C++,
VisiBroker for Java consists of a development component and a runtime
component. The VisiBroker for Java development component converts IDL
interfaces into client-side and server-side Java code. The VisiBroker for Java
runtime is written entirely in Java and can run in any Java-enabled Web
browser, such as Netscape Navigator 2.0. The VisiBroker for Java environment
allows Internet, Intranet and enterprise deployment. On the Internet, a user
can load a client-side VisiBroker for Java applet into any Java-enabled
browser, execute the applet and establish IIOP connectivity with CORBA
objects, whether the objects are written in Java or in another language such
as C++ or Smalltalk.
The VisiBroker for Java development environment is available on Windows NT,
Windows 95 and Solaris. Distributed applications developed with VisiBroker for
Java can be deployed on any platform supporting the Java environment.
VisiBroker was first released in April 1996.
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VisiBroker Architecture. VisiBroker for C++ and VisiBroker for Java share a
common architecture. Both products use IIOP as their internal communications
protocol and do not rely on conversion of a proprietary protocol into IIOP in
order to interoperate with other ORB implementations. IIOP is an emerging
standard for distributed object messaging and is designed for applications
distributed across the Internet and Intranets. Each of the Company's VisiBroker
products is multi-threaded, facilitating scalability and enhancing throughput.
Applications developed using the Company's VisiBroker products can support
multiple concurrent threads to service both incoming and outgoing object
requests simultaneously, permitting objects within an application to process a
request without affecting the responsiveness of other objects within the
application. The Company's VisiBroker products have an agent-based architecture
and include one or more agents that communicate and monitor the location of the
ORB objects on the network. This agent-based architecture is designed to adapt
itself to changes in the objects and the network, such as a heavy system load
or the failure of objects. The architecture minimizes the need for
configuration files, making it easier to deploy and administer applications,
and enables automatic fail-over capabilities, significantly reducing
interruptions in any service provided as part of or implemented using the ORB.
CUSTOMERS
The Company's customers include the following:
FINANCIAL SERVICES NETWORK MANAGEMENT/SYSTEMS MANAGEMENT
Global Trade Technologies Bytex--A Division of Storage
Merrill Lynch Technology
Wells Fargo Bank Cisco
Compuware
TELECOMMUNICATIONS Embarcadero Technologies
Hewlett-Packard
Bell Northern Research Network General
British Telecom-North America Platinum technology
DSC Communications Software Professionals
MCI Telecommunications
INDEPENDENT SOFTWARE VENDORS AND VALUE ADDED RESELLERS
AimTech Corporation Oracle
Applix Premenos
AT&T Global Information Solutions Research Systems
Borland Software AG
Healtheon Starware
Hitachi UniSQL
Information Builders Vmark
Informix Software Wall Data
Investment Intelligence Systems Corporation
Wang
Microsoft XVT Software
Netscape
In fiscal 1996, one customer, Platinum technology, accounted for
approximately 25% of revenue and in the first quarter of fiscal 1997, one
customer, Cisco, accounted for approximately 34% of revenue. No other customer
accounted for more than 10% of revenue in either period. A relatively small
number of VAR and ISV customers have accounted for a significant percentage of
the Company's revenue, and the Company expects that sales to VAR and ISV
customers will continue to represent a significant portion of the Company's
revenue in future periods. In fiscal 1996, approximately 78% of the Company's
revenue was derived from ten customers. In the first quarter of fiscal 1997,
approximately 75% of the Company's revenue was derived from ten customers.
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<PAGE>
The Company's products can be used in many applications, including the
following examples:
Oracle Corporation. Oracle Corporation, a leading supplier of information
management software, wanted to provide their customers with access to
competitors' DBMSs. Their customers are increasingly operating in
heterogeneous environments and require a solution that allows them to develop
applications that access multiple DBMSs. Oracle integrated VisiODBC technology
in their Transparent Gateway, allowing them to support a single, standard
DBMS-independent API versus supporting multiple proprietary APIs of their
competitors. For the first time, Oracle provided their customers with direct
gateway access, providing distributed database capabilities, from the Oracle7
database to Sybase, Informix, and CA-Ingres.
Healtheon. Healtheon, an Internet-based on-line healthcare and benefit
information and service company, needed a distributed object connectivity
solution for its applications. Healtheon is using VisiBroker for C++ as an
integral part of its technology infrastructure for its applications.
Platinum technology. Platinum technology, a provider of application
development, business intelligence, database administration, data warehousing,
and systems software solutions, was seeking a consistent database access
solution for their Platinum Open Enterprise Management System ("POEMS")
products. Platinum was supporting several proprietary database access methods.
Platinum integrated VisiODBC technology and VisiChannel into the POEMS
architecture, providing Platinum with a single database access architecture to
support and providing their customers with database connectivity across
multiple databases, operating systems and hardware platforms.
SALES AND MARKETING
The Company's sales and marketing objective is to achieve broad market
penetration by targeting multiple channels of distribution, including direct
sales and telesales, ISVs, VARs, SIs, international distributors and on-line
Internet sales. The Company is actively seeking to increase its base of VARs,
ISVs, SIs and international distributors.
Direct Sales/Telesales. The Company's direct sales and telesales forces
focus on medium to large-sized VARs, ISVs and corporate IT opportunities. To
date, the direct sales and telesales forces have been primarily targeting
strategic VARs and ISVs to leverage their sales and marketing expertise as
well as their position in the market. The Company has direct sales offices or
personnel in San Mateo, California; Atlanta, Georgia; Boston, Massachusetts;
Dallas, Texas; Reston, Virginia and Paris, France. The Company's telesales
organization, based in San Mateo, California, works jointly with the direct
sales force to receive customer orders as well as proactively identify,
contact and qualify customer leads.
Independent Software Vendors. The Company has relationships with a number of
ISVs to leverage their sales and marketing channels through joint marketing
programs and product bundling agreements.
Value Added Resellers and System Integrators. VARs and SIs customize,
configure and install the Company's software products and bundle these
products with their software solutions and services.
International Distributors. The Company believes that it is important to
develop a strong international presence and intends to do business in markets
outside of North America principally through distributors. International sales
accounted for 10% and 4% of revenue in fiscal 1996 and the first quarter of
fiscal 1997, respectively. The Company is working with its distributors to
develop end user, ISV, VAR and SI relationships in their respective
territories. As of June 30, 1996, the Company had 12 international
distributors, mostly in Europe and Asia.
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Internet Sales. Certain of the Company's products can be evaluated and
purchased electronically over the Internet. The Company believes that the
Internet can be an effective way to market its products to potential
customers.
The Company's marketing efforts are directed at building brand name
awareness while also highlighting the value of the Company's database
connectivity and distributed object connectivity products. The Company's
marketing efforts include market research, product planning, creating
collateral materials, managing press coverage and other public relations,
identifying potential customers, advertising, attending tradeshows, speaking
at industry conferences, direct mail campaigns and establishing and
maintaining close relationships with recognized industry analysts. The Company
also maintains a home page on the Internet that is a source of sales leads.
As of June 30, 1996, the Company's sales organization included 29 employees
and its marketing organization included 8 employees. The Company intends to
hire a significant number of additional sales and marketing personnel in
fiscal 1997 and beyond. An increase in the sales and marketing staff will be
required to expand both the Company's direct and indirect sales activities and
achieve revenue growth. Competition for such personnel is intense, and there
can be no assurance that the Company can attract, assimilate or retain such
personnel. Because of the complexity of database connectivity and distributed
object connectivity software products, the Company has in the past and expects
to continue in the future to experience a time lag between the date sales
personnel are hired and the date such persons become fully productive. If the
Company is unable to hire and train such personnel on a timely basis in the
future, the Company's business, financial condition and results of operations
could be materially adversely affected. See "Risk Factors--Reliance on VARs
and ISVs" and "--International Sales."
CUSTOMER SERVICE AND SUPPORT
The Company believes that a high level of customer service and support is
critical to the Company's success. The services provided by the Company
include technical support, maintenance, training and consulting. These
services are designed to increase customer satisfaction and provide feedback
to the Company as to customers' demands and requirements.
Technical Support and Maintenance. The Company offers customer support
through telephone, electronic mail and fax. Visigenic provides new software
releases, maintenance releases and enhancements under annual support
agreements with customers. Maintenance and customer support license fees are
not included in software license fees but are purchased separately for an
annual fee.
Training and Consulting. The Company offers its customers education and
training programs, as well as customized consulting services. Fees for
training and consulting services are generally charged on a per diem basis,
separately from the Company's software products.
PRODUCT DEVELOPMENT
The Company believes its future success will depend in large part on its
ability to expand the Visigenic product family by enhancing existing products,
integrating database connectivity technology with distributed object
connectivity technology and developing new products to meet a broad range of
customer needs. The Company's product development organization is responsible
for new product and technology development, product testing and user interface
development. This organization is working to expand the availability of the
Company's products on the leading hardware platforms, operating systems,
DBMSs, programming languages and networking and communication protocols.
Since inception, the Company has made substantial investments in product
development and related activities. The Company's products have been developed
primarily by the Company's internal development staff and, in some instances,
with the assistance of external consultants. Certain technologies have been
acquired and
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<PAGE>
integrated into Company's products through licensing arrangements. The Company
expects that most of its new products will be developed internally. However,
the Company will evaluate on an ongoing basis externally developed
technologies and products for integration into its product lines.
The Company expects that development activities with respect to its database
connectivity products will include development of VisiODBC SDKs, VisiODBC
drivers and test suites compliant with the ODBC 3.0 specification as well as
additional features for its VisiChannel products, including high performance
scalability, message and queuing capabilities, a server-procedure architecture
and Simple Network Management Protocol ("SNMP") agents and other management
and monitoring tools. The Company intends to support the JDBC API through a
JDBC-to-ODBC product that will allow Java programmers using the JDBC API to
access heterogeneous data sources through the Company's VisiODBC Drivers or
VisiChannel products. Visigenic also expects to ship a VisiChannel Client
implementation in Java in the second half of fiscal 1997.
The Company expects to enhance its VisiBroker for C++ and VisiBroker for
Java products and expand its distributed object connectivity product line. The
Company is developing an object-oriented transaction processing system based
on the Object Transaction Service ("OTS") specified by the OMG that enables
mission-critical On-line Transaction Process ("OLTP") applications. This
product is being jointly developed with Hitachi and is a combination of the
Company's VisiBroker for C++ product, the OTS interface implementations and
OpenTP1, Hitachi's advanced transaction processing engine. The Company
currently expects to release the product in the second half of fiscal 1997.
The Company also plans to leverage its CORBA expertise to develop products
that enable Microsoft's Active/X objects to interact with CORBA objects.
The Company also intends to leverage its database connectivity expertise to
provide integrated database connectivity capabilities for its VisiBroker
product line. The Company's VisiBroker products would then provide a more
complete distributed object solution, addressing both the distributed object
and data connectivity requirements of its customer base.
As of June 30, 1996, there were 51 employees on the Company's research and
development staff. The Company's product development expenditures in fiscal
1995, fiscal 1996 and the first quarter of fiscal 1997 were $3.2 million, $4.3
million and $1.7 million, respectively. The Company expects that it will
continue to commit substantial resources to product development in the future.
The markets for the Company's products are characterized by rapid
technological developments, evolving industry standards, swift changes in
customer requirements, computer operating environments and software
applications, and frequent new product introductions and enhancements. As a
result, the Company's success depends substantially upon its ability to
anticipate changes and continue to enhance its existing products, develop and
introduce in a timely manner new products incorporating technological
advances, comply with emerging industry standards and meet increasing customer
expectations. If the Company is unable to develop and introduce new products
or enhancements to existing products in a timely manner in response to
changing market conditions or customer requirements, the Company's business,
operating results and financial condition would be materially and adversely
affected. See "Risk Factors--Need to Develop New Software Products and
Enhancements" and "--Dependence on Java; Risks Associated with Encryption
Technology."
COMPETITION
The Company's products are targeted at the emerging markets for standards-
based database connectivity software and standards-based distributed object
connectivity software. The markets for the Company's products are intensely
competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. The
Company believes that the principal competitive factors in these markets are
product quality, performance and price, vendor and product reputation, product
architecture and quality of support.
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In the standards-based database connectivity market, the Company competes
principally against Intersolv. The Company's database connectivity products
also indirectly compete against proprietary database connectivity solutions
from database vendors. In the standards-based distributed object connectivity
market, the Company competes principally against two private companies, Iona
and Expersoft. The Company's distributed object connectivity products also
compete against existing or proposed distributed object connectivity solutions
from hardware vendors such as DEC, Hewlett-Packard, IBM and Sun. In addition,
because there are relatively low barriers to entry in the software market and
because the Company's products are based on publicly available standards, the
Company expects to experience additional competition in the future from other
established and emerging companies if the market for database connectivity and
distributed object connectivity software continues to develop and expand. In
particular, relational database vendors including Informix, Microsoft, Oracle
and Sybase may offer standards-based database connectivity software to their
customers, eliminating or reducing demand for the Company's products.
Similarly, operating system vendors such as DEC, Hewlett-Packard, IBM,
Microsoft and Sun may offer standards-based distributed object connectivity
products bundled with their operating systems. For instance, Microsoft has
announced plans to introduce DCOM, which would eliminate the need for CORBA-
compliant ORBs, such as those offered by the Company, for Microsoft operating
systems. Many of these current and potential competitors have well-established
relationships with the current and potential customers of the Company, have
extensive knowledge of the markets serviced by the Company, better name
recognition and more extensive development, sales and marketing resources and
are capable of offering single vendor solutions. As a result, these current
and potential competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products,
than the Company. It is also possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. The
Company also expects that competition will increase as a result of software
industry consolidations.
The Company expects that it will face increasing pricing pressures from its
current competitors and new market entrants. Increased price competition may
result in price reductions, reduced gross margins and loss of market share,
any of which could materially adversely affect the Company's business,
financial condition or results of operations. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors or that competitive pressures will not materially and adversely
affect its business, financial condition or results of operations. See "Risk
Factors--Intense Competition."
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company's success is dependent in part upon its proprietary technology.
While the Company relies on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights, the Company believes that factors such as the
technical and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable products and
product support are more essential to establishing and maintaining a
technology leadership position, particularly because the Company is supplying
standards-based products. The Company seeks to protect its software, published
data, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. The Company has granted
limited access to its source code to third parties under confidentiality
obligations. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or
to obtain and use information that the Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and while
the Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem.
In addition, the laws of some foreign countries do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology. The Company distributes its products
electronically through the Internet. Distributing the Company's products
through the Internet makes the Company's software more
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susceptible to unauthorized copying and use. The Company has historically
allowed and currently intends to continue to allow customers to electronically
download its client and server software. If as a result of changing legal
interpretations of liability for unauthorized use of the Company's software or
otherwise, users were to become less sensitive to avoiding copyright
infringement, the Company's business, results of operations and financial
condition could be materially adversely affected.
The Company is not aware that any of its products infringes 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 developers will
increasingly be subject to infringement claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to the Company or at all, which could
have a material adverse effect upon the Company's business, results of
operations and financial condition.
In addition, the Company relies on certain software that it licenses from
third parties, including software that is integrated with internally developed
software and used in the Company's products to perform key functions. The
Company licenses from Microsoft the base technology for the VisiODBC SDK
products and licenses from RSA security technology it plans to use in several
of its future products. Microsoft has the right to terminate its license with
the Company any time after delivery to the Company of the Microsoft SDK for
ODBC 3.0, which is expected to occur in the second half of 1996. The Company's
license with RSA may only be terminated for breach. The Company has entered
into a joint technology agreement with JavaSoft, a subsidiary of Sun
MicroSystems, that grants the Company the right to sub-license JavaSoft's JDBC
test suites and ODBC bridge. There can be no assurances that such firms will
remain in business, that they will continue to support their technology or
that their technology will otherwise continue to be available to the Company
on commercially reasonable terms. The loss of or inability to maintain any of
these software licenses could result in delays or cancellations in product
shipments until equivalent software can be identified and licensed or
developed and integrated with the Company's products. Any such delay or
cancellation could materially adversely affect the Company's business, results
of operations and financial condition. See "Risk Factors--Dependence on
Company and Third Party Proprietary Technology."
EMPLOYEES
As of June 30, 1996, the Company employed 109 full time personnel, including
51 in product development, 7 in technical support, 37 in sales and marketing
and 14 in finance and administration. See "Risk Factors--Dependence on Key
Personnel; Need to Increase Technical, Sales and Marketing and Managerial
Personnel."
FACILITIES
The Company's principal executive offices and research and development
facilities are located in San Mateo, California and consist of approximately
25,000 square feet under leases that will expire between July 2000 and January
2001. The Company also leases approximately 5,000 square feet of additional
office space, previously used for research and development activities by
PostModern, in Mountain View, California pursuant to a lease that terminates
July 31, 1996. The Company has sales offices in Atlanta, Boston, Dallas and
the Washington D.C. area and in Paris, France. The Company anticipates that it
will require additional space in the near term and that such space will be
available on reasonable terms.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of the date of this
Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Roger J. Sippl (1)...... 41 Chairman of the Board of Directors
and Chief Executive Officer
Mark D. Hanson.......... 35 President and Chief Operating Officer
Jens Christensen, Ph.D.. 33 Vice President, Chief Technical Officer and Director
Kevin C. Eichler........ 36 Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary
Therese H. Langlais..... 37 Vice President, Marketing
David T. Shewmake, Ph.D. 44 Vice President, Technical Services
Richard L. Gerould...... 43 Vice President, Corporate Development and General Counsel
Robert Perreault........ 39 Vice President, Research and Development
Gill Cogan (2).......... 44 Director
Cristina M. Morgan...... 43 Director
Michael Moritz.......... 41 Director
E. E. van Bronkhorst
(2).. .................. 72 Director
J. Sidney Webb (1)...... 76 Director
Eric Young (1).......... 40 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Roger J. Sippl is the founder of the Company and has served as a Director
and the Chief Executive Officer since February 1993. Mr. Sippl is a co-founder
of The Vantive Corporation, a customer interaction applications software
company ("Vantive") and has served as a director of Vantive since December
1990. Prior to his relationship with Vantive, Mr. Sippl founded Informix
Software, a database software company ("Informix"), in 1980 and served as that
company's Chairman of the Board until December 1992.
Mark D. Hanson has served as President and Chief Operating Officer of the
Company since January 1995. Mr. Hanson served as Vice President of Worldwide
Sales from June 1994 when he joined the Company until his appointment as
President and Chief Operating Officer. From July 1992 to March 1994, Mr.
Hanson was Vice President of Channel Sales of Sybase, a database software
company, and Vice President, International Sales of Gain Technology ("Gain"),
a software company, before the acquisition of Gain by Sybase. From January
1991 to June 1992, Mr. Hanson served as Vice President, Worldwide Sales and
Support for Macromedia, a supplier of PC multimedia software and services.
Prior to that time, Mr. Hanson was employed as Vice President at Informix from
1984 to January 1991, most recently as Vice President, Americas Sales.
Jens Christensen has served as Vice President, Chief Technical Officer and a
Director of the Company since May 1996. From October 1991 to May 1996, Mr.
Christensen served as President and Chief Executive Officer of PostModern
Computing Technologies Inc., a software company he founded in 1991. From
October 1990 to September 1991, Mr. Christensen was employed as a software
engineer for Teknekron, a software company.
Kevin C. Eichler has served as Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary of the Company since July 1996. From July
1995 to July 1996, Mr. Eichler served as Executive Vice President,
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Finance, and Chief Financial Officer for National Insurance Group, a financial
services and related technology solution provider. From January 1991 to June
1995, Mr. Eichler served as Executive Vice President, Finance and Chief
Financial Officer for Mortgage Quality Management, Inc., a national provider
of quality control services and technologies to residential mortgage lenders.
From January 1990 to January 1991, Mr. Eichler served as Tax Manager,
Corporate Finance for NeXT Software, Inc., a software company. From May 1988
to January 1990, Mr. Eichler served as Domestic Tax Manager for Microsoft
Corporation, a software company.
Therese H. Langlais has served as Vice President, Marketing of the Company
since November 1993. Ms. Langlais served as Director of Marketing from April
1993, when she joined the Company until her appointment as Vice President,
Marketing. Prior to this, Ms. Langlais was employed for nine years at
Informix, where she held various positions, the most recent being Director of
Strategic Projects.
David T. Shewmake has served as Vice President, Technical Services of the
Company since September, 1993. In April 1983, Dr. Shewmake co-founded
Interactive Development Environments, a computer-aided-software engineering
tools company, where he served as Vice President until September 1993.
Richard L. Gerould has served as Vice President, Corporate Development and
General Counsel of the Company since December 1993. From April 1993 to
November 1993, Mr. Gerould worked as an independent attorney primarily for
Cadence Design Systems, Inc., a software company. In November 1990, Mr.
Gerould founded Configurex, Inc., a software tools company, where he served as
President until March 1993. From 1984 to 1990, Mr. Gerould was employed at
Micro Focus, a COBOL software tools company, most recently as Vice President
of Corporate Services and previously as Vice President, Marketing Operations.
Robert Perreault has served as Vice President, Research and Development of
the Company since September 1995. From May 1994 to September 1995, Mr.
Perreault served as Vice President of Client/Server Technology at Compuware
Corporation, a software company. From September 1993 to May 1994, he served as
Vice President of Database and Connectivity Products at Uniface Corporation, a
software company which merged with Compuware Corporation in May 1994. In 1993,
Mr. Perreault co-founded and served as President of Data Accessibility
Solutions, Inc., a consulting company which merged with the Company in May
1996. Mr. Perreault co-founded and served as Vice President of U.S. Operations
for RIAL, Inc., a consulting company, from September 1991 to August 1993.
Gill Cogan has served as a Director of the Company since January 1994. Since
October 1991, Mr. Cogan has been a partner at Weiss, Peck & Greer Venture
Partners. Mr. Cogan serves as a director for Electronics for Imaging, Inc.,
Harmonic Lightwaves, Inc., Integrated Packaging Assembly Corp., Microlinear
Corporation, Number Nine Visual Technology, and P-Com Inc.
Cristina M. Morgan has served as a Director of the Company since March 1993.
Ms. Morgan is a Managing Director of Hambrecht & Quist LLC, an investment
banking firm, where she has been employed since October 1982. Hambrecht &
Quist LLC is a managing underwriter of the offering made hereby.
Michael Moritz has served as a Director of the Company since March 1993. Mr.
Moritz has been a partner at Sequoia Capital, a venture capital company, since
1986. Mr. Moritz serves as a director for Yahoo!, Flextronics International
and Global Village Communications.
E. E. van Bronkhorst has served as a Director of the Company since March
1993. Since 1984, Mr. van Bronkhorst has been an independent financial
consultant to various technology companies. From 1962 until 1984, Mr. van
Bronkhorst served as Senior Vice President, Chief Financial Officer and
Treasurer at Hewlett-Packard Company. Mr. van Bronkhorst serves as a director
of California Water Service Co., Nellcor Puritan Bennett Inc. and Mid-
Peninsula Bank.
J. Sidney Webb has served as a Director of the Company since March 1993.
Since May 1984, Mr. Webb has served as director and Chairman of the Board of
The Titan Corporation, a consulting company. Mr. Webb
44
<PAGE>
also serves as a director of Amdahl Corporation, EIP Microwave, Inc. and
Plantronics, Inc. Mr. Webb previously was Vice Chairman and a director of TRW.
Eric Young has served as a Director of the Company since July 1995. Mr.
Young is a general partner of Canaan Capital Partners, a venture capital
company, where he has been employed since October 1987. Mr. Young also serves
as a director for Spectrian Corporation and Integrated Packaging Assembly
Corporation.
The Company's Bylaws currently authorize eight directors, which number may
be changed from time-to-time by the Board of Directors. All directors hold
office until the next annual meeting of stockholders or until their successors
are duly elected and qualified. The Amended and Restated Bylaws which will
become effective upon consummation of this offering will provide that,
beginning with the first annual meeting of stockholders following this
offering, the Board of Directors will be divided into three classes, with each
class serving staggered three-year terms. There are no family relationships
among the directors or executive officers of the Company.
In April 1996, the Board of Directors established an Audit Committee and a
Compensation Committee. The Audit Committee oversees actions taken by the
Company's independent auditors, recommends the engagement of auditors and
reviews the Company's internal audits. The Compensation Committee approves the
compensation of executives of the Company and makes recommendations to the
Board of Directors with respect to standards for setting compensation levels.
The Compensation Committee also administers the Company's employee stock
option and stock purchase plans. See "--Stock Plans."
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation paid by
the Company during the fiscal year ended March 31, 1996 to the Company's Chief
Executive Officer and the four other most highly compensated executive
officers (collectively, the "Named Executive Officers") whose salary and bonus
for services rendered in all capacities to the Company exceeded $100,000
during such fiscal year.
SUMMARY COMPENSATION TABLE FOR FISCAL 1996
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-----------------
ANNUAL
COMPENSATION AWARDS
------------ -----------------
NO. OF SECURITIES
NAME AND UNDERLYING
PRINCIPAL POSITION SALARY (1) OPTIONS
------------------ ------------ -----------------
<S> <C> <C>
Roger J. Sippl ................................. $ 90,001 --
Chairman of the Board
and Chief Executive Officer
Mark D. Hanson.................................. $140,000 62,500
President and Chief Operating Officer
Therese H. Langlais............................. $106,667 27,500
Vice President, Marketing
David T. Shewmake............................... $115,000 10,000
Vice President, Technical Services
Richard L. Gerould.............................. $115,000 15,000
Vice President, Corporate Development and
General Counsel
</TABLE>
- --------
(1) Amounts shown are on a full year basis and include cash and noncash
compensation earned and received by executive officers.
45
<PAGE>
The following table provides information concerning grants of options to
purchase the Company's Common Stock made during the fiscal year ended March
31, 1996 to each of the Named Executive Officers:
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (4)
OPTIONS IN FISCAL PRICE PER EXPIRATION -----------------------
NAME GRANTED (1) 1996 (2) SHARE (3) DATE 5% 10%
---- ----------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Roger J. Sippl.......... -- -- -- -- -- --
Mark D. Hanson.......... 25,000 3.0% $0.40 04/18/05 $ 397,224 $ 638,436
12,500 1.5 $0.40 07/27/05 198,612 319,218
12,500 1.5 $0.40 10/25/05 198,612 319,218
12,500 1.5 $0.40 03/31/06 198,612 319,218
Therese H. Langlais..... 7,500 0.9 $0.40 04/18/05 119,167 191,531
10,000 1.2 $0.40 07/27/05 158,889 255,374
10,000 1.2 $0.40 03/15/06 158,889 255,374
David T. Shewmake....... 2,500 0.3 $0.40 04/18/05 39,722 63,844
7,500 0.9 $0.40 03/15/06 119,167 191,531
Richard L. Gerould...... 5,000 0.6 $0.40 04/18/05 79,445 127,687
10,000 1.2 $0.40 03/15/06 158,889 255,374
</TABLE>
- --------
(1) Options granted in fiscal 1996 are immediately exercisable and generally
vest over five years, with 10% of the option shares becoming fully vested
six months from the initial vesting date and 1/60th of the option shares
vesting each successive month, with full vesting occurring on the fifth
anniversary of the initial vesting date. The Company has a repurchase
right for shares not vested. Under the terms of the Company's 1995 Stock
Option Plan (the "Option Plan"), the Board or a committee of the Board
retains discretion, subject to Option Plan limits, to modify the terms of
outstanding options and to reprice outstanding options. The options have
a term of ten years, subject to earlier termination in certain situations
related to termination of employment. See "--Stock Plans" for a
description of the material terms of the options.
(2) Based on a total of 820,750 options granted to all employees and
consultants during fiscal 1996.
(3) All 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 of the Company on the date of grant. The Company's Common Stock
was not publicly traded at the time of the option grants to the officers.
(4) Potential realizable values are calculated based on the assumption that
the fair market value of the Common Stock at the date of grant is the
initial public offering price of $10.00, and are net of exercise price,
but before taxes associated with exercise. Amounts represent hypothetical
gains that could be achieved for the respective options if exercised at
the end of the option term. The assumed 5% and 10% annual rates of stock
price appreciation from the date of grant to the end of the option term
are provided in accordance with rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future Common Stock price. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Common Stock,
overall market conditions and the option holders' continued employment
through the vesting period. This table does not take into account any
actual appreciation in the price of the Common Stock from the date of
grant to the present.
46
<PAGE>
AGGREGATE OPTION EXERCISES AND FISCAL 1996 YEAR-END VALUES
The following table provides the specified information concerning
unexercised options held as of March 31, 1996 by each of the Named Executive
Officers:
AGGREGATE OPTION EXERCISES
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT 3/31/96
OPTIONS AT 3/31/96 (1) (2)
------------------------ ------------------------
NAME VESTED UNVESTED VESTED UNVESTED
- ---- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Roger J. Sippl................ -- -- -- --
Mark D. Hanson................ 7,500 55,000 -- --
Therese H. Langlais........... 4,750 22,750 -- --
David T. Shewmake............. 583 9,417 -- --
Richard L. Gerould............ 1,167 13,833 -- --
</TABLE>
- --------
(1) These options are immediately exercisable in full at the date of grant,
but shares purchased on exercise of unvested options are subject to a
repurchase right in favor of the Company which lapses ratably over five
years and entitles the Company to repurchase unvested shares at their
original issuance price.
(2) Calculated on the basis of the fair market value of the underlying
securities as of March 31, 1996 of $0.40 per share, as determined by the
Company's Board of Directors, minus the aggregate exercise price.
No options to purchase the Company's Common Stock were exercised during the
fiscal year ended March 31, 1996 by the Named Executive Officers. No
compensation intended to serve as incentive for performance to occur over a
period longer than one fiscal year was paid pursuant to a long-term incentive
plan during the last fiscal year to any Named Executive Officer. The Company
does not have any defined benefit or actuarial plan under which benefits are
determined primarily by final compensation (or average final compensation) and
years of service with any of the Named Executive Officers.
STOCK PLANS
1995 Stock Option Plan. The 1995 Stock Option Plan of the Company (the
"Option Plan") provides for the grant of stock options to employees (including
officers), directors and consultants of the Company and its subsidiaries.
Options may be incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") or nonstatutory
stock options, although incentive stock options may be granted only to
employees. All options granted under the Option Plan must be granted by April
18, 2005.
The Option Plan is administered by the Board of Directors or a committee
thereof. Subject to the provisions of the Option Plan, the Board or committee
has the authority to select the persons to whom options are granted and
determine the terms of each option, including (i) the number of shares of
Common Stock covered by the option, (ii) when the option becomes exercisable,
(iii) the option exercise price, which, in the case of incentive stock
options, must be at least 100% of the fair market value of a share of Common
Stock as of the date of grant, and, in the case of nonstatutory stock options
must be at least 85% of the fair market value of a share of Common Stock as of
the date of grant, and (iv) the duration of the option (which, in the case of
incentive stock options, may not exceed ten years). Generally, options granted
under the Option Plan are immediately exercisable but remain subject to
repurchase by the Company until vested under a schedule established by the
Board or committee. The Company's repurchase right will terminate upon certain
changes in control of the Company unless the outstanding options are assumed
or replaced by the acquiring corporation or if, following certain changes in
control of the Company, the option holder is terminated without cause or
resigns following "constructive termination" as defined in the Option Plan.
All incentive stock options are nontransferable other than by will or the laws
of descent and distribution. With the Company's consent, nonstatutory stock
options may be transferred to an optionee's immediate family, a trust for his
or her benefit or a partnership in which only the optionee and immediate
family members are partners.
47
<PAGE>
Of the 2,500,000 shares of Common Stock reserved for issuance under the
Option Plan as of June 30, 1996, a total of 225,501 shares had been issued
upon the exercise of options, of which 134,716 remain subject to repurchase,
options for the purchase of a total of 1,087,500 shares at a weighted average
exercise price of $2.24 per share were outstanding and 1,186,999 shares were
available for future option grants.
1996 Outside Directors Stock Option Plan. In June 1996, the Board of
Directors, subject to stockholder approval, adopted the 1996 Outside Directors
Stock Option Plan (the "Directors Plan") and reserved a total of 200,000
shares of Common Stock for issuance thereunder. Stockholder approval of the
Directors Plan will be sought prior to the closing of the offering. The
Directors Plan provides for the grant of nonstatutory stock options to
nonemployee directors of the Company. The Directors Plan is designed to work
automatically without administration; however, to the extent administration is
necessary, it will be performed by the Board of Directors. The Directors Plan
provides that each future nonemployee director of the Company will be granted
an option to purchase 15,000 shares of Common Stock on the date on which the
optionee first becomes a nonemployee director of the Company and each current
nonemployee director will be granted an option to purchase 15,000 shares of
Common Stock on the date following the first annual meeting of the
stockholders of the Company after this offering (the "Initial Grant").
Thereafter, on each anniversary of a nonemployee director's Initial Grant, the
director will be granted an additional option to purchase 5,000 shares of
Common Stock (an "Annual Grant"). Subject to an optionee's continuous service
with the Company, 1/8th of an Initial Grant will become exercisable six months
after the date of grant and 1/48th of the Initial Grant will become
exercisable monthly thereafter. Each Annual Grant will become exercisable in
twelve monthly installments beginning in the 37th month after the date of
grant, subject to the optionee's continuous service. The exercise price per
share of all options granted under the Directors Plan will equal the fair
market value of a share of Common Stock on the date of grant. Options granted
under the Directors Plan will have a term of ten years. In the event of
certain changes in control of the Company, options outstanding under the
Directors Plan will become immediately exercisable and vested in full. With
the Company's consent, the options may be transferred to an optionee's
immediate family, a trust for their benefit or a partnership in which only the
optionee and immediate family members are partners.
1996 Employee Stock Purchase Plan. In June 1996, the Board of Directors,
subject to stockholder approval, adopted the 1996 Employee Stock Purchase Plan
(the "Purchase Plan") and reserved a total of 450,000 shares of Common Stock
for issuance thereunder, none of which have been issued as of the effective
date of this offering. The Purchase Plan, which is intended to qualify under
Section 423 of the Code, is administered by the Board of Directors or by a
committee thereof. Employees (including officers and employee directors) of
the Company or any subsidiary designated by the Board for participation in the
Purchase Plan are eligible to participate in the Purchase Plan if they are
customarily employed for more than 20 hours per week and more than five months
per year, and do not own 5% or more of the Company's Common Stock. The
Purchase Plan will be implemented by sequential six-month offerings, the first
of which will commence on the effective date of this offering. The initial
offering period will terminate on January 31, 1997. Thereafter, offering
periods will begin on February 1 and August 1 of each year. The Board may
change the dates or duration of one or more offerings, but no offering may
exceed 27 months. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions at a price no less than 85% of the
lower of the fair market value of the Company's Common Stock on the first day
or the last day of each six-month offering period. Participants generally may
not purchase more than 1,500 shares in a six-month offering period or stock
having a value (measured at the beginning of the offering) greater than
$25,000 in any calendar year. In the event of certain changes in control of
the Company, the Board may accelerate the purchase of shares under the
Purchase Plan unless the acquiring corporation assumes or replaces the
purchase rights outstanding under the Purchase Plan.
Executive Performance Incentive Plan. Under the Company's Executive
Performance Incentive Plan (the "Incentive Plan"), the Compensation Committee
of the Board of Directors (the "Committee") may award performance units to
designated executives that will vest and become payable if one or more
preestablished performance goals are attained during a specified performance
period and the participant remains an employee. Performance goals may be
either absolute or relative (in comparison to a standard determined by the
Committee)
48
<PAGE>
measures of revenue, operating income, net income, earnings per share, or
departmental expenses. Performance units are dollar-denominated in an amount
specified by the Committee at the time of initial award and become payable at
a time determined by the Committee following its certification of the
attainment of the performance goals. Participants may elect to receive payment
of vested performance units either in cash or in shares of the Company's
Common Stock having a fair market value on the date of payment equal to the
dollar value of the vested performance units. Immediately prior to certain
changes in control of the Company, Incentive Plan participants will be paid
the value of their performance units for the current performance period that
would have vested had the performance goals been attained at the target level,
prorated, however, for the portion of the performance period elapsed prior to
the change in control.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive cash for services provided as a
director. Directors are reimbursed for all travel and related expenses
incurred in connection with attending board and committee meetings. Upon
adoption of the Directors Plan, directors who are not employees of the Company
will receive yearly grants of options to purchase Common Stock. The Directors
Plan will become effective upon consummation of this offering. See "--Stock
Plans--1996 Outside Directors Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee was formed in April 1996, and is composed of
Roger J. Sippl, J. Sidney Webb and Eric Young. 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.
During the fiscal year completed March 31, 1996, the Board of Directors of the
Company, of which Roger J. Sippl, Chief Executive Officer of the Company, was
and is a member, fulfilled all functions of the Compensation Committee with
regard to compensation of executive officers of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Certificate of Incorporation, as
amended, which provide that directors of the Company shall not be personally
liable for monetary damages to the Company or its stockholders for a breach of
fiduciary duty as a director, except for liability as a result of: (i) a
breach of the director's duty of loyalty to the Company or its stockholders;
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) an act related to the unlawful
stock repurchase or payment of a dividend under Section 174 of Delaware
General Corporation Law; and (iv) transactions from which the director derived
an improper personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Certificate of Incorporation, as amended, also authorizes the
Company to indemnify its officers, directors and other agents, by bylaws,
agreements or otherwise, to the full extent permitted under Delaware law. The
Company intends to enter into separate indemnification agreements with its
directors and officers which may, in some cases, be broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
The indemnification agreements may require the Company, among other things, to
indemnify such 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), to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms. The Company believes that the
provisions and agreements are necessary to attract and retain qualified
directors and officers.
The Company's Amended and Restated Bylaws provide that the Company shall
indemnify its directors and officers and may indemnify its employees to the
fullest extent permitted by law. The Company believes that indemnification
under its Amended and Restated Bylaws covers at least negligence and gross
negligence on the part of the indemnified party.
49
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
50
<PAGE>
CERTAIN TRANSACTIONS
Since February 12, 1993 (the date of the Company's inception), there has not
been, nor is there currently proposed, any transaction or series of similar
transactions to which the Company was or is to be a party in which the amount
involved exceeds $60,000 and in which any director, executive officer or
holder of more than 5% of any class of voting securities of the Company or
members of such person's immediate family had or will have a direct or
indirect material interest other than the transactions described below.
On March 3, 1993, the Company issued for cash 2,000,000 shares of Common
Stock at a price of $0.08 per share to Roger J. Sippl, the Company's founder,
Chairman of the Board and Chief Executive Officer.
On March 31, 1993, the Company sold 803,000 shares of Series A Preferred
Stock at a price of $2.40 per share. The following executive officers,
directors, beneficial holders of more than 5% of a class of the Company's
capital stock and immediate family members of such persons purchased Series A
Preferred Stock:
<TABLE>
<CAPTION>
SHARES OF
SERIES A
PURCHASER(1) PREFERRED STOCK
------------ ---------------
<S> <C>
Cristina M. Morgan (2)....................................... 10,000
J. Sidney Webb (2)........................................... 20,000
Mark D. Hanson (3)........................................... 5,000
Therese H. Langlais (3)...................................... 15,000
Elizabeth G. Salmon (4)...................................... 197,500
Entities affiliated with Sequoia Capital (4)(5).............. 250,000
</TABLE>
- --------
(1) See notes to table of beneficial ownership in "Principal and Selling
Stockholders" for information relating to the beneficial ownership of such
shares.
(2) Director of the Company.
(3) Executive officer of the Company.
(4) A beneficial holder of more than 5% of a class of the Company's capital
stock.
(5) Represents 227,500 shares held by Sequoia Capital VI, 12,500 shares held
by Sequoia Technology Partners VI and 10,000 shares held by Sequoia XXIII.
Upon the consummation of this offering, all outstanding shares of Series A
Preferred Stock will convert into shares of Common Stock on a one-for-one
basis.
In June 1993, the Company issued 12,500 shares of Common Stock at a price of
$0.20 per share to each of Cristina M. Morgan, J. Sidney Webb, and E. E. van
Bronkhorst, outside directors of the Company.
51
<PAGE>
Between December 17, 1993 and January 14, 1994, the Company sold an
aggregate of 871,625 shares of Series B Preferred Stock at a price of $4.00
per share. Between April 29, 1994 and August 2, 1994, the Company sold an
aggregate of 625,000 shares of Series B Preferred Stock at a price of $4.00
per share. Between May 26, 1995 and August 3, 1995, the Company sold an
aggregate of 1,375,000 shares of Series B Preferred Stock at a price of $4.00
per share. The following executive officers, directors, beneficial holders of
more than 5% of a class of the Company's capital stock and immediate family
members of such persons purchased Series B Preferred Stock:
<TABLE>
<CAPTION>
SHARES OF
SERIES B
PURCHASER (1) PREFERRED STOCK
------------- ---------------
<S> <C>
Roger J. Sippl (2)(3)(4)................................... 261,250
J. Sidney Webb (2)......................................... 37,500
Cristina M. Morgan (2)..................................... 2,500
Mark D. Hanson (3)......................................... 2,500
Therese H. Langlais (3).................................... 3,750
Richard L. Gerould (3)..................................... 12,625
Elizabeth G. Salmon (4).................................... 216,500
Entities Affiliated with Sequoia Capital (4)(5)............ 490,500
Entities Affiliated with Weiss, Peck & Greer Venture
Partners (4)(6)........................................... 592,500
Entities Affiliated with Canaan Capital Partners (4)(7).... 550,000
</TABLE>
- --------
(1) See notes to table of beneficial ownership in "Principal and Selling
Stockholders" for information relating to the beneficial ownership of such
shares.
(2) Director of the Company.
(3) Executive officer of the Company.
(4) A beneficial holder of more than 5% of a class of the Company's capital
stock.
(5) Represents 446,355 shares held by Sequoia Capital VI, 24,525 shares held
by Sequoia Technology Partners VI, 8,820 shares held by Sequoia XXIII and
10,800 shares held by Sequoia XXIV.
(6) Represents 49,888 shares held by Weiss, Peck & Greer Venture Associates II
(Overseas), Ltd., 227,638 shares held by Weiss, Peck & Greer Venture
Associates II, L.P. and 314,973 shares held by WPG Enterprise Fund.
(7) Represents 446,500 shares held by Canaan Capital Offshore Limited
Partnership C.V., 53,500 shares held by Canaan Capital Limited Partnership
and 50,000 shares held by Quai Limited.
Upon the consummation of this offering, all outstanding shares of Series B
Preferred Stock will convert into shares of Common Stock on a one-for-one
basis.
On May 24, 1996, the Company sold an aggregate of 444,444 shares of Series C
Preferred Stock at a price of $9.00 per share, and shortly thereafter issued
convertible notes in the aggregate principal amount of $2.0 million. Cisco
purchased 222,222 of these shares, and a note in the principal amount of $1.0
million. Upon the consummation of this offering, all outstanding shares of
Series C Preferred Stock will convert into shares of Common Stock on a one-
for-one basis, and the amount borrowed by the Company pursuant to the
convertible notes will convert into shares of the Company's Common Stock at a
conversion price equal to the lesser of (i) $13.00 per share or (ii) the
offering price per share to the public in the offering.
In connection with the merger of PostModern with and into the Company in May
1996, the Company issued an aggregate of 3,099,821 shares of its Common Stock
to the former shareholders of PostModern, including 844,486 shares to Jens
Christensen, 851,235 shares to Neguine Navab, 844,486 shares to Prasad
Mokkapati and 426,507 shares to Suresh Challa, and options to purchase an
aggregate of 361,785 shares of its Common Stock at exercise prices ranging
from $0.24 to $0.60 to the former holders of options to purchase Common Stock
of
52
<PAGE>
PostModern, including options to purchase 67,494 shares of the Company's
Common Stock issued to Neguine Navab. Also in connection with the merger, the
Company paid, subject to vesting, an aggregate of $1,500,000 to certain former
employees of PostModern, including $400,000 to each of Messrs. Christensen and
Mokkapati and $400,000 to Ms. Navab, and $2,307,152 to certain former
shareholders of PostModern, including $750,655 to each of Messrs. Christensen
and Mokkapati, $183,000 to Mr. Challa, and $696,659 to Ms. Navab. Upon the
closing of the merger, Hambrecht & Quist LLC, of which Cristina M. Morgan, a
Director of the Company, is a Managing Director, received shares of PostModern
common stock for financial advisory services rendered to PostModern in
connection with the Company's acquisition of PostModern, which shares were
immediately converted into 84,374 shares of the Company's Common Stock. The
consideration issued by the Company in the merger was determined through
negotiations between the managements of the Company and PostModern.
In connection with the merger of Data Accessibility Solutions, Inc. ("Data
Accessibility") with and into the Company in May 1996, the Company issued an
aggregate of 12,500 shares of its Common Stock to the former shareholders of
Data Accessibility, including 6,250 shares to Robert Perreault, the Company's
Vice President, Research and Development.
Mr. Sippl, the Company's founder and the Chief Executive Officer and
Chairman of the Board of Directors of the Company, formed Java Development
Corp. ("JDC") in February 1996, in order to pursue technology research and
development projects of interest to him. Mr. Sippl is the sole owner, director
and officer of JDC. In June 1996, the Company acquired certain technology and
other assets being developed by JDC that the Company expects it may use in a
future product or products. The Company paid Mr. Sippl $40,000 to acquire
these assets. JDC's cost of development of the technology, consisting chiefly
of salaries of JDC employees and fees paid to consultants, exceeded the price
paid by the Company. In connection with the asset sale, five employees of JDC
became employees of Visigenic.
The Company has entered into non-compete agreements with certain employees
who joined the Company in connection with the PostModern merger. The Company
intends to enter into indemnification agreements with each of its directors
and executive officers. Such indemnification agreements will require the
Company to indemnify such individuals to the fullest extent permitted by
Delaware law.
Cristina Morgan, a director of the Company, is a Managing Director of
Hambrecht & Quist LLC, an investment banking firm. Hambrecht & Quist LLC is a
managing underwriter of this offering. See "Management--Directors and
Executive Officers," and "Principal and Selling Stockholders."
53
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1996, and as adjusted
to reflect the sale of the shares offered hereby, assuming no exercise of the
Underwriters' over-allotment option, (i) by each person who is known by the
Company to own beneficially more than 5% of the Company's Common Stock, (ii)
by each of the Named Executive Officers and by each of the Company's
directors, (iii) by all current executive officers and directors as a group,
and (iv) by each Selling Stockholder. Except pursuant to applicable community
property laws or as indicated in the footnotes to this table, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by such
stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING (1) OFFERING (1)
----------------------- SHARES BEING -----------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND
DIRECTORS
Roger J. Sippl (2)...... 2,468,750 23.6% -- 2,468,750 20.3%
Mark D. Hanson (3)...... 275,000 2.6 -- 275,000 2.3
Jens Christensen (4).... 1,695,720 16.1 86,376 1,529,720 12.5
Therese H. Langlais
(5).................... 96,250 * -- 96,250 *
David T. Shewmake (6)... 45,000 * -- 45,000 *
Richard L. Gerould (7).. 90,125 * -- 90,125 *
Michael Moritz (8)...... 740,500 7.1 -- 740,500 6.1
Cristina M. Morgan (9).. 109,374 1.0 -- 109,374 *
Gill Cogan (10)......... 592,500 5.7 -- 592,500 4.9
E. E. van Bronkhorst
(11)................... 12,500 * -- 12,500 *
J. Sidney Webb (11)..... 70,000 * -- 70,000 *
Eric Young (12)......... 550,000 5.3 -- 550,000 4.5
All executive officers
and directors as a
group
(14 persons) (13)...... 6,856,969 64.2 166,000 6,689,969 54.1
5% STOCKHOLDERS
Elizabeth G. Salmon
(14)................... 2,468,750 23.6 -- 2,468,750 20.3
Neguine Navab (15)...... 1,695,720 16.1 79,624 1,529,720 12.5
Prasad Mokkapati (16)... 844,485 8.1 75,000 769,485 6.3
Funds affiliated with
Sequoia Capital (17)... 740,500 7.1 -- 740,500 6.1
3000 Sand Hill Road
Menlo Park, California
94025
Funds affiliated with
Weiss, Peck & Greer
Venture Partners
(18).................. 592,500 5.7 -- 592,500 4.9
555 California Street
San Francisco,
California 94104
Funds affiliated with
Canaan Capital Partners
(19).................. 550,000 5.3 -- 550,000 4.5
2884 Sand Hill Road
Menlo Park, California
94025
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING (1) OFFERING (1)
----------------------SHARES BEING ----------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------- ----------- ---------------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
OTHER SELLING
STOCKHOLDERS
Justin Broughton........ 6,000 * 6,000 -- *
Suresh Challa (20)...... 426,507 4.1 80,000 346,507 2.8
John D. Fleischhauer.... 1,000 * 1,000 -- *
Richard J. Foley........ 15,000 * 1,500 13,500 *
Tommy Hawkins........... 67,500 * 17,500 50,000 *
Mark Hayes (21)......... 30,500 * 2,000 28,500 *
Miles Kurland........... 2,000 * 500 1,500 *
Lion Investments
Limited................ 100,000 * 50,000 50,000 *
Clifford S. Robbins..... 1,875 * 500 1,375 *
</TABLE>
- --------
* Represents less than 1%.
(1) The amounts reported in this table include shares of Common Stock
issuable upon the automatic conversion of outstanding Preferred Stock,
which conversion will occur upon consummation of this offering. Based on
10,469,971 shares of Common Stock outstanding prior to the offering. A
person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days upon the exercise of options.
Calculations of percentages of beneficial ownership assume the exercise
by only the respective named stockholder of all options for the purchase
of Common Stock held by such stockholder which are exercisable within 60
days of June 30, 1996. Unless otherwise indicated, the address of each of
the named individuals is: c/o Visigenic Software, Inc., 951 Mariner's
Island Boulevard, Suite 120, San Mateo, California 94404.
(2) Includes 393,750 shares held by Elizabeth G. Salmon, Mr. Sippl's spouse,
as separate property and 20,000 shares held by Nelson D. Salmon and
Elizabeth G. Salmon, Trustees of the Nelson D. Salmon Trust dated October
14, 1994. Mr. Sippl disclaims beneficial ownership of all such shares.
See footnote 14.
(3) Includes 111,014 shares subject to a right of repurchase in favor of the
Company which lapses over time. Also includes 30,000 shares issuable upon
exercise of options.
(4) Includes 783,740 shares held by Neguine Navab, Mr. Christensen's spouse,
and 67,494 shares issuable upon exercise of options held by Ms. Navab.
Mr. Christensen acquired his shares in the Company in connection with the
Company's acquisition of PostModern. See footnote 15 below. See "Certain
Transactions."
(5) Includes 3,750 shares held by Ms. Langlais, as Co-Trustee of the Halloran
1990 Living Trust dated March 12, 1990. Also includes 18,214 shares
subject to a right of repurchase in favor of the Company which lapses
over time.
(6) Includes 15,419 shares subject to a right of repurchase in favor of the
Company which lapses over time. Also includes 10,000 shares issuable upon
exercise of options.
(7) Includes 30,559 shares subject to a right of repurchase in favor of the
Company which lapses over time.
(8) Represents all shares held by entities affiliated with Sequoia Capital.
See footnote 17 below. Mr. Moritz, as a general partner of Sequoia
Capital, may be deemed to beneficially own shares, but Mr. Moritz
disclaims beneficial ownership of all such shares except to the extent of
his proportional interest therein.
(9) Includes 4,576 shares subject to a right of repurchase in favor of the
Company which lapses over time. Also includes 84,374 shares issued to
Hambrecht & Quist LLC ("H&Q") for financial advisory services rendered to
PostModern in connection with the Company's acquisition of PostModern.
Ms. Morgan is a Managing Director of H&Q. Ms. Morgan disclaims beneficial
ownership of all such shares except to the extent of her proportional
interest therein.
(10) Represents all shares held by entities affiliated with Weiss, Peck &
Greer Venture Partners. See footnote 18 below. Mr. Cogan, as a general
partner of Weiss, Peck & Greer Venture Partners, may be deemed to
beneficially own shares, but Mr. Cogan disclaims beneficial ownership of
all such shares except to the extent of his proportional interest
therein.
(11) Includes 4,576 shares subject to a right of repurchase in favor of the
Company which lapses over time.
55
<PAGE>
(12) Represents all shares held by entities affiliated with Canaan Capital
Partners. See footnote 19 below. Mr. Young, as a general partner of
Canaan Capital Partners, may be deemed to beneficially own shares, but
Mr. Young disclaims beneficial ownership of all such shares except to the
extent of his proportional interest therein.
(13) See footnotes 2 through 12, footnote 15, and footnotes 17 through 19.
Includes 16,250 shares held by Robert Perreault. Also includes 202,067
shares subject to a right of repurchase in favor of the Company which
lapses over time, and 202,494 shares issuable upon exercise of options.
Of the 167,000 shares to be sold by the executive officers and directors
of the Company, Mr. Christensen intends to sell 87,376 shares and Ms.
Navab intends to sell 79,624 shares.
(14) Includes 2,055,000 shares held by Roger J. Sippl, Ms. Salmon's spouse,
and 20,000 shares held by Nelson D. Salmon and Elizabeth G. Salmon,
Trustees of the Nelson D. Salmon Trust dated October 14, 1994. See
footnote 2 above.
(15) Includes 67,494 shares issuable upon exercise of options. Also includes
844,486 shares held by Mr. Christensen, Ms. Navab's spouse. Ms. Navab is
Director of Object Technologies for the Company. Ms. Navab acquired her
shares and options in the Company in connection with the Company's
acquisition of PostModern. See "Certain Transactions."
(16) Mr. Mokkapati is Senior Architect for Distributed Objects for the
Company. Mr. Mokkapati acquired his shares in connection with the
Company's acquisition of PostModern. See "Certain Transactions."
(17) Represents 673,855 shares held by Sequoia Capital VI, 37,025 shares held
by Sequoia Technology Partners VI, 18,820 shares held by Sequoia XXIII
and 10,800 shares held by Sequoia XXIV. Michael Moritz, a Director of the
Company, is a general partner of Sequoia Capital. See footnote 8 above.
(18) Represents 49,888 shares held by Weiss, Peck & Greer Venture Associates
II (Overseas), Ltd., 227,638 shares held by Weiss, Peck & Greer Venture
Associates II, L.P. and 314,973 shares held by WPG Enterprise Fund. Gill
Cogan, a Director of the Company, is a general partner of Weiss, Peck &
Greer Venture Partners. See footnote 10 above.
(19) Represents 446,500 shares held by Canaan Capital Offshore Limited
Partnership C.V., ("Offshore") 53,500 shares held by Canaan Capital
Limited Partnership ("CCLP") and 50,000 shares held by Quai Limited
("Quai"). Eric Young is a director of the Company and is a general
partner of Offshore and CCLP. Quai is a limited partner of Canaan
Partners. Eric Young holds no voting or dispositive control over shares
held by Quai, and he disclaims beneficial ownership of such shares. See
footnote 12 above.
(20) Includes 25,590 shares issuable upon exercise of options. Mr. Challa is
Director of Business Development for the Company. Mr. Challa acquired his
shares and options in the Company in connection with the Company's
acquisition of PostModern. See "Certain Transactions."
(21) Includes 7,838 shares subject to a right of repurchase in favor of the
Company. Also includes 8,500 shares issuable upon exercise of options.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon consummation of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock and 2,000,000 shares
of Preferred Stock, par value $0.001 per share. Each outstanding share of
Preferred Stock will be automatically converted into one share of Common Stock
upon the closing of the offering being made hereby. Upon such conversion, such
Preferred Stock will be canceled, retired and eliminated from the shares that
the Company is authorized to issue. The following summary of certain
provisions of the Common Stock and the preferred stock of the Company does not
purport to be complete and is subject to, and qualified in its entirety by,
the Certificate of Incorporation and By-Laws of the Company that are included
as exhibits to the Registration Statement of which this Prospectus forms a
part and by the provisions of applicable law.
COMMON STOCK
As of June 30, 1996, there were approximately 10,469,971 shares of Common
Stock outstanding held of record by 160 stockholders, as adjusted to reflect
the conversion of the outstanding shares of Preferred Stock and convertible
promissory notes upon the closing of the offering. The holders of Common Stock
are entitled to one vote for each share held of record on all matters
submitted to a vote of the holders of Common Stock. Subject to preferences
applicable to any outstanding preferred stock, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any preferred stock. Holders of
Common Stock have no preemptive or subscription rights, and there are no
redemption or conversion rights with respect to such shares. All outstanding
shares of Common Stock are fully paid and non-assessable, and the shares of
Common Stock to be issued upon completion of the offering will be fully paid
and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the dividend rate, voting rights and other rights, preferences
and restrictions of each series any or all of which may be greater than the
rights of the Common Stock. It is not possible to state the actual effect of
the issuance of any shares of preferred stock upon the rights of holders of
the Common Stock until the Board of Directors determines the specific rights
of the holders of such preferred stock. However, the effects might include,
among other things, restricting dividends on the Common Stock, diluting the
voting power of the Common Stock, impairing the liquidation rights of the
Common Stock and delaying or preventing a change in control of the Company
without further action by the stockholders. The Company has no present plans
to issue any shares of preferred stock.
REGISTRATION RIGHTS
Following the sale of the shares of Common Stock offered hereby, the holders
of approximately 6,789,050 shares: issuable upon conversion of the outstanding
shares of Preferred Stock and outstanding convertible notes; held by the
founder and certain early employees of the Company; and held by former
PostModern shareholders, and their transferees, will have certain rights to
register those shares under the Securities Act of 1933, as amended. These
rights are provided under the terms of an agreement among the Company and the
holders of such shares. If the Company registers any of its Common Stock
either for its own account or for the account of other security holders, the
holders of such shares are entitled to include their shares of Common Stock in
the registration, subject to the ability of the underwriters to limit the
number of shares included in the offering. All fees, costs and expenses of
such registrations (other than underwriting discounts and commissions) will be
borne by the Company.
57
<PAGE>
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three (3) years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
The Company's Restated Certificate of Incorporation, which will become
effective upon consummation of this offering, will require that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of the stockholders and
may not be effected by a consent in writing. In addition, special meetings of
the stockholders of the Company may be called only by the Board of Directors
or certain officers of the Company. The Restated Certificate of Incorporation
which will become effective upon consummation of this offering will provide
that, beginning with the first annual meeting of stockholders following this
offering, the Board of Directors will be divided into three classes, with each
class serving staggered three-year terms, that a director may be removed from
the Board of Directors only for cause and only upon the vote of at least 66
2/3% of the voting power of all outstanding stock, and that certain amendments
of the Company's Restated Certificate of Incorporation, and all amendments by
the stockholders of the Company's Amended and Restated Bylaws, require the
approval of holders of at least 66 2/3% of the voting power of all outstanding
shares. These provisions may have the effect of deferring hostile takeovers or
delaying changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The First National
Bank of Boston.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock.
Upon completion of this offering, the Company will have outstanding an
aggregate of 12,169,971 shares of Common Stock, assuming (i) the issuance of
2,100,000 shares of Common Stock offered hereby, (ii) no exercise of the
Underwriters' over-allotment option and (iii) no exercise of options to
purchase Common Stock after June 30, 1996. Of these shares, the 2,100,000
shares sold in the offering will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except for any shares purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act (whose
sales would be subject to certain limitations and restrictions described
below).
The remaining 10,069,971 shares of Common Stock held by existing
stockholders were issued and sold by the Company in reliance on exemptions
from the registration requirements of the Securities Act. All such outstanding
shares will be subject to the "lock-up" agreements described below on the date
of this Prospectus. Upon expiration of lock-up agreements 180 days after the
date of this Prospectus, 8,048,789 shares will become eligible for sale,
subject in most cases to the limitations of Rule 144. The remaining 2,021,182
shares held by existing stockholders will become eligible for sale at various
times over a period of less than two years and could be sold earlier if the
holders exercise registration rights. In addition, holders of stock options
could exercise these options and sell certain of the shares issued upon
exercise as described below.
As of June 30, 1996, there were a total of 1,087,500 shares of Common Stock
subject to outstanding options under the Option Plan, all of which were
exercisable. However, these shares are subject to lock-up agreements. All
options held by officers and directors of the Company are subject to a 180 day
lock-up agreement described below, and all other options are subject to a 180
day lock-up agreement with the Company.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
two years (including the holding period of any prior owner except an
affiliate) is entitled to sell in "broker's transactions" or to market makers,
within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of (i) one
percent of the number of shares of Common Stock then outstanding
(approximately 121,700 shares immediately after this offering) or (ii)
generally, the average weekly trading volume in the Common Stock during the
four calendar weeks preceding the required filing of a Form 144 with respect
to such sale. Sales under Rule 144 are generally subject to the availability
of current public information about the Company. Under Rule 144(k), a person
who is deemed not to have been an affiliate of the Company at any time during
the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for a least three years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice filing provisions of Rule 144. Under Rule 701 under the
Securities Act, persons who purchase shares upon exercise of options granted
prior to the effective date of this offering are entitled to sell such shares
90 days after the effective date of this offering in reliance on Rule 144,
without having to comply with the holding period and notice filing
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice filing
provisions of Rule 144.
The Company intends to file registration statements under the Securities Act
180 days after the effective date of the offering to register shares of Common
Stock reserved for issuance under the Option Plan and the Directors Plan, thus
permitting the resale of such shares by non-affiliates and by affiliates,
subject to Rule 144 volume limitations applicable thereto, in the public
market without restriction under the Securities Act. Such registration
statements will become effective immediately upon filing.
As of June 30, 1996, the holders of approximately 6,789,050 shares are
entitled to certain registration rights with respect to such shares. If such
registration rights are exercised, the shares can be sold without any holding
period or sales volume limitation. If such holders, by exercising their
registration rights, cause a large number of
59
<PAGE>
shares to be registered and sold in the public market, such sales could have
an adverse effect on the market price for the Company's Common Stock. If the
Company were required to include in a Company initiated registration the
shares held by such holders pursuant to the exercise of their registration
rights, such sales might have an adverse effect on the Company's ability to
raise needed capital. See "Description of Capital Stock--Registration Rights."
All existing stockholders of the Company have agreed that they will not,
subject to certain limited exceptions, directly or indirectly, offer, sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for any such shares for a period of 180
days after the effective date of the offering without the prior written
consent of the Company, and in most cases, Hambrecht & Quist LLC.
60
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their representatives, Hambrecht & Quist LLC
and Robertson, Stephens & Company LLC (collectively, the "Representatives"),
have severally agreed to purchase from the Company and the Selling
Stockholders the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC..............................................
Robertson, Stephens & Company LLC..................................
---------
Total.......................................................... 2,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly 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
reallow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable no later than 30 days after the date of this Prospectus,
to purchase up to 255,000 and 60,000, respectively, additional shares of
Common Stock at the initial public offering price, less the underwriting
discount, set forth on the cover page of this Prospectus. To the extent that
the Underwriters exercise this option, each of the Underwriters will have a
firm commitment to purchase approximately the same percentage thereof which
the number of shares of Common Stock to be purchased by it shown in the above
table bears to the total number of shares of Common Stock offered hereby. The
Company and the Selling Stockholders will be obligated, pursuant to the
option, to sell shares to the Underwriters to the extent the option is
exercised. The Underwriters may exercise such option only to cover-allotments
made in connection with the sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Selling Stockholders and the other stockholders of the Company,
including the executive officers and directors, who will own in the aggregate
10,069,971 shares of Common Stock after this offering, have agreed that they
will not, without the prior written consent of Hambrecht & Quist LLC, offer,
sell or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exercisable
61
<PAGE>
for or convertible into shares of Common Stock owned by them during the 180-
day period following the effective date of the Registration Statement for this
offering. The Company has agreed that it will not, without the prior written
consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any
shares of Common Stock, options or warrants to acquire shares of Common Stock
or securities exchangeable for or convertible into shares of Common Stock
during the 180-day period following the effective date of the Registration
Statement for this offering, except that the Company may grant additional
options under its stock plans and issue securities under, or pursuant to the
exercise of options granted under, its stock plans. See "Shares Eligible for
Future Sale."
The Representatives currently anticipate that up to 105,000 shares of Common
stock may be sold at the initial public offering price to directors (or their
affiliated entities) and employees of the Company 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 shares. Any such shares not so purchased
will be offered by the Representatives to the general public on the same basis
as other shares offered hereby.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of Common Stock offered hereby to any accounts over
which they have discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock was determined by
negotiation among the Company, the representatives of the Selling Stockholders
and the Representatives. Among the factors considered in determining the
initial public offering price were prevailing market and economic conditions
revenues and earnings of the Company, market valuations of other companies
engaged in activities similar to the Company, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, the Company's management and other factors deemed
relevant.
LEGAL MATTERS
The validity of the securities offered hereby and general corporate legal
matters will be passed upon for the Company by Gray Cary Ware & Freidenrich, A
Professional Corporation ("GCWF"), Palo Alto, California. As of June 30, 1996,
certain members and investment partnerships of GCWF beneficially owned an
aggregate of 37,000 shares of the Company's Common Stock. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Fenwick & West LLP. Fenwick & West LLP owns an aggregate of
18,979 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of Visigenic Software, Inc. and
PostModern Computing Technologies Inc. included in this Prospectus and
elsewhere in the Registration Statement to the extent and for the periods
indicated in their reports have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act, with respect to the Common Stock offered hereby.
This Prospectus which constitutes a part of the Registration Statement does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to
the Company and such Common Stock, reference is made to the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to
62
<PAGE>
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. Copies of
the Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., or obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at 7 World Trade Center, Suite 1300, New
York, New York 10048 and at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The Commission maintains a World Wide Web
site that contains reports, proxy and information statements and other
information filed electronically with the Commission. The address of the site
is http://www.sec.gov.
63
<PAGE>
VISIGENIC SOFTWARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VISIGENIC SOFTWARE, INC.:
Report of Independent Public Accountants............................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Stockholders' Equity........................ F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-7
POSTMODERN COMPUTING TECHNOLOGIES INC.:
Report of Independent Public Accountants............................... F-15
Balance Sheets......................................................... F-16
Statements of Operations............................................... F-17
Statements of Shareholders' Equity..................................... F-18
Statements of Cash Flows............................................... F-19
Notes to Financial Statements.......................................... F-20
VISIGENIC SOFTWARE, INC. AND POSTMODERN COMPUTING TECHNOLOGIES INC.--
PRO FORMA:
Pro Forma Condensed Combined Financial Statements...................... P-1
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Visigenic Software, Inc.:
We have audited the accompanying consolidated balance sheets of Visigenic
Software, Inc. (a Delaware corporation) and subsidiary as of March 31, 1995
and 1996 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Visigenic Software, Inc.
and subsidiary as of March 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Jose, California
June 17, 1996
F-2
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, 1996
PRO FORMA
MARCH 31, LIABILITIES AND
----------------- JUNE 30, STOCKHOLDERS'
1995 1996 1996 EQUITY (NOTE 5)
------- -------- -------- ---------------
ASSETS (UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....... $ 553 $ 2,399 $ 1,890
Accounts receivable, net of
allowance for doubtful accounts
of $0, $60 and $97............. 472 760 3,263
Prepaid compensation............ -- -- 1,478
Other current assets............ 175 257 551
------- -------- --------
Total current assets.......... 1,200 3,416 7,182
------- -------- --------
PROPERTY AND EQUIPMENT, net....... 607 1,349 1,731
OTHER ASSETS, net:
Excess of purchase price over
net assets acquired............ -- -- 1,000
Other........................... 22 55 49
------- -------- --------
$ 1,829 $ 4,820 $ 9,962
======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Line of credit.................. $ -- $ -- $ 524 $ 524
Accounts payable................ 201 811 1,374 1,374
Accrued liabilities-
Payroll and related benefits... 86 347 408 408
Other.......................... 122 301 928 928
Deferred revenue................ 303 1,141 1,617 1,617
------- -------- -------- --------
Total current liabilities..... 712 2,600 4,851 4,851
------- -------- -------- --------
CONVERTIBLE NOTES PAYABLE TO
STOCKHOLDERS..................... -- -- 2,000 --
------- -------- -------- --------
COMMITMENTS (Note 4)
STOCKHOLDERS' EQUITY:
Convertible preferred stock,
$.001 par value, aggregate
liquidation preference of
$17,414
Authorized--10,000,000 shares
Outstanding--Series A, 803,000
shares in 1995, 1996 and June
30, 1996; Series B, 1,496,625
shares in 1995 and 2,871,625
shares in 1996 and June 30,
1996; Series C, 444,444
shares at June 30, 1996; no
shares outstanding pro
forma........................ 3 4 4 --
Common stock, $.001 par value,
Authorized--20,000,000 shares
at March 31, 1996; 30,000,000
at June 30, 1996
Outstanding--2,782,877 shares
in 1995, 2,835,905 shares in
1996 and 6,150,902 shares at
June 30, 1996; 10,469,971
shares outstanding pro
forma........................ 3 3 6 10
Additional paid-in capital...... 8,194 13,675 28,222 30,222
Accumulated deficit............. (7,083) (11,462) (25,121) (25,121)
------- -------- -------- --------
Total stockholders' equity.... 1,117 2,220 3,111 5,111
------- -------- -------- --------
$ 1,829 $ 4,820 $ 9,962 $ 9,962
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED MARCH 31, JUNE 30,
------------------------- ----------------
1994 1995 1996 1995 1996
------- ------- ------- ------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Software products............... $ -- $ 892 $ 4,479 $ 544 $ 2,505
Service and other............... -- 223 1,096 367 456
------- ------- ------- ------ --------
Total revenue................. -- 1,115 5,575 911 2,961
------- ------- ------- ------ --------
COST OF REVENUE:
Software products............... -- 36 284 43 138
Service and other............... -- 259 727 146 295
------- ------- ------- ------ --------
Total cost of revenue......... -- 295 1,011 189 433
------- ------- ------- ------ --------
GROSS PROFIT...................... -- 820 4,564 722 2,528
------- ------- ------- ------ --------
OPERATING EXPENSES:
Product development............. 1,393 3,160 4,348 729 1,657
Sales and marketing............. 503 1,511 3,215 636 2,006
General and administrative...... 600 872 1,465 335 473
Purchased in process product de-
velopment...................... -- -- -- -- 12,014
Amortization of excess of pur-
chase price over net assets ac-
quired......................... -- -- -- -- 43
------- ------- ------- ------ --------
Total operating expenses...... 2,496 5,543 9,028 1,700 16,193
------- ------- ------- ------ --------
Loss from operations.......... (2,496) (4,723) (4,464) (978) (13,665)
INTEREST AND OTHER INCOME, net.... 42 94 85 1 6
------- ------- ------- ------ --------
NET LOSS.......................... $(2,454) $(4,629) $(4,379) $ (977) $(13,659)
======= ======= ======= ====== ========
PRO FORMA NET LOSS PER SHARE...... $ (.39) $ (.09) $ (1.21)
======= ====== ========
PRO FORMA WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES..... 11,120 10,602 11,289
======= ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
---------------- ----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock to founder in
February 1993......... -- $ -- 2,000,000 $ 2 $ 158 $ -- $ 160
Issuance of common
stock................. -- -- 427,019 -- 81 -- 81
Issuance of Series A
convertible preferred
stock................. 803,000 1 -- -- 1,898 -- 1,899
Issuance of Series B
convertible preferred
stock................. 871,625 1 -- -- 3,445 -- 3,446
Net loss............... -- -- -- -- -- (2,454) (2,454)
--------- ----- --------- ---- ------- -------- -------
BALANCE, MARCH 31,
1994................... 1,674,625 2 2,427,019 2 5,582 (2,454) 3,132
Issuance of common
stock................. -- -- 459,575 1 183 -- 184
Repurchase of common
stock................. -- -- (103,717) -- (35) -- (35)
Issuance of Series B
convertible preferred
stock................. 625,000 1 -- -- 2,464 -- 2,465
Net loss............... -- -- -- -- -- (4,629) (4,629)
--------- ----- --------- ---- ------- -------- -------
BALANCE, MARCH 31,
1995................... 2,299,625 3 2,782,877 3 8,194 (7,083) 1,117
Issuance of Series B
convertible preferred
stock................. 1,375,000 1 -- -- 5,459 -- 5,460
Exercise of stock
options............... -- -- 54,068 -- 22 -- 22
Repurchase of common
stock, net of
issuances............. -- -- (1,040) -- -- -- --
Net loss............... -- -- -- -- -- (4,379) (4,379)
--------- ----- --------- ---- ------- -------- -------
BALANCE, MARCH 31,
1996................... 3,674,625 4 2,835,905 3 13,675 (11,462) 2,220
Issuance of Series C
convertible preferred
stock................. 444,444 -- -- -- 4,000 -- 4,000
Issuance of common
stock in connection
with the acquisition
of PostModern
Computing Technologies
Inc................... -- -- 3,099,821 3 10,382 -- 10,385
Exercise of stock
options (unaudited)... -- -- 171,433 -- 69 -- 69
Issuance of common
stock (unaudited)..... -- -- 43,743 -- 96 -- 96
Net loss (unaudited)... -- -- -- -- -- (13,659) (13,659)
--------- ----- --------- ---- ------- -------- -------
BALANCE, JUNE 30, 1996
(unaudited)............ 4,119,069 $ 4 6,150,902 $ 6 $28,222 $(25,121) $ 3,111
========= ===== ========= ==== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
YEARS ENDED MARCH 31, JUNE 30,
------------------------- -----------------
1994 1995 1996 1995 1996
------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss....................... $(2,454) $(4,629) $(4,379) $ (977) $(13,659)
Adjustments to reconcile net
loss to net cash used in
operating activities--
Depreciation and
amortization................. 67 158 310 52 164
Purchased in process product
development.................. -- -- -- -- 12,014
Provision for allowance for
doubtful accounts............ -- -- 60 15 12
Changes in net assets and
liabilities, net of
acquisition of PostModern--
Increase in accounts
receivable.................. -- (472) (348) (941) (2,375)
Increase in prepaid expenses
and other current assets.... (35) (139) (82) (93) (1,685)
Increase in accounts
payable..................... 148 53 610 75 472
Increase in accrued
liabilities................. 66 142 440 21 183
Increase in deferred
revenue..................... -- 303 838 488 293
------- ------- ------- ------- --------
Net cash used in operating
activities................. (2,208) (4,584) (2,551) (1,360) (4,581)
------- ------- ------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payment for purchase of
PostModern, net of cash
acquired...................... -- -- -- -- (2,182)
Purchases of property and
equipment..................... (457) (373) (1,052) (148) (435)
Organization costs and other
assets........................ (20) (5) (33) (17) --
------- ------- ------- ------- --------
Net cash used in investing
activities................. (477) (378) (1,085) (165) (2,617)
------- ------- ------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings on bank line of
credit........................ -- -- -- -- 524
Proceeds from issuance of
convertible notes............. -- -- -- -- 2,000
Net proceeds from issuance of
preferred stock............... 5,345 2,465 5,460 2,992 4,000
Net proceeds from issuance of
common stock.................. 241 149 22 -- 165
------- ------- ------- ------- --------
Net cash provided by
financing activities....... 5,586 2,614 5,482 2,992 6,689
------- ------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............ 2,901 (2,348) 1,846 1,467 (509)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD............. -- 2,901 553 553 2,399
------- ------- ------- ------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.......................... $ 2,901 $ 553 $ 2,399 $ 2,020 $ 1,890
======= ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(INFORMATION RELATING TO THE QUARTERS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
1. ORGANIZATION AND OPERATIONS OF THE COMPANY:
Visigenic Software, Inc. (the "Company") was incorporated on February 12,
1993. The Company operates in a single industry segment and is involved in the
design, development and marketing of database connectivity software products.
Through March 31, 1995 the Company's principal efforts were focused on raising
capital, developing its products and applications, establishing marketing and
sales channels and recruiting key personnel. During fiscal 1996, the Company
emerged from the development stage, however, the Company continues to be
subject to the risks associated with companies in a comparable stage of
development including, but not limited to, dependence on key personnel;
limited operating history and a history of losses; and the need to develop new
software products and product enhancements.
Although the Company was incorporated on February 12, 1993, its activities
during the first two months involved limited cash expenditures and consisted
only of recruiting of key personnel and raising capital. Accordingly, the
accompanying consolidated statements of operations, stockholders' equity and
cash flows for the year ended March 31, 1994 are presented for the period from
inception (February 12, 1993) to March 31, 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Functional Currency
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary after elimination of intercompany transactions
and balances. The functional currency of the Company's foreign subsidiary is
the U.S. dollar. Foreign exchange gains and losses resulting from the
remeasurement of the financial statements for the subsidiary, which are not
material, are included in other income in the accompanying consolidated
statements of operations.
Use of Estimates in Preparation of Financial Statements
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 results of operations during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with an original
maturity of three months or less from the date of purchase to be cash
equivalents. The Company's short-term investments are accounted for pursuant
to the provisions of Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities." As of
March 31, 1995 and 1996, the Company's cash and cash equivalents were
deposited in checking and money market accounts, U.S. Government Treasury
Bills and certificates of deposits.
Software Development Costs
In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," the Company capitalizes
eligible computer software development costs upon the establishment of
technological feasibility, which it has defined as completion of a working
model. For the years ended March 31, 1994, 1995 and 1996, the amount of costs
eligible for capitalization, after consideration of factors such as realizable
value, were not material and, accordingly, all software development costs have
been charged to product development expense in the accompanying consolidated
statements of operations.
F-7
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets (or
over the lease term if it is shorter for leasehold improvements), which range
from three to five years. Property and equipment consists of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------- JUNE 30,
1995 1996 1996
----- ------- --------
<S> <C> <C> <C>
Computer equipment................................ $ 453 $ 1,126 $ 1,394
Furniture and fixtures............................ 125 320 373
Purchased software................................ 239 401 572
Leasehold improvements............................ 12 34 39
----- ------- -------
829 1,881 2,378
Less--Accumulated depreciation and amortization... (222) (532) (647)
----- ------- -------
Property and equipment, net..................... $ 607 $ 1,349 $ 1,731
===== ======= =======
</TABLE>
Revenue Recognition and Deferred Revenue
The Company's revenue is derived from fixed license fees from licensing its
products, royalties from VARs, ISVs and distributors, and fees for services
related to its products, including software maintenance, development contracts
and consulting and training. Certain of the Company's license arrangements
with VARs and ISVs provide for sublicense fees payable to the Company based on
a percentage of the VAR's or ISV's net revenue. Other license arrangements
provide for fixed license fees for the right to make and distribute an
unlimited number of copies of the Company's product for a specified period of
time. Ongoing sublicense fee revenue, other than from guaranteed sublicense
fees, is recognized when it is reported by the VAR, ISV or distributor.
Service revenue is primarily attributable to lower margin maintenance and
other revenue, including training revenue and engineering development fees.
The Company generally recognizes revenue from fixed license and guaranteed
sublicense fees upon delivery of software products if there are no significant
post-delivery obligations, if collection is probable and if the license
agreement requires payment within 90 days. If significant post-delivery
obligations exist or if a product is subject to customer acceptance, revenue
is deferred until no significant obligations remain or acceptance has
occurred.
Maintenance revenue from ongoing customer support and product upgrades is
recognized ratably over the term of the applicable maintenance period, which
is typically 12 months. If maintenance is included in a license agreement,
such amounts are unbundled from the license fee at its fair market value.
Consulting and training revenue is generally recognized as services are
performed over the term of the agreement. Revenue from engineering development
work is generally recognized on a percentage of completion basis. If a
transaction includes both license and service elements, license fee revenue is
recognized upon shipment of the software, provided services do not include
significant customization or modification of the base product and payment
terms are not subject to acceptance criteria. In cases where license fee
payments are contingent upon the acceptance of services, revenues from both
the license and service elements are deferred until the acceptance criteria
are met.
Deferred revenue consists primarily of the unrecognized portion of revenue
under maintenance and support contracts (which revenue is deferred and
recognized ratably over the term of such contract) and advance payment of
software development fees and license fees.
F-8
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant Customers and Related Parties
A relatively small number of customers have accounted for a significant
percentage of the Company's total revenue. The following four customers
accounted for more than 10% of total revenue:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
------------- QUARTER ENDED
1995 1996 JUNE 30,1996
----- ----- -------------
<S> <C> <C> <C>
Customer A..................................... 55% * *
Customer B..................................... 20% * *
Customer C..................................... * 25% *
Customer D..................................... * * 34%
</TABLE>
- --------
*less than 10%
Customers C and D are related parties as they were purchasers of Series C
convertible preferred stock in May 1996 and are also holders of the
convertible notes payable to stockholders (see Note 9). Accounts receivable
from these related parties as of June 30, 1996 totalled approximately $1.4
million.
Export Sales
The Company markets its products in North America and in foreign countries
(primarily Europe and Japan) through its sales personnel, VARs, ISVs and
distributors. For fiscal 1996, export sales, which consist of domestic sales
to customers in foreign countries, were 10% of total revenue. For fiscal 1995
and for the quarter ended June 30, 1996 export sales were less than 10% of
total revenue.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. As of
March 31, 1996, approximately 75% of accounts receivable were concentrated
with ten customers. The Company generally does not require collateral on
accounts receivable as the majority of the Company's customers are large, well
established companies. The Company provides reserves for credit losses, which
to date have been insignificant.
New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which will be effective for
the Company's 1997 fiscal year. SFAS No. 123 allows companies which have
stock-based compensation arrangements with employees to adopt a new fair-value
basis of accounting for stock options and other equity instruments or to
continue to apply the existing accounting rules under Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," but
with additional financial statement disclosure. The Company expects to
continue to account for stock-based compensation arrangements under APB
Opinion No. 25 and, therefore, does not expect SFAS No. 123 to have a material
impact on its financial position, results of operations and cash flows.
Pro Forma Net Loss per Share
Pro forma net loss per share is computed using the pro forma weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares consist of convertible preferred stock (using
the if converted method) and stock options (using the treasury stock method).
Common stock options are excluded from the computation if their effect is
antidilutive. Convertible preferred stock outstanding during the period is
included (using the if converted method) in the computation of common
equivalent shares even though the effect is antidilutive. Also, pursuant to
the Securities and Exchange Commission Staff Accounting Bulletins and staff
policy, such computations include all common and common equivalent shares
issued within the 12 months preceding the filing date of this registration
statement as if they were outstanding for all periods presented. Historical
net loss per share amounts have not been presented since such amounts are not
deemed meaningful due to the significant change in the Company's capital
structure that will occur in connection with the proposed offering.
F-9
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unaudited Interim Financial Data
The unaudited interim financial statements as of June 30, 1996 and for the
quarters ended June 30, 1995 and 1996 have been prepared on the same basis as
the audited financial statements and, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial information set forth therein, in accordance with
generally accepted accounting principles. The data disclosed in the notes to
the consolidated financial statements for these periods are unaudited. The
results of operations for the quarter ended June 30, 1996 are not necessarily
indicative of the results to be expected for any future period.
3. LINE OF CREDIT:
The Company has a $1.0 million revolving line of credit agreement (the
"Agreement") with a bank, which expires on August 15, 1996. Advances under the
Agreement bear interest at the bank's prime lending rate plus 1.25% (9.5% at
March 31, 1996), are limited to 80% of eligible accounts receivable and are
secured by substantially all of the assets and contractual rights of the
Company. The Agreement also contains certain financial restrictions and
covenants which require, among others, that the Company maintain a minimum
monthly tangible net worth, and a minimum monthly ratio of debt to equity. In
addition, the Agreement prohibits the Company from paying dividends without
prior bank consent. As of March 31 and June 30, 1996, the Company was in
compliance with the financial covenants. There were no borrowings outstanding
under the Agreement as of March 31, 1996. As of June 30, 1996, the Company had
borrowed $524,000 under the Agreement.
4. COMMITMENTS:
The Company leases its facilities under operating lease agreements expiring
through January 2001. Rent expense for all operating leases totaled
approximately $131,000, $192,000 and $304,000 for the years ended March 31,
1994, 1995 and 1996, respectively. Minimum future lease payments under all
noncancellable operating leases as of March 31, 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
EAR ENDINGY
MARCH 31,
- -----------
<S> <C>
1997................................................................... $ 434
1998................................................................... 559
1999................................................................... 571
2000................................................................... 582
2001................................................................... 277
------
$2,423
======
</TABLE>
5. CONVERTIBLE PREFERRED STOCK:
In June 1996, the Company's Board of Directors approved a one-for-two
reverse split of its common and preferred stock. All common and preferred
share and per share amounts in the accompanying consolidated financial
statements have been adjusted retroactively to give effect to this reverse
stock split.
In conjunction with the proposed initial public offering of the Company's
common stock, all outstanding shares of convertible preferred stock will
automatically convert into common stock upon closing of the offering. The pro
forma effects of this conversion, including the Series C preferred stock and
convertible notes payable to stockholders issued in May and June 1996 (see
Note 9), have been reflected in the accompanying consolidated balance sheet as
of June 30, 1996.
The Company's certificate of incorporation, as amended in May 1996,
authorizes the issuance of up to 10,000,000 shares of convertible preferred
stock, of which the Company has designated 1,606,000 shares as
F-10
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Series A preferred stock, 6,000,000 shares as Series B preferred stock and
1,000,000 shares as Series C preferred stock. The rights and preferences of
the Series A, B and C preferred stock are as follows:
Dividends
The holders of Series A, B and C preferred stock are entitled to receive
dividends when and as declared by the Board of Directors. No cash dividends
can be paid on common stock or preferred stock unless, at the same time, a
dividend is paid with respect to all outstanding shares of preferred stock in
an amount for each such share equal to the aggregate amount of such dividends
payable on that number of shares of common stock into which each such share of
preferred stock could then be converted.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company,
holders of Series A, B and C preferred stock are entitled to receive, in
preference to holders of common stock, the amount of $2.40, $4.00 and $9.00
per share, respectively. Such amounts will be adjusted for any stock split,
combination, distribution or dividend. After payment of the above amounts,
holders of common stock are entitled to receive the amount of $2.40 per share,
adjusted for any stock split, combination, distribution or dividend. After
payment of the above amounts, holders of Series A preferred stock and common
stock are entitled to receive the amount of $1.60 per share for each share of
such stock, adjusted for any stock split, combination, distribution or
dividend. Any remaining assets would then be distributed ratably among
stockholders in proportion to their aggregate preferential amounts.
Voting Rights
The holders of preferred stock are entitled to the number of votes equal to
the number of shares of common stock into which such preferred stock is
convertible.
Conversion
Each share of preferred stock is convertible into one share of common stock,
at the option of the holder thereof, at any time after the date of issuance.
The conversion rate is subject to adjustment for dilution, including, but not
limited to, stock splits, stock dividends and stock combinations. In addition,
each share of Series A, B and C preferred stock will automatically convert
into common stock at the then conversion rate upon the written consent of
holders of a majority of all outstanding Series A, B and C preferred stock or
upon the closing of an underwritten public offering of the Company's common
stock at an aggregate offering price of not less than $10,000,000 and at an
offering price per share of at least $4.00 per share, of at least $6.67 per
share and of at least $12.00 per share, for Series A, B and C preferred stock,
respectively. Holders of Series C preferred stock have agreed to reduce the
automatic conversion price of the Series C preferred stock if necessary to
cause such stock to convert automatically into shares of common stock upon the
completion of the Company's initial public offering.
6. COMMON STOCK:
In June 1996, the Company's Board of Directors approved a one-for-two
reverse split of its common and preferred stock. All common and preferred
share and per share amounts in the accompanying consolidated financial
statements have been adjusted retroactively to give effect to this reverse
stock split.
Prior to July 1993, the Company issued 232,575 shares of common stock to
certain employees and directors of the Company that are subject to certain
repurchase rights. These rights of repurchase lapse over a five-year period.
As of March 31, 1996, 64,228 shares of common stock are subject to repurchase
by the Company at prices ranging from $.08 to $.20 per share.
F-11
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Purchase Plans
In April 1993 and August 1994, the Company adopted Stock Purchase Plans (the
"Plans") and authorized the issuance of 952,500 shares thereunder to employees
and consultants. Stock purchased under these Plans generally vests ratably
over a five-year period. Unvested shares may be repurchased by the Company at
the original issuance price in the event of termination.
As of March 31, 1996, 526,287 shares were issued and outstanding under these
Plans at prices ranging from $.20 to $.40 per share, which was the fair market
value of the common stock, as determined by the Board of Directors, on the
date of grant, of which 289,522 were subject to repurchase. As of March 31,
1996, no further shares were available for issuance under the Plans.
Stock Option Plan
In fiscal 1996, the Company established the 1995 Stock Option Plan (the
"1995 Plan") and reserved 2,000,000 shares of common stock for issuance. Under
the 1995 Plan, the Board of Directors may grant incentive and nonqualified
stock options to employees, consultants and directors of the Company. The
exercise price per share for an incentive stock option cannot be less than the
fair market value, as determined by the Board of Directors, on the date of
grant. The exercise price per share for nonqualified stock options cannot be
less than 85% of the fair market value, as determined by the Board of
Directors, on the date of grant. Options generally expire ten years after the
date of grant and vest over a period of five years. Option activity under the
1995 Plan was as follows:
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING
---------------------
OPTIONS PRICE PER
AVAILABLE SHARES SHARE
--------- --------- ----------
<S> <C> <C> <C>
Authorized................................ 2,000,000 -- --
Granted................................... (820,750) 820,750 $ .40
Exercised................................. -- (54,068) $ .40
Canceled.................................. 12,932 (12,932) $ .40
--------- --------- ----------
Balance at March 31, 1996.................. 1,192,182 753,750 $ .40
Authorized................................ 500,000 -- --
Granted................................... (520,250) 520,250 $.40-$6.00
Exercised................................. -- (171,433) $ .40
Canceled.................................. 15,067 (15,067) $ .40
--------- --------- ----------
Balance at June 30, 1996................... 1,186,999 1,087,500 $.40-$6.00
========= ========= ==========
</TABLE>
At June 30, 1996, options outstanding for the purchase of 59,634 shares were
vested under the 1995 Plan at an exercise price of $.40 per share.
Common Stock Reserved for Future Issuance
As of June 30, 1996, the Company has reserved the following shares of common
stock for future issuance:
<TABLE>
<S> <C>
Conversion of Series A preferred stock............................. 803,000
Conversion of Series B preferred stock............................. 2,871,625
Conversion of Series C preferred stock............................. 444,444
Conversion of convertible notes payable to stockholders............ 200,000
Stock Option Plan and options assumed from PostModern.............. 2,636,284
1996 Stock Plans................................................... 650,000
---------
7,605,353
=========
</TABLE>
F-12
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLAN:
In June 1995, the Company adopted the Visigenic Software, Inc. 401(k) Plan
(the "401(k) Plan"), as allowed under Section 401(k) of the Internal Revenue
Code, which provides for tax deferred salary deductions for eligible employees
of the Company. Employees who are 21 years of age or older are eligible to
participate immediately upon the date of hire and may make voluntary
contributions of their compensation to the 401(k) Plan. The 401(k) Plan does
not provide for Company contributions and the Company is the administrator.
8. INCOME TAXES:
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns based upon
enacted tax laws and rates applicable to the periods in which taxes become
payable. A valuation allowance has been recorded for the entire deferred tax
asset as a result of uncertainties regarding realization of the asset
including the limited operating history of the Company, the lack of
profitability to date and the uncertainty over future operating profitability.
Components of the net deferred tax asset are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Net operating loss carryforwards............................. $1,894 $3,398
Cumulative book to tax differences........................... 750 994
General business credit carryforwards........................ 311 372
------ ------
2,955 4,764
Valuation allowance.......................................... (2,955) (4,764)
------ ------
Net deferred tax asset................................... $ -- $ --
====== ======
</TABLE>
As of March 31, 1996, the Company had Federal and state net operating loss
carryforwards of approximately $9.8 million and $2.0 million, respectively,
which expire at various dates through 2011. In addition, as of March 31, 1996,
the Company had general business credit carryforwards of approximately
$372,000 which expire at various dates through 2011.
Under current tax law, net operating loss and credit carryforwards available
in any given year may be limited upon the occurrence of certain events,
including significant changes in ownership interests.
9. SUBSEQUENT EVENTS:
Acquisition of PostModern Computing Technologies Inc.
In May 1996, the Company completed the acquisition of PostModern, a
developer of distributed object connectivity software. In the acquisition,
which was structured as a merger, the Company issued 3,099,821 shares of its
common stock, valued at $3.00 per share based on an independent appraisal of
the Company's common stock, and paid a total of $2.3 million in exchange for
all of PostModern's outstanding shares. The Company also incurred acquisition-
related costs of approximately $450,000, resulting in a total purchase price
of approximately $13.1 million. In addition, the Company made cash payments,
subject to one-year vesting and totaling $1.5 million, to certain PostModern
employees. The acquisition of PostModern was accounted for as a purchase in
the quarter ended June 30, 1996.
F-13
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the purchase price allocation, the Company received an
appraisal of the intangible assets which indicated that approximately $12.0
million of the acquired intangible assets consisted of in process product
development. Because there can be no assurance that the Company will be able
to successfully complete the development and integration of the PostModern
products or that the acquired technology has any alternative future use, the
acquired in process product development was charged to expense by Visigenic in
its quarter ended June 30, 1996.
As a result of the purchase price allocation, the excess of the purchase
price over net assets acquired is $1.1 million, which is being amortized on a
straight-line basis over a period of two years. Management believes that the
unamortized balance is recoverable through future operating results.
In connection with the acquisition, the Company also assumed PostModern's
outstanding stock options and reserved 361,785 shares of the Company's common
stock for issuance upon exercise of such options at an exercise price of $0.24
to $0.60 per share under similar vesting terms.
Issuance of Series C Convertible Preferred Stock and Convertible Notes
On May 24, 1996, the Company sold 444,444 shares of its Series C preferred
stock at a price of $9.00 per share to three investors, for aggregate proceeds
of $4.0 million. The Company has the right to require these investors to
purchase up to an additional $4.0 million in convertible notes at any time
prior to October 31, 1996. If the Company has not completed an initial public
offering of its Common Stock by August 30, 1996, in order to require the
purchase of these convertible notes after September 30, 1996, the Company must
achieve revenue of at least $3.6 million for the quarter ended September 30,
1996. Between May 28 and June 7, 1996, the Company issued convertible notes,
bearing interest at the rate of 8.25% per annum, for $2.0 million of the
available $4.0 million. The principal amount of the notes and all accrued
interest are due and payable 3 years after the issuance date. However, upon
the closing of the Company's initial public offering, the principal amount of
each note and all accrued interest will automatically convert into shares of
the Company's common stock at the lesser of $13.00 per share or the offering
price per share to the public, and the Series C preferred stock will
automatically convert into shares of the Company's common stock. The Company
used a portion of the proceeds from the sale of the Series C preferred stock
and the convertible notes to pay amounts payable in connection with the
acquisition of PostModern.
1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors in June 1996, subject to approval
by the stockholders. A total of 450,000 shares of common stock has been
reserved for issuance under the Purchase Plan. The Purchase Plan permits
eligible employees to purchase common stock at 85% of the lower of the fair
market value of the Company's common stock on the first day or the last day of
each six-month offering period.
1996 Outside Directors Stock Option Plan
The Company's 1996 Outside Directors Stock Option Plan (the "Directors
Plan") was adopted by the Company's Board of Directors in June 1996, subject
to approval by the stockholders. A total of 200,000 shares of common stock has
been reserved for issuance under the Directors Plan. The Directors Plan
provides for the initial grant of nonstatutory stock options to purchase
15,000 shares of common stock on the earlier of the first annual meeting
following the initial public offering of the Company's common stock or the
date on which the optionee first becomes a nonemployee director of the
Company, and an additional option to purchase 5,000 shares of common stock on
the next anniversary to existing and future nonemployee directors of the
Company. The exercise price per share of all options granted under the
Directors Plan will equal the fair market value of a share of the Company's
common stock on the date of grant of the option.
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PostModern Computing Technologies Inc.:
We have audited the accompanying balance sheets of PostModern Computing
Technologies Inc. (a California corporation) as of March 31, 1995 and 1996 and
the related statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 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 PostModern Computing
Technologies Inc. as of March 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
May 31, 1996
F-15
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash..................................................... $ 38,342 $ 56,860
Accounts receivable...................................... 138,383 303,604
Prepaid expenses......................................... 6,200 33,714
-------- --------
Total current assets................................... 182,925 394,178
-------- --------
PROPERTY AND EQUIPMENT:
Computer equipment....................................... 53,719 85,596
Furniture and fixtures................................... 5,295 27,626
-------- --------
59,014 113,222
Less--Accumulated depreciation........................... (29,479) (47,680)
-------- --------
Net property and equipment............................. 29,535 65,542
-------- --------
OTHER ASSETS............................................... 6,457 14,051
-------- --------
$218,917 $473,771
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to shareholders............................. $ 22,500 $ --
Accounts payable......................................... 13,035 109,488
Accrued payroll and related benefits..................... 95,541 55,312
Deferred revenue......................................... 19,321 189,252
-------- --------
Total current liabilities.............................. 150,397 354,052
-------- --------
COMMITMENTS (Note 3)
SHAREHOLDERS' EQUITY:
Convertible preferred stock, no par value -- --
Authorized--5,000,000 shares
Outstanding--none
Common stock, no par value
Authorized--20,000,000 shares
Outstanding--6,600,000 and 6,920,000 shares in 1995 and
1996, respectively..................................... 18,775 50,775
Note receivable from shareholder......................... -- (32,000)
Retained earnings........................................ 49,745 100,944
-------- --------
Total shareholders' equity............................. 68,520 119,719
-------- --------
$218,917 $473,771
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-16
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
REVENUE:
Software products.............................. $324,874 $ 253,056 $ 304,161
Consulting, maintenance and other.............. 319,349 250,758 697,702
-------- --------- ---------
Total revenue................................ 644,223 503,814 1,001,863
-------- --------- ---------
COST OF REVENUE:
Software products.............................. 9,459 31,746 43,340
Consulting, maintenance and other.............. 74,613 140,622 219,228
-------- --------- ---------
Total cost of revenue........................ 84,072 172,368 262,568
-------- --------- ---------
GROSS PROFIT..................................... 560,151 331,446 739,295
-------- --------- ---------
OPERATING EXPENSES:
Research and development....................... 116,840 150,428 223,297
Sales and marketing............................ 87,681 183,264 240,383
General and administrative..................... 83,104 176,672 211,766
-------- --------- ---------
Total operating expenses..................... 287,625 510,364 675,446
-------- --------- ---------
Income (loss) before provision for income
taxes....................................... 272,526 (178,918) 63,849
PROVISION FOR INCOME TAXES....................... -- -- 5,000
-------- --------- ---------
NET INCOME (LOSS)................................ $272,526 $(178,918) $ 58,849
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- NOTES RETAINED
SHARES AMOUNT RECEIVABLE EARNINGS TOTAL
---------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993.... 10,000,000 $35,775 $ -- $ (3,863) $ 31,912
Declaration and payment
of dividend............. -- -- -- (40,000) (40,000)
Net income............... -- -- -- 272,526 272,526
---------- ------- -------- -------- --------
BALANCE, MARCH 31, 1994.... 10,000,000 35,775 -- 228,663 264,438
Issuance of common stock
........................ 500,000 25,000 -- -- 25,000
Repurchase of common
stock .................. (3,900,000) (42,000) -- -- (42,000)
Net loss................. -- -- -- (178,918) (178,918)
---------- ------- -------- -------- --------
BALANCE, MARCH 31, 1995.... 6,600,000 18,775 -- 49,745 68,520
Declaration and payment
of dividend............. -- -- -- (7,650) (7,650)
Issuance of common stock
........................ 320,000 32,000 (32,000) -- --
Net income............... -- -- -- 58,849 58,849
---------- ------- -------- -------- --------
BALANCE, MARCH 31, 1996.... 6,920,000 $50,775 $(32,000) $100,944 $119,719
========== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $272,526 $(178,918) $ 58,849
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities--
Depreciation and amortization................ 7,680 11,572 18,201
Changes in net assets and liabilities--
Decrease (increase) in accounts receivable.. (139,206) 37,532 (165,221)
Increase in prepaid expenses................ -- (6,200) (27,514)
Increase (decrease) in accounts payable..... 7,053 (2,715) 96,453
Increase (decrease) in accrued liabilities.. (6,000) 87,041 (40,229)
Increase in deferred revenue................ 8,344 10,977 169,931
-------- --------- --------
Net cash provided by (used in) operating
activities................................ 150,397 (40,711) 110,470
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........... (13,850) (20,995) (54,208)
Other assets.................................. (2,567) (2,703) (7,594)
-------- --------- --------
Net cash used in investing activities...... (16,417) (23,698) (61,802)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock........ -- 25,000 --
Repurchase of common stock.................... -- (42,000) --
Payment of cash dividends to shareholders..... (40,000) -- (7,650)
Borrowings from (repayments to) shareholders.. -- 22,500 (22,500)
-------- --------- --------
Net cash provided by (used in) financing
activities................................ (40,000) 5,500 (30,150)
-------- --------- --------
NET INCREASE (DECREASE) IN CASH................. 93,980 (58,909) 18,518
CASH, BEGINNING OF PERIOD....................... 3,271 97,251 38,342
-------- --------- --------
CASH, END OF PERIOD............................. $ 97,251 $ 38,342 $ 56,860
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
1. THE COMPANY:
PostModern Computing Technologies Inc. (the "Company") was incorporated in
October 1991 in California. The Company, which is closely held, operates in a
single industry segment and is involved in the design, marketing and support
of distributed object connectivity software.
In May 1996, the Company was acquired by Visigenic Software, Inc.
("Visigenic"), a Delaware corporation, according to the terms of an agreement
which provides that the Company be merged with and into Visigenic (the
"Acquisition"). In connection with the Acquisition, Visigenic issued 3,099,821
shares of its common stock and paid cash consideration of approximately $2.3
million in exchange for all of the outstanding shares of common stock of the
Company and assumed all issued and outstanding options to purchase common
stock of the Company. In addition, at the closing of the Acquisition,
Visigenic made cash payments to certain employees of the Company totaling $1.5
million, subject to one-year vesting. The Acquisition was structured as a tax-
free exchange according to Section 368(a)(II)(E) of the Internal Revenue Code.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition
The Company generates revenue from licensing the rights to use its software
products, sales of post-contract support, development contracts, consulting
services and training services performed for customers who license its
products.
Revenue from software license agreements is recognized upon shipment of the
software if there are no significant post-delivery obligations and collection
is probable. If an acceptance period is required, revenue is recognized upon
the earlier of customer acceptance or the expiration of the acceptance period.
Revenue from post-contract support services is recognized ratably over the
term of the support period. Consulting revenue is primarily related to
development and customization services performed on a time and material basis
under separate service and consulting arrangements. Revenue from development
contracts and training services is recognized as the services are performed
over the term of the agreement. In cases where license fee payments are
contingent upon the acceptance of services, revenue from both the license and
the service elements is deferred until the acceptance criteria are met.
Significant Customers
For fiscal 1994, 1995 and 1996, the combined revenue from five customers
accounted collectively for 96%, 88% and 83% of total revenue, respectively.
The following customers accounted for more than 10% of total revenue:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Customer A....................................................... 74% * *
Customer B....................................................... * 44% 29%
Customer C....................................................... * 18% *
Customer D....................................................... * 11% 10%
Customer E....................................................... * * 25%
Customer F....................................................... * * 12%
</TABLE>
- --------
*less than 10%
F-20
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Export Revenue
Export revenue for fiscal 1996, which consisted of sales to a customer in
Japan, was 12% of total revenue. Export revenue was less than 10% of total
revenue for fiscal 1994 and 1995.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. As of
March 31, 1996, approximately 72% of accounts receivable were concentrated
with five customers. The Company believes that its credit and collection
procedures are adequate to monitor and evaluate risk among its customer base.
For fiscal 1994, 1995 and 1996 credit losses have been insignificant.
Software Development Costs
The Company capitalizes eligible software development costs upon the
establishment of technological feasibility, which the Company has defined as
completion of a working model. For fiscal 1994, 1995 and 1996, costs which
were eligible for capitalization, after consideration of factors such as
realizable value, were insignificant and, thus, the Company has charged all
software development costs to research and development expense in the
accompanying statements of operations.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the double declining balance method over the estimated useful lives of the
assets of five to seven years.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reporting amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported results of operations during the reporting period.
Actual results could differ from those estimates.
3. COMMITMENTS:
The Company leases its office space under a non-cancelable operating lease
which expires on March 31, 1998. Rent expense for all operating leases was
approximately $23,000, $38,000 and $38,000 for fiscal 1994, 1995 and 1996,
respectively. Future minimum lease payments under all non-cancelable operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------
<S> <C>
1997............................................................. $126,000
1998............................................................. 129,000
--------
$255,000
========
</TABLE>
4. LINE OF CREDIT:
In December 1995, the Company entered into a line of credit agreement (the
"Agreement") with a bank which allows for borrowings of up to $125,000 and
expires in December 1996. Advances under the Agreement, which are secured by
substantially all of the Company's assets and contractual rights of the
Company, bear interest at the bank's prime lending rate plus 1.0% (9.25% at
March 31, 1996). As of March 31, 1996, there were no borrowings outstanding
under the Agreement.
F-21
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. STOCK OPTION PLAN:
In November 1995, the Company established the 1995 Stock Option Plan (the
"Plan") and reserved 1,980,000 shares of common stock for issuance thereunder.
Under the Plan, the Board of Directors may grant incentive stock options to
employees and directors at the fair market value of the shares, as determined
by the Board of Directors, on the date of grant. The exercise price per share
for nonqualified stock options cannot be less than 85% of fair market value of
the shares, as determined by the Board of Directors, on the date of grant.
Options generally expire ten years after the date of grant and vest over a
period of four years. Activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS
AVAILABLE OPTIONS PRICE
FOR ISSUANCE OUTSTANDING PER SHARE
------------ ----------- ------------
<S> <C> <C> <C>
Authorized for issuance............... 1,980,000 -- --
Granted............................... (1,644,500) 1,644,500 $0.10--$0.25
---------- --------- ------------
Balance, March 31, 1996............... 335,500 1,644,500 $0.10--$0.25
========== ========= ============
</TABLE>
As of March 31, 1996, options to purchase 826,250 shares of common stock at
prices ranging from $0.10 to $0.25 were fully vested and exercisable. In
connection with the Acquisition, Visigenic assumed all outstanding options of
the Company.
6. INCOME TAXES:
Through December 31, 1995, the Company was an S corporation. Effective
January 1, 1996, the Company changed to C corporation status. Federal and
state income tax regulations require that the income or loss of an S
corporation be included in the tax returns of the individual shareholders.
Accordingly, no provision for taxes is made in the accompanying financial
statements for fiscal 1994, 1995 and for the period from April 1, 1995 to
December 31, 1995.
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 provides for an asset and liability approach
to accounting for income taxes under which deferred income taxes are provided
based upon enacted tax laws and rates applicable to the periods in which taxes
become payable. The provision for income taxes for the year ended March 31,
1996 was as follows:
<TABLE>
<S> <C>
Current provision:
Federal............................................................ $5,000
State.............................................................. 1,000
------
6,000
------
Deferred benefit:
Federal............................................................ (1,000)
State.............................................................. --
------
(1,000)
------
Total provision for income taxes..................................... $5,000
======
</TABLE>
As of March 31, 1996, the components of the net deferred income tax asset of
approximately $1,000 consisted of differences in book versus tax depreciation
and nondeductible reserves and accruals.
F-22
<PAGE>
VISIGENIC SOFTWARE, INC.
AND POSTMODERN COMPUTING TECHNOLOGIES INC.
----------------
PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(UNAUDITED)
In May 1996, Visigenic Software, Inc. (the "Company" or "Visigenic")
completed the acquisition of PostModern Computing Technologies Inc., a
California corporation ("PostModern"). PostModern is a developer of
distributed object software. The acquisition of PostModern has been accounted
for as a purchase.
The accompanying pro forma condensed combined statement of operations for
the fiscal year ended March 31, 1996 and the quarter ended June 30, 1996
assumes that the acquisition took place as of the beginning of fiscal 1996,
and combines Visigenic's and PostModern's statements of operations for each
Company's respective fiscal year ended March 31, 1996 and quarters ended June
30, 1996. The historical financial statements of PostModern for the quarter
ended June 30, 1996 only include two months of operations as it was merged
into Visigenic effective May 31, 1996. The pro forma condensed combined
statement of operations for the fiscal year ended March 31, 1996 does not
include the effect of any nonrecurring charges directly attributable to the
acquisition.
The purchase price allocation reflected in the accompanying pro forma
condensed combined financial statements has been prepared on an estimated
basis. The effects resulting from any differences in the final allocation of
the purchase price are not expected to have a material effect on the Company's
financial statements.
The accompanying pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements and related notes
thereto for both Visigenic and PostModern, which are included in this
Prospectus.
P-1
<PAGE>
VISIGENIC SOFTWARE, INC. AND
POSTMODERN COMPUTING TECHNOLOGIES INC.
----------------
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
-------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
VISIGENIC POSTMODERN ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Software products.............. $ 4,479 $ 304 $ -- $ 4,783
Service and other.............. 1,096 698 -- 1,794
------- ------ -------
Total revenue................ 5,575 1,002 6,577
------- ------ -------
COST OF REVENUE:
Software products.............. 284 44 -- 328
Service and other.............. 727 219 -- 946
------- ------ -------
Total cost of revenue........ 1,011 263 1,274
------- ------ -------
GROSS PROFIT..................... 4,564 739 5,303
------- ------ -------
OPERATING EXPENSES:
Product development............ 4,348 223 1,317(a) 5,888
Sales and marketing............ 3,215 240 183(a) 3,638
General and administrative..... 1,465 212 -- 1,677
Amortization of excess of
purchase price over net assets
acquired...................... -- -- 522(a) 522
------- ------ -------
Total operating expenses..... 9,028 675 11,725
------- ------ -------
Operating income (loss)...... (4,464) 64 -- (6,422)
INTEREST AND OTHER INCOME, net... 85 -- -- 85
------- ------ -------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES................ (4,379) 64 -- (6,337)
PROVISION FOR INCOME TAXES....... -- 5 5(b) --
------- ------ -------
NET INCOME (LOSS)................ $(4,379) $ 59 $(6,337)
======= ====== =======
NET LOSS PER SHARE............... $ (.39) $ (.57)
======= =======
PRO FORMA WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES.... 11,120 11,120(c)
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
P-2
<PAGE>
VISIGENIC SOFTWARE, INC. AND
POSTMODERN COMPUTING TECHNOLOGIES INC.
----------------
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 1996
-------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
VISIGENIC POSTMODERN ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Software products.............. $ 2,505 $ 24 $ -- $ 2,529
Service and other.............. 456 108 -- 564
-------- ----- --------
Total revenue................ 2,961 132 3,093
-------- ----- --------
COST OF REVENUE:
Software products.............. 138 11 -- 149
Service and other.............. 295 65 -- 360
-------- ----- --------
Total cost of revenue........ 433 76 509
-------- ----- --------
GROSS PROFIT..................... 2,528 56 2,584
-------- ----- --------
OPERATING EXPENSES:
Product development............ 1,657 64 -- 1,721
Sales and marketing............ 2,006 68 -- 2,074
General and administrative..... 473 74 -- 547
Purchased in process product
development................... 12,014 -- -- 12,014
Amortization of excess of
purchase price over net assets
acquired...................... 43 -- 86(a) 129
-------- ----- --------
Total operating expenses..... 16,193 206 16,485
-------- ----- --------
Operating income (loss)...... (13,665) (150) -- (13,901)
INTEREST AND OTHER INCOME, net... 6 -- -- 6
-------- ----- --------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES................ (13,659) (150) -- (13,895)
PROVISION FOR INCOME TAXES....... -- -- -- --
-------- ----- --------
NET INCOME (LOSS)................ $(13,659) $(150) $(13,895)
======== ===== ========
NET LOSS PER SHARE............... $ (1.21) $ (1.23)
======== ========
PRO FORMA WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES.... 11,289 11,289(c)
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
P-3
<PAGE>
VISIGENIC SOFTWARE, INC. AND
POSTMODERN COMPUTING TECHNOLOGIES INC.
----------------
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRO FORMA ADJUSTMENTS
Certain pro forma adjustments have been made to the accompanying pro forma
condensed combined statements of operations as described below:
(a) Reflects the amortization of the excess of the purchase price over net
assets acquired of approximately $1.1 million, which will be amortized
on a straight line basis over its estimated life of two years, and $1.5
million of cash payments made to certain PostModern employees subject
to one-year vesting.
(b) Reflects the elimination of the PostModern tax provision for fiscal
1996 due to the pro forma 1996 net loss.
(c) Pro forma weighted average common and common equivalent shares do not
include common stock equivalents as inclusion of these shares would be
anti-dilutive. The stand alone Visigenic and the pro forma combined
weighted average common and common equivalent shares are identical as
the Visigenic shares issued to PostModern shareholders are included in
the stand alone Visigenic weighted average share calculation pursuant
to the Securities and Exchange Commission Staff Accounting Bulletin No.
83.
NOTE 2. PURCHASE PRICE ALLOCATION
In connection with the acquisition, the Company exchanged 3,099,821 shares
of its common stock, valued at $3.00 per share based on an independent
appraisal of the Company's stock, and paid cash consideration of approximately
$2.3 million in exchange for all of the outstanding shares of common stock of
PostModern. The Company also incurred acquisition related costs of
approximately $450,000 resulting in a total purchase price of approximately
$13.1 million. In addition to the forgoing, at the closing of the acquisition,
the Company made cash payments to certain PostModern employees totaling $1.5
million. In the event that such employees leave the Company within the 12
months following the date of acquisition, the employees must refund back to
the Company a pro rata portion of the payment for the months they are no
longer employees.
In connection with the purchase price allocation, the Company received an
appraisal of the intangible assets which indicated that approximately $12.0
million of the acquired intangible assets consisted of in process product
development. Because there can be no assurance that the Company will be able
to successfully complete the development and integration of the PostModern
products or that the acquired technology has any alternative future use, the
acquired in process product development was charged to expense by Visigenic in
its quarter ended June 30, 1996 and is reflected in the accompanying pro forma
statement of operations for the quarter ended June 30, 1996.
As a result of the purchase price allocation, the excess of the purchase
price over net assets acquired is $1.1 million, which is being amortized on a
straight-line basis over a period of two years. Management believes that the
unamortized balance is recoverable through future operating results.
P-4
<PAGE>
Digitalized artwork illustrating how the Visigenic database connectivity and
distributed object connectivity products simplify the development, deployment
and management of distributed applications in today's complex environment.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCK-
HOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 28
Management............................................................... 43
Certain Transactions..................................................... 51
Principal and Selling Stockholders....................................... 54
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 59
Underwriting............................................................. 61
Legal Matters............................................................ 62
Experts.................................................................. 62
Additional Information................................................... 62
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, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,100,000 SHARES
[LOGO OF VISIGENIC SOFTWARE, INC. APPEARS HERE]
COMMON STOCK
---------------
PROSPECTUS
---------------
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Company in connection with the sale
of the Common Stock being registered. Pursuant to the Registration Rights
Agreement dated March 31, 1993, as supplemented on May 10, 1996, the Company
is paying all of the expenses incurred on behalf of the Selling Stockholders
(other than underwriting discounts and commissions). All amounts shown are
estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
Registration fee...................................................... $ 9,160
NASD filing fee....................................................... 3,157
Nasdaq National Market fee............................................ 47,756
Blue sky qualification fees and expenses.............................. 10,000
Printing and engraving expenses....................................... 130,000
Legal fees and expenses............................................... 275,000
Accounting fees and expenses.......................................... 200,000
Transfer agent and registrar fees..................................... 5,000
Fee for Custodian for Selling Stockholders............................ 67,927
Miscellaneous......................................................... 2,000
--------
Total............................................................. $750,000
========
</TABLE>
--------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors, and other corporate agents under certain circumstances
and subject to certain limitations. The Company's Certificate of
Incorporation, as amended, and Bylaws provide that the Company shall indemnify
its directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition,
the Company intends to enter into separate indemnification agreements with its
directors, officers and certain employees which would require the Company,
among other things, to indemnify them against certain liabilities which may
arise by reason of their status or service (other than liabilities arising
from willful misconduct of a culpable nature) and to maintain directors' and
officers' liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreement to be
entered into between the Company and its officers and directors may be
sufficiently broad to permit indemnification of the Company's officers and
directors for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its officers and directors for certain liabilities arising under the
Securities Act, or otherwise.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since February 12, 1993, the date of its incorporation, the Company has sold
and issued the following unregistered securities (as adjusted where
appropriate for the proposed reverse stock split whereby each two outstanding
shares of Common Stock will be converted into one share of Common Stock):
(a) On March 3, 1993, the Company issued 2,000,000 shares of its Common Stock
to Roger Sippl at $0.08 per share, for an aggregate purchase price of
$160,000.
(b) On March 31, 1993, the Company issued 803,000 shares of its Series A
Preferred Stock to 55 stockholders at $2.40 per share, for an aggregate of
$1,927,200.
(c) In June 1993, the Company issued 37,500 shares of its Common Stock to 3
stockholders at $0.20 per share, for an aggregate purchase of $7,500.
(d) From December 1993 through January 1994, the Company issued 871,625 shares
of its Series B Preferred Stock to 40 stockholders at $4.00 per share, for
an aggregate of $3,486,500.
(e) From April 1994 through August 1994, the Company issued 625,000 shares of
its Series B Preferred Stock to 29 stockholders at $4.00 per share, for an
aggregate of $2,500,000.
(f) From May 1995 through August 1995, the Company issued 1,375,000 shares of
its Series B Preferred Stock to 29 stockholders at $4.00 per share, for an
aggregate of $5,500,000.
(g) In April 1996, the Company entered into an Agreement and Plan of
Reorganization with PostModern Computing Technologies Inc. ("PostModern")
pursuant to which the Company issued 3,099,821 shares of its Common Stock,
and options to purchase 361,785 shares of its Common Stock to the seven
former shareholders and optionholders of PostModern.
(h) In May 1996, the Company entered into an Agreement and Plan of
Reorganization with Data Accessibility Solutions, Inc. ("DASI") pursuant
to which the Company issued 12,500 shares of its Common Stock to the two
former shareholders of DASI.
(i) In May 1996, the Company issued 444,444 shares of its Series C Preferred
Stock to 3 stockholders at $9.00 per share, for an aggregate of
$3,999,996.
(j) In May and June 1996, the Company issued convertible notes to 3
stockholders in the aggregate principal amount of $2.0 million.
(k) Between February 12, 1993 and June 30, 1996, the Company sold an aggregate
of 971,462 shares of its Common Stock to 60 stockholders for an aggregate
of $604,594 and issued options to purchase an aggregate of 1,341,000
shares of Common Stock with an exercise price equal to the fair market
value on the date of grant as determined by the Board of Directors to 117
optionholders.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Transactions" in the form of Prospectus included herein.
The issuances described in Items 15(a) through 15(f) and Items 15(i), 15(j)
and 15(k) were deemed to be exempt from registration under the Securities Act
in reliance on Section 4(2) of the Securities Act as transactions by an issuer
not involving a public offering. In addition, certain issuances described in
Items 15(g) and Item 15(h) were deemed to be exempt from registration under
the Securities Act in reliance on Section 3(a)(10) of the Securities Act.
Certain issuances described in Item 15(k) were deemed exempt from registration
under the Securities Act in reliance on Section 4(2) or Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and
contracts relating to compensation. 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 other instruments issued in such transactions. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1+ Form of Underwriting Agreement.
2.1+ Agreement and Plan of Reorganization between the Company and
PostModern Computing Technologies Inc., dated April 28, 1996.
3.1A+ Certificate of Incorporation, as amended.
3.1B+ Form of Restated Certificate of Incorporation to be filed after the
effectiveness of the offering.
3.2A+ Amended and Restated Bylaws.
3.2B+ Proposed form of Bylaws to be adopted before the effective date of
this Registration Statement.
4.1+ Specimen Common Stock Certificate of the Company.
4.2+ Registration Rights Agreement between the Company and certain
investors dated March 31, 1993.
4.3+ Supplemental Registration Rights Agreement between the Company and
certain investors dated May 10, 1996.
5.1+ Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
10.1+ Form of Indemnification Agreement for directors and officers.
10.2+ 1995 Stock Option Plan and forms of agreements thereunder.
10.3+ 1996 Employee Stock Purchase Plan.
10.4+ 1996 Outside Directors Stock Option Plan.
10.5+ Non-Compete and Non-Solicitation Agreement between the Company and
Jens Christensen dated April 28, 1996.
10.6+ Non-Compete and Non-Solicitation Agreement between the Company and
Neguine Navab dated April 28, 1996.
10.7+ Non-Compete and Non-Solicitation Agreement between the Company and
Prasad Mokkapatti dated April 28, 1996.
10.8+ Convertible Note and Series C Preferred Stock Purchase Agreement by
and among the Company, Cisco Systems, Inc., Netscape Communications
Corporation and Platinum technology dated May 24, 1996.
10.9+ Form of Convertible Promissory Note.
10.10 Source Code License Agreement, as amended, between the Company and
Microsoft Corporation ("Microsoft") dated June 20, 1995.
10.11 Source Code License Agreement between the Company and Microsoft
Corporation dated February 10, 1995.
10.12+ Lease Agreement, as amended, between the Company and San Mateo
Office Limited, dated March 7, 1993.
11.1+ Statement regarding computation of per share loss.
23.1 Consent of Independent Auditors (see page II-7).
23.2+ Consent of Counsel (included in Exhibit 5.1).
24.1+ Power of Attorney (see page II-5 of Registration Statement No. 333-
06285 filed on June 19, 1996).
27.0+ Financial Data Schedule (available in EDGAR format only).
</TABLE>
--------
+ Previously filed.
(b) Financial Statement Schedules.
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or
notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned 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 by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement 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 Securities Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered hereunder, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned 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 upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(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 the time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO ITS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF SAN MATEO, COUNTY OF SAN MATEO, STATE OF CALIFORNIA, ON THE 7TH DAY OF
AUGUST 1996.
VISIGENIC SOFTWARE, INC.
/s/ Mark D. Hanson
By: _________________________________
MARK D. HANSON
PRESIDENT AND CHIEF OPERATING
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Roger J. Sippl* Chief Executive
- ------------------------------------- Officer and August 7, 1996
ROGER J. SIPPL Director (Principal
Executive Officer)
/s/ Kevin C. Eichler Vice President--
- ------------------------------------- Finance (Principal August 7, 1996
KEVIN C. EICHLER Financial and
Accounting Officer)
/s/ Gill Cogan* Director
- ------------------------------------- August 7, 1996
GILL COGAN
/s/ Cristina Morgan* Director
- ------------------------------------- August 7, 1996
CRISTINA MORGAN
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Michael Moritz* Director August 7, 1996
- -------------------------------------
MICHAEL MORITZ
/s/ E. E. van Bronkhorst* Director August 7, 1996
- -------------------------------------
E. E. VAN BRONKHORST
/s/ J. Sidney Webb* Director August 7, 1996
- -------------------------------------
J. SIDNEY WEBB
/s/ Eric Young* Director August 7, 1996
- -------------------------------------
ERIC YOUNG
/s/ Jens Christensen* Director August 7, 1996
- -------------------------------------
JENS CHRISTENSEN
*By: /s/ Mark D. Hanson
----------------------------------
MARK D. HANSON
(ATTORNEY-IN-FACT)
</TABLE>
II-6
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
San Jose, California
August 7, 1996
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
------- ------------
<C> <S> <C>
1.1+ Form of Underwriting Agreement.
2.1+ Agreement and Plan of Reorganization between the
Company and PostModern Computing Technologies Inc.,
dated April 28, 1996.
3.1A+ Certificate of Incorporation, as amended.
3.1B+ Form of Restated Certificate of Incorporation to be
filed after the effectiveness of the offering.
3.2A+ Amended and Restated Bylaws.
3.2B+ Proposed form of Bylaws to be adopted before the
effective date of this Registration Statement.
4.1+ Specimen Common Stock Certificate of the Company.
4.2+ Registration Rights Agreement between the Company and
certain investors dated March 31, 1993.
4.3+ Supplemental Registration Rights Agreement between
the Company and certain investors dated May 10, 1996.
5.1+ Opinion of Gray Cary Ware & Freidenrich, A
Professional Corporation.
10.1+ Form of Indemnification Agreement for directors and
officers.
10.2+ 1995 Stock Option Plan and forms of agreements
thereunder.
10.3+ 1996 Employee Stock Purchase Plan.
10.4+ 1996 Outside Directors Stock Option Plan.
10.5+ Non-Compete and Non-Solicitation Agreement between
the Company and Jens Christensen dated April 28,
1996.
10.6+ Non-Compete and Non-Solicitation Agreement between
the Company and Neguine Navab dated April 28, 1996.
10.7+ Non-Compete and Non-Solicitation Agreement between
the Company and Prasad Mokkapatti dated April 28,
1996.
10.8+ Convertible Note and Series C Preferred Stock
Purchase Agreement by and among the Company, Cisco
Systems, Inc., Netscape Communications Corporation
and Platinum technology dated May 24, 1996.
10.9+ Form of Convertible Promissory Note.
10.10 Source Code License Agreement, as amended, between
the Company and Microsoft Corporation ("Microsoft")
dated June 20, 1995.
10.11 Source Code License Agreement between the Company and
Microsoft Corporation dated February 10, 1995.
10.12+ Lease Agreement, as amended, between the Company and
San Mateo Office Limited, dated March 7, 1993.
11.1+ Statement regarding computation of per share loss.
23.1 Consent of Independent Auditors (see page II-7).
23.2+ Consent of Counsel (included in Exhibit 5.1).
24.1+ Power of Attorney (see page II-5 of Registration
Statement No. 333-06285 filed on June 19, 1996).
27.0+ Financial Data Schedule (available in EDGAR format
only).
</TABLE>
--------
+ Previously filed.
<PAGE>
EXHIBIT 10.10
SOURCE CODE LICENSE AND DEVELOPMENT AGREEMENT
This Source Code License and Development Agreement ("Agreement") is made
and entered into this 20th day of June 1995 ("Effective Date"), by and between
MICROSOFT CORPORATION, a Washington corporation, with offices at One Microsoft
Way, Redmond, WA 98052-6399 (hereafter "MS"), and VISIGENIC SOFTWARE, INC., a
Delaware corporation, having its principal place of business at 951 Mariner's
Island Boulevard, Suite 460, San Mateo, CA 94404 (hereafter "COMPANY").
WHEREAS, the parties have previously entered into a Amended Source Code
License Agreement for ODBC Driver Manager and Software Developer's Kit, dated as
of October 14, 1994, as amended March 22, 1995 (the "Original Agreement"); and
WHEREAS, pursuant to the terms of the Original Agreement, MS has previously
provided to COMPANY certain source code for COMPANY's use in the design,
development and marketing of its software products that support Open Database
Connectivity ("ODBC") and cross-platform database connectivity solutions; and
WHEREAS, the parties wish to define certain development priorities by
COMPANY and to establish certain new technology to be developed by COMPANY; and
WHEREAS, MS wishes to provide COMPANY with certain consideration for
COMPANY's development costs related to COMPANY's software development services
performed under this Agreement;
NOW, THEREFORE, in consideration of the above and of the following terms and
conditions, and of other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
-----------
(a) "Core Components" shall mean certain APIs known as a "driver manager
version 2.0" and/or "driver manager version 1.0" in source code form including
updates, enhancements, maintenance and any subsequent versions and releases
provided by MS from time to time as, when and if available (written to MS' ODBC
specifications), which code is or will be developed and owned by MS and more
specifically identified on Exhibit A attached hereto and incorporated herein by
---------
reference as though set forth in full.
(b) "SDK" shall mean certain API technology and development materials
known as a Software Development Kit version 2.0 and/or Software Development Kit
version 1.0, in source code form, including updates, enhancements, maintenance
and
1
<PAGE>
any subsequent versions and releases provided by MS from time to time as, when
and if available (written to MS' ODBC specifications), which code is or will be
developed and owned by MS and more specifically identified on Exhibit A attached
---------
hereto and incorporated herein by reference as though set forth in full.
(c) "Version 1.0 Source Code" shall mean the version 1.0 Core Components
and SDK version 1.0 source code, collectively.
(d) "SOURCE CODE" shall mean the Core Components and SDK source code,
collectively.
(e) "ODBC TEST SUITE" shall mean MS' ODBC Test Suite in source code form,
as more fully described in Exhibit B attached hereto and incorporated herein by
---------
this reference as though fully set forth.
(f) "LICENSED SOFTWARE" in the case of MS, means the SOURCE CODE and the
ODBC TEST SUITE, and in the case of COMPANY, means each of the MODIFIED SOURCE
CODE, SDK PORT, Mac Ports, Additional Driver(s), and MODIFIED TEST SUITE,
whether or not delivered to MS.
2. TERMINATION OF ORIGINAL AGREEMENT
---------------------------------
The Original Agreement is hereby terminated.
3. LICENSE GRANTS -- MS TO COMPANY
-------------------------------
(a) SOURCE CODE, DOCUMENTATION AND ODBC TEST SUITE.
(i) Except as to MS, the Version 1.0 Source Code, and any SOURCE
CODE licensees of MS in existence as of October 14, 1994, MS grants to COMPANY
an exclusive, non-transferable, non-assignable (subject to Section 18),
worldwide, perpetual (subject to Section 19) license to use the SOURCE CODE and
any accompanying documentation ("DOCUMENTATION") in any form (including without
limitation, binary, source, electronic or printed form whether in whole or in
part) in designing, testing and development of COMPANY's product or products, so
long as such product or products run only on any operating system or systems not
developed and marketed by MS. MS grants to COMPANY the foregoing license rights
with respect to the Version 1.0 Source Code on a non-exclusive basis. COMPANY
shall have a non-exclusive license to use (as specified above in this
subsection) the SOURCE CODE and DOCUMENTATION running on any operating system or
systems which are developed and marketed by MS.
(ii) In addition, except with respect to the Version 1.0 Source
Code, MS grants COMPANY a non-transferable, non-assignable (subject to Section
18), worldwide, perpetual (subject to Section 19) exclusive license (including
as to MS), to (1) modify and prepare derivative works of the SOURCE CODE and
2
<PAGE>
DOCUMENTATION for the purpose of omitting certain functions or procedures,
and/or porting SOURCE CODE to any operating system or systems not developed and
marketed by MS ("MODIFIED SOURCE CODE" and "DOCUMENTATION"), so long as the
MODIFIED SOURCE CODE and DOCUMENTATION remain compliant with, and are primarily
based upon, the ODBC specifications from which it was derived, but not to
otherwise modify or supplement the SOURCE CODE, and (2) reproduce, distribute,
market and relicense, as part of COMPANY's product or products: (A) MODIFIED
SOURCE CODE, (B) object code which is the result of compilation of the MODIFIED
SOURCE CODE, and (C) DOCUMENTATION. MS grants to COMPANY the foregoing license
rights with respect to the Version 1.0 Source Code on a non-exclusive basis.
COMPANY shall have no license to reproduce, distribute, market and relicense the
SOURCE CODE, DOCUMENTATION and/or MODIFIED SOURCE CODE running on any operating
system or systems which are marketed and developed by MS.
(iii) In addition, MS grants to COMPANY a nontransferable, non-
assignable (subject to Section 18), royalty-free, worldwide, perpetual (subject
to Section 19) (1) exclusive license (except as to MS), to use, modify, enhance,
port to any hardware platform and network and under any operating system,
prepare derivative works and translate, the ODBC TEST SUITE in any form
(including without limitation, binary, source, electronic or printed form
whether in whole or in part), and (2) exclusive license (including as to MS) to
reproduce, distribute, market and relicense the ODBC TEST SUITE or
modifications, enhancements, ports, derivative works or translations thereof on
any hardware platform and network and under any operating system ("MODIFIED TEST
SUITE").
(iv) MS further grants to COMPANY the right to sublicense all of
those rights provided in this Section 3(a). MS does not grant any implied
license under any patents, trade secrets, copyright or other proprietary rights
held by MS. All rights not expressly granted herein shall be reserved by MS.
(v) By way of clarification, nothing in this Agreement shall
preclude MS from using the SOURCE CODE and DOCUMENTATION, to design, test and
develop MS products on any operating system. In addition, nothing in this
Agreement shall preclude MS from using the ODBC TEST SUITE to modify, enhance,
port, or prepare derivative works and translate the ODBC TEST SUITE to any
hardware platform and network under any operating system, in any form (including
without limitation binaries, source, electronic or printed form, whether in
whole or in part). However, MS shall not have any right to license or distribute
all or any part of the SOURCE CODE, DOCUMENTATION, ODBC TEST SUITE or MODIFIED
TEST SUITE, or any derivative work thereof, in source or object code form, for
use on any operating system not developed and marketed by MS, except as
expressly provided in Sections 4(b), (c) and (d). MS shall retain all rights not
expressly granted herein to SOURCE CODE and DOCUMENTATION running on operating
systems developed and marketed by MS.
3
<PAGE>
(b) USE OF COMPANY'S NAME
MS agrees that COMPANY has the right to use COMPANY's name in all
copyright and proprietary rights notices on or in COMPANY products which include
or are based on the Core Components, SDK, or the ODBC TEST SUITE. COMPANY
agrees that it will not require any licensee of the SOURCE CODE, MODIFIED SOURCE
CODE, ODBC TEST SUITES or MODIFIED TEST SUITES (collectively, the "PRODUCTS") to
include any COMPANY name, trademark or other reference to COMPANY, other than
the copyright and proprietary rights notices, in conjunction with any licensee's
distribution of the PRODUCTS or licensee products created using the PRODUCTS.
(c) MS "ODBC" TRADEMARK, ARTWORK AND MARKETING LITERATURE
(i) Subject to COMPANY's compliance with the terms of Section 3(a),
MS agrees that COMPANY may use MS' trademark "ODBC" in connection with the
distribution, marketing or sublicensing of COMPANY's products, including as
incorporated within or as part of the name of any COMPANY products, so long as
(1) the product using the name includes MODIFIED SOURCE CODE, whether or not in
compiled form, or the ODBC TEST SUITE, or modifications, enhancements, ports,
derivative works or translations thereof, which (2) remains compliant with, and
is primarily based on the ODBC specifications from which it was derived and (3)
COMPANY provides trademark attribution to MS in the form of (A) use of a "TM"
with its first use of the term "ODBC" in each publication where the term appears
(B) inclusion of a footnote acknowledging MS' ownership of the trademark ODBC on
all packaging, advertising and other material and (C) COMPANY agrees that it
will not seek a registered trademark for the name ODBC.
(ii) In addition, in the event that MS or any subsidiary or
affiliate thereof delivers to COMPANY, in camera-ready or electronic form, any
MS icons, logos, and other artwork, as well as data sheets, collateral or other
marketing literature, then COMPANY will have the right to (1) modify and prepare
derivative works of such artwork and marketing literature (except that no text
or logo in which MS claims trademark rights shall be modified or otherwise
altered) for the purpose of targeting them toward COMPANY's products on
operating systems not developed and marketed by MS ("TARGETED MATERIAL"), and
(2) reproduce and distribute such TARGETED MATERIAL in support of the
distribution, marketing and sublicensing of COMPANY's products, subject to
COMPANY's compliance with the terms of this Section 3(c).
(iii) MS further grants to COMPANY the right to sublicense all of
those rights provided in this Section 3(c). MS and COMPANY agree that COMPANY
has the right to impose reasonable guidelines on its sublicensees' use of the
"ODBC" trademark, artwork and marketing literature so sublicensed which shall at
4
<PAGE>
a minimum require compliance with the terms of this Section 3(c). COMPANY will
exercise reasonable quality control over its sublicensees' conformance with such
guidelines.
(d) The exclusive nature of this Agreement for operating systems not
developed and marketed by MS shall apply to any and all foreign language
versions or translations of the SOURCE CODE or the ODBC TEST SUITE. In the
event that MS or any subsidiary or affiliate thereof delivers a foreign language
version or translation of the SOURCE CODE or the ODBC TEST SUITE to COMPANY,
then such foreign language version or translation, including any documentation
therefor, will be incorporated in the definition of SOURCE CODE under this
Agreement and may be distributed by COMPANY on an exclusive basis, subject to
the terms and conditions of this Agreement.
4. LICENSE GRANTS -- COMPANY TO MS
-------------------------------
(a) COMPANY will market the MODIFIED SOURCE CODE, MODIFIED TEST SUITE,
testing services, ODBC brand name, logo licensing services, interoperability
bulletin boards, and other related products and services. MS will provide
reasonable cooperation with such marketing activities through endorsements in
press releases, speaking engagements, press/analyst interviews, and other
activities.
(b) COMPANY will deliver to MS upon request any port of all or part
(including, specifically without limitation, the Mac Ports defined below) of the
SDK made by COMPANY to any operating system not developed and marketed by MS
("SDK PORT"). Each SDK PORT shall be delivered by COMPANY in source code form.
Effective upon such delivery, COMPANY grants to MS a nonexclusive, non-
transferable, non-assignable (subject to Section 18), worldwide, royalty-free,
perpetual (subject to Section 19) license to:
(i) use such SDK PORT internally in designing, testing and
development of MS' software for use on such operating system; and
(ii) reproduce, manufacture, distribute, sell, rent, or lease, and
sublicense copies of the binary form of the redistributable files
("Executables") of such SDK PORT, only to be distributed in conjunction with and
as a part of the MS software and only for use on such operating system; and
(iii) further, solely with respect to the Mac Ports:
(A) COMPANY grants to MS the right, solely in conjunction with
MS software products targeted for such operating system, to reproduce,
manufacture, distribute, sell, rent or lease, and sublicense copies of: (1) the
Executables; (2) in source code form, the COMPANY-ported version of the Core
5
<PAGE>
Component SDK Header Files; and (3) in object code form, the COMPANY-ported
version of the Core Component Library Files; and
(B) COMPANY grants to MS the right to license to third parties the
right to reproduce, manufacture, distribute, sell, rent or lease, and sublicense
copies of the Executables.
(c) In the event that MS desires to create a port of all or part of the
SDK to any operating system not developed and marketed by MS ("TARGET PORT"),
and COMPANY has not created or commenced work on the TARGET PORT, then MS shall
give COMPANY written notice of MS' desire to create the TARGET PORT. COMPANY
shall have a right of first refusal to create the TARGET PORT, and shall have
sixty (60) days from MS' notice within which to notify MS in writing of
COMPANY's exercise or waiver of its right of first refusal. If COMPANY exercises
its right of first refusal, then COMPANY shall promptly commence work on the
TARGET PORT and deliver it to MS within a reasonable time as an additional SDK
PORT under Section 4(b) of this Agreement. If COMPANY waives its right of first
refusal, then COMPANY shall promptly deliver to MS the source code form of the
SDK PORT that most closely resembles the TARGET PORT, solely for MS' use in
creating such TARGET PORT. Upon completion of the TARGET PORT by MS, the TARGET
PORT shall not be considered to be a SDK PORT or otherwise within the scope of
the license granted herein from MS to COMPANY, and MS shall have sole rights in
such TARGET PORT.
(d) COMPANY will deliver the MODIFIED TEST SUITE in source code form to
MS upon request within a reasonable time after completion. Effective upon such
delivery, COMPANY grants to MS a nonexclusive, non-transferable, non-assignable
(subject to Section 18), worldwide, royalty-free, perpetual (subject to Section
19) license to use such MODIFIED TEST SUITE internally in designing, testing and
development of MS' software for use on such operating system.
(e) COMPANY hereby grants to MS a non-exclusive, worldwide, royalty-free
license to use, reproduce, manufacture, distribute, sell, rent or lease and
sublicense copies of Additional Driver(s) solely in conjunction with MS software
products, and to license third parties to exercise the foregoing rights,
including the right to license the rights of reproduction, manufacture and
distribution to further third parties. Merely as example and not as limitation,
it shall be considered within the scope of the foregoing license grant that MS
may distribute the Additional Driver(s) separate from a MS software product so
long as such Additional Driver(s) are distributed by MS for support or
maintenance purposes or as necessary between releases of the associated software
product and for use by existing MS end-user customers. Otherwise, the Additional
Driver(s) may not be distributed by MS on a "stand alone" basis, nor as part of
an ODBC Driver pack. Upon installation of such Additional Driver(s) a compliancy
check program is executed to ensure a MS product is resident. COMPANY further
grants to MS a non-exclusive, worldwide, royalty-free license to modify the
Additional Drivers solely for purposes of providing
6
<PAGE>
COMPANY with translated code strings to Additional Drivers for COMPANY's
localization of the Additional Drivers.
5. DELIVERABLES/DELIVERY SCHEDULE
------------------------------
(a) COMPANY DELIVERABLES
--------------------
(i) Port of Core Components to Macintosh Platform by COMPANY.
Subject to Section 3, COMPANY shall develop ODBC version 2.10 Core Components
running on the following platforms within the stated time frames for each driver
type and platform set forth below. All COMPANY deliverables under this Section
shall include without limitation, source code (subject to Section 4(b)),
executable files, build instructions for an application, and installation
instructions for ported Core Components ("Mac Ports"). By way of clarification,
for purposes of this Agreement, the Mac Ports shall be deemed a subset of, and
included under, the definition of SDK PORT. All final deliverables shall include
any tools, in their then current state used during COMPANY's testing; such tools
will include without limitation the alpha/beta form of the MS SQL Server
driver(s) as developed under an agreement between the parties dated February 10,
1995 ("SQL Agreement").
Platform Delivery Date
-------- -------------
Macintosh 68K beta release 03/31/95
Power Macintosh beta release 03/31/95
Macintosh 68K final release 05/31/95
Power Macintosh final release 05/31/95
(ii) Oracle 7 Driver for Windows 95 and Windows NT. COMPANY shall
develop and deliver an ODBC version 2.5 32-bit driver running on Windows 95 and
Windows NT ("Additional Driven") based on the following delivery schedule:
Release Delivery Date
------- -------------
Beta release 04/30/95
Final release within one week of
COMPANY's receipt
from MS of commercial-
release version of
Windows 95*
Final release (French, German,
Spanish, Portuguese, Italian) 06/30/95 (tentative**)
Final release (Swedish, Danish,
Dutch, Norwegian, Finnish) 07/30/95 (tentative**)
7
<PAGE>
* Dates subject to MS' timely delivery to COMPANY under Section
5(b)(ii).
** Dates subject to MS' deliver to COMPANY of translated code strings
as described in Exhibit F, but in any event to be delivered to MS
within 30 days of COMPANY'S receipt of translated code strings.
The Additional Drivers shall be localized by COMPANY and MS as described in the
attached Exhibit F.
---------
(b) MS Deliverables.
---------------
(i) MS delivered the then-current versions of the Core Components,
SDK and ODBC TEST SUITE to COMPANY upon execution of the Original Agreement,
including the then-current work in progress for use on the Apple Macintosh and
the Apple PowerMac. MS shall deliver all intermediate releases, major or minor
releases, and modified versions of the Core Components and SDK, if any, to
COMPANY prior to or simultaneous with making such intermediate releases, major
or minor releases, or modified versions available to any third party, provided
that the Core Components and SDK remains compliant with, and is primarily based
upon, the API portions of the ODBC specifications from which it was derived.
(ii) For purposes of facilitating COMPANY's performance under Section
5(a)(ii), MS shall also deliver all current beta versions of Windows 95 and
Windows NT version 3.51 as well as any interim beta releases prior to and
including the commercial release version of such MS products.
6. MAINTENANCE AND SUPPORT
-----------------------
(a) In the event that MS elects, at its sole option, to request technical
support from COMPANY for any deliverable provided by COMPANY under this
Agreement, MS will pay COMPANY annually an amount equal to 15% of the respective
deliverable's license fee, paid upon MS' acceptance of such deliverable for the
first year, and on the anniversary of MS' acceptance for subsequent years, for
each item for which support is elected. Support will be provided by COMPANY to
up to eight named MS contacts during COMPANY's normal business hours of 7:00
a.m. to 6:00 p.m. PST, as follows: (i) unlimited incidences via telephone; (ii)
FAX and e-mail support via the Internet. Support will include bug fixes, but
not new releases or versions. Except in those cases when MS determines an end-
user customer problem is the result of code provided by COMPANY, MS will provide
first-line support to its end-user customers, unless otherwise agreed by the
parties. If MS determines that the problem is the result of code provided by
COMPANY, then first-line support for a limited number of critical end-user
customer(s) initially affected by this problem will be handled by COMPANY;
subsequent to COMPANY's delivery to MS of a fix for such problem, all further
end user support for such problem will be handled by MS. The parties will work
8
<PAGE>
together to create an efficient support mechanism and explore options for
COMPANY to supply front-line support for such incidences and for other mutually
agreed upon deliverables.
(b) COMPANY hereby grants MS the right to publish, in any form (print,
electronic, etc.) tips, tricks, workarounds and other support-related
information (such as MS published in our Knowledge Base) on the SDK Ports and
the Additional Driver(s).
7. ACCEPTANCE/TESTING
------------------
(a) Except as otherwise provided for in this Section 7, the licensing
party's LICENSED SOFTWARE is deemed accepted by the licensed party upon receipt.
(b) Any SDK Port that COMPANY agrees to deliver under this Agreement or
MS elects to receive, shall be evaluated by MS and accepted if the applicable
ODBC TEST SUITES and Acceptance Criteria (as described in the attached
Exhibit C- 1) are passed. MS shall evaluate the Acceptance Criteria test results
- ------------
and shall submit a written acceptance or rejection to COMPANY within fifteen
(15) days after MS' receipt of the applicable SDK PORT. COMPANY shall promptly
correct any defects or nonconformities identified by MS and submit the SDK PORT
for MS reevaluation and acceptance testing. COMPANY agrees to use commercially
reasonable efforts to correct any Priority 1 program errors with in 15 days. For
purposes of this Agreement, "Priority 1" shall mean any program error that
causes a general protection fault in the end user system or corrupts the end
user database. If no notice of rejection or extension of MS review period is
given by MS within 15 days of receipt, the SDK Port will be deemed accepted.
(c) The Additional Driver(s) shall be evaluated by MS and accepted if the
Performance Criteria (as described in the attached Exhibit C-2) and Acceptance
-----------
Criteria (Exhibit C-1) are passed. MS shall evaluate both the Performance
-----------
Criteria and Acceptance Criteria test results and shall submit a written
acceptance or rejection to COMPANY within fifteen (15) days after MS' receipt of
the applicable Additional Driver. COMPANY shall promptly correct any defects or
nonconformities identified by MS and submit the Additional Driver for MS
reevaluation and acceptance testing. COMPANY agrees to use commercially
reasonable efforts to correct any Priority 1 program errors with in 15 days.
For purposes of this Agreement, "Priority 1" shall mean any program error that
causes a general protection fault in the end user system or corrupts the end
user database. If no notice of rejection or extension of MS review period is
given by MS within 15 days of receipt, the SDK Port will be deemed accepted.
(d) For purposes of this Section 7, MS may provide written notice of
acceptance/rejection or extension of review period via electronic mail.
8. ANNUAL LICENSE FEE AND ROYALTY
------------------------------
9
<PAGE>
(a) Annual Fee. In consideration for the SOURCE CODE license granted
----------
herein, COMPANY shall pay MS Fifty Thousand Dollars ($50,000.00) within ten (10)
days of COMPANY's receipt of the SOURCE CODE, and on each year's anniversary
thereafter. The ODBC TEST SUITE will be included under this Agreement in
partial consideration for such annual fee.
(b) Royalty.
-------
(i) In addition to the annual license fee described in Section 8(a)
above, COMPANY shall pay MS a royalty ("Basic Royalty") which is the higher of
Five Thousand Dollars ($5,000.00) or ten percent (10%) of COMPANY'S initial
source code license fee for each Entity to which COMPANY licenses one or more
copies of all or any part of the MODIFIED SOURCE CODE, except that if COMPANY
licenses only the DOCUMENTATION to such Entity, then the Basic Royalty shall be
the higher of Three Thousand Dollars ($3,000.00) or ten percent (10%) of
COMPANY'S initial source code license fee for such Entity. The Basic Royalty
shall be computed on a per Entity basis and not on a per copy basis. For the
purposes of this Agreement, an ("Entity") shall include without limitation a
sole proprietorship or a partnership, as well as a corporation together with the
corporation's parents, subsidiaries, and affiliates which control or are
controlled by a majority of the voting power of the corporation.
(ii) In lieu of such Basic Royalty, COMPANY shall pay MS a royalty
of Twenty Thousand Dollars ($20,000.00) for each license granted to an Entity
that includes either or both of: (1) a grant of MODIFIED SOURCE CODE that
contains the entire SOURCE CODE with no modules, functions or procedures
omitted, or (2) the right or option to distribute MODIFIED SOURCE CODE, provided
that the grantee does in fact distribute at least one unit of all or any subset
of MODIFIED SOURCE CODE that contains Core Components at a minimum. Any Basic
Royalty paid by COMPANY as a result of a license to a particular Entity will be
credited in full against any initial source code license fee subsequently due
for a license to the same Entity. COMPANY will not be obligated to pay any
royalty for the deposit of MODIFIED SOURCE CODE into a bona fide escrow account
which is not a royalty-bearing event for COMPANY. COMPANY will not be obligated
to pay any royalty for distributing any MODIFIED SOURCE CODE which MS otherwise
makes available for redistribution in source code form to developers who receive
such source code and redistribution rights in MS' ODBC Software Development Kit
(SDK). No royalty will be due for the distribution of all or any part of the
ODBC TEST SUITE in any form.
(iii) Specific examples of the effect of the foregoing royalty
provisions are attached as Exhibit D, but any particular example is not intended
---------
to limit the generality of the foregoing.
(c) COMPANY agrees to make quarterly reports and payments to MS within
thirty (30) days after the end of each calendar quarter, and thirty (30) days
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<PAGE>
after termination or expiration for the final full or partial quarter, provide
information regarding the number of licensees of each product in which MODIFIED
SOURCE CODE is included, and the royalty due, if any, and shall be signed by a
duly authorized representative of COMPANY. COMPANY shall submit quarterly
reports even if no royalties or other amounts are due for such quarter.
(d) No royalty shall accrue to MS for copies of a product (1) used by
COMPANY solely for testing systems; (2) shipped as replacement copies for copies
found to be defective in materials, manufacture, or reproduction; or (3) used
for demonstrations to prospective customers.
(e) During the term of this Agreement, COMPANY agrees to keep all usual
and proper records and books of account and all usual and proper entries
relating to each product licensed which includes MODIFIED SOURCE CODE.
(f) MS may cause an audit and/or inspection to be made of the applicable
COMPANY records and facilities in order to verify statements issued by COMPANY
and COMPANY's compliance with the terms of this Agreement. Prompt adjustment
shall be made to compensate for any errors or omissions disclosed by such audit.
Any such audit shall be conducted by an independent certified public accountant
selected by MS (other than on a contingent fee basis). Any audit and/or
inspection shall be conducted during regular business hours at COMPANY's
facilities, with or without notice. COMPANY agrees to provide MS' designated
audit or inspection team access to the relevant COMPANY records and facilities.
Any such audit shall be paid for by MS.
(g) Neither the right to examine and audit nor the right to receive an
adjustment shall be affected by any statement to the contrary, appearing on
checks or otherwise, unless expressly agreed to in writing by the party having
such right.
(h) In the event that MS makes any claim with respect to an audit, upon
COMPANY's written request MS will make available to COMPANY the records and
reports pertaining to such audit prepared by MS' independent auditor.
9. DEVELOPMENT FEES -- PAYMENTS BY MS
----------------------------------
(a) In consideration of COMPANY's development and delivery of software,
in form and manner as described in Section 5 of this Agreement, MS shall pay
COMPANY Three Hundred Seventy-eight Thousand Dollars (US$378,000.00) as follows.
The aggregate amount noted above represents the sum of fees for each deliverable
component identified in Section 5 (each a "Company Deliverable"), as such fees
are defined in the attached Exhibit E.
---------
(i) upon execution of the Agreement by the parties -- 50% of fee for
each Company Deliverable;
11
<PAGE>
(ii) upon timely delivery of Company Deliverable -- 30% of fee for
each Company Deliverable delivered to MS on the dates described in Section 5;
and
(iii) upon MS' acceptance of Company Deliverable -- 20% of fee for
each Company Deliverable accepted by MS within the acceptance period described
in Section 5.
(b) COMPANY shall also be eligible for an incentive bonus payment of
Forty-two Thousand Dollars (US$42,000.00) in the event that all Company
Deliverables are (i) delivered on the delivery dates described in Section 5; and
(ii) are accepted by MS within the acceptance period described in Section 5.
(c) Except for payment under Section 9(a)(i), payments under this Section
9 are due within 30 days of each delivery under Section 9(a)(ii), and within 30
days of MS' acceptance of each deliverable under Section 9(a)(iii), regardless
of the delivery or acceptance status of any other COMPANY deliverable. COMPANY
shall submit invoice(s) for all amounts due under this Section.
10. COPYRIGHT IN DERIVATIVE WORKS
-----------------------------
COMPANY will have exclusive ownership of all copyrights in any derivative
works created by or for COMPANY based on the Core Components, SDK, or the ODBC
TEST SUITE, including without limitation, the right to use COMPANY's copyright
notice exclusively in and on any such derivative work. COMPANY is not required
to include any MS copyright or proprietary rights notices on or in any such
derivative work, other than one MS copyright notice in the source code form of
all derivative works derived from the Core Components, SDK, or the ODBC TEST
SUITE. However, the documentation of the ODBC API or tools distributed by
COMPANY must contain the following: "This book incorporates text which is
Copyright 1993 Microsoft Corporation. The text was taken by permission from
Microsoft's "Programmer's Reference: Microsoft Open Database Software
Development Kit" Version 2.0."
11. NON-DISCLOSURE AGREEMENT
------------------------
Each party expressly undertakes to retain in confidence all information and
know-how transmitted to the other party that the disclosing party has designated
as proprietary and/or confidential or that, by the nature of the circumstances
surrounding the disclosure, ought in good faith to be treated as proprietary
and/or confidential, and will make no use of such information and know-how
except under the terms and during the existence of this Agreement. Each party's
obligation under this Section 11 with respect to any particular information
shall extend to the earlier of such time as the information protected hereby is
in the public domain through no fault of COMPANY or ten (10) years following its
receipt by COMPANY. Each party's obligations do not apply to information that
was in the recipient's rightful possession before receipt from the disclosing
party, rightfully received by the
12
<PAGE>
recipient from a third party without a duty of confidentiality, independently
developed by the recipient, or is disclosed under operation of law.
12. INDEMNIFICATION
---------------
(a) COMPANY agrees to indemnify and defend MS for any and all claims,
lawsuits or damages, including attorney's fees, that MS may suffer as a result
of the failure of COMPANY or any recipient of COMPANY's LICENSED SOFTWARE from
COMPANY to abide by the terms of this Agreement, or that COMPANY's LICENSED
SOFTWARE, independently modified, authored and developed by COMPANY from MS'
LICENSED SOFTWARE infringes any copyright, patent, trade secret, mask work,
invention or similar intellectual property right of any third party, and any
settlements or judgments relating thereto, provided that (i) such claim or
lawsuit is not based on an alleged infringement of proprietary rights by MS or
MS' unmodified LICENSED SOFTWARE when not used in combination with other
software; (ii) MS promptly notifies COMPANY of any such claim or lawsuit in
writing; (iii) MS gives COMPANY sole control and authority with respect to the
defense or settlement of any such claim or lawsuit; and (iv) MS cooperates with
COMPANY in the defense or settlement of such claim or lawsuit, at COMPANY's
expense.
(b) MS will indemnify and defend COMPANY against any claims that MS'
LICENSED SOFTWARE within the scope of this Agreement in the form as delivered to
COMPANY and used by COMPANY infringes any copyright, patent, trade secret, mask
work, invention or similar intellectual property right of any third party, and
any settlements or judgments relating thereto, provided that COMPANY (i)
promptly notifies MS of any such claim in writing; (ii) gives MS sole control
and authority with respect to the defense or settlement of any such claim or
action; and (iii) cooperates with MS in the defense or settlement of such claim,
at MS' expense.
(c) The rights and obligations set forth herein constitute each party's
sole remedy against the other with respect to an infringement claim as described
herein.
(d) The rights and obligations of the parties under this Section 12
survive any termination or expiration of this Agreement or of any licenses or
options granted pursuant to this Agreement.
13. DISCLAIMER OF WARRANTY
----------------------
(a) THE LICENSING PARTY'S LICENSED SOFTWARE IS PROVIDED "AS IS" WITHOUT
WARRANTY OF ANY KIND. THE ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF THE
LICENSED SOFTWARE OF THE LICENSING PARTY IS ASSUMED BY THE LICENSED PARTY. THE
LICENSING PARTY DISCLAIMS ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO IMPLIED WARRANTIES OF
13
<PAGE>
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE
LICENSING PARTY'S LICENCED SOFTWARE.
(b) Each party warrants to the other party that it has all necessary
rights, power and authority to enter into this Agreement and to grant the rights
granted by such party under this Agreement.
14. LIMITATION OF LIABILITY
-----------------------
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL
OR SPECIAL DAMAGES WHATSOEVER (INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF
BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE
LIKE) ARISING OUT OF THIS AGREEMENT EVEN IF ONE PARTY HAS ADVISED THE OTHER OF
THE POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME STATES DO NOT ALLOW THE EXCLUSION
OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE
LIMITATION MAY NOT APPLY.
15. GOVERNING LAW: COMPLETE AGREEMENT: SUPERSEDES
-----------------------------------------------
This Agreement is governed by the laws of the State of Washington and
COMPANY further consents to jurisdiction by the state and federal courts sitting
in the State of Washington. This Agreement and accompanying exhibit is the
complete agreement between MS and COMPANY regarding the LICENSED SOFTWARE and
supersedes any prior agreements between MS and COMPANY relating to the subject
matter hereof, including without limitation the prior agreement between the
parties dated October 14, 1994, as amended. This Agreement shall not be
modified except by a properly executed written agreement.
16. ATTORNEYS' FEES
---------------
If either MS or COMPANY employs attorneys to enforce any rights arising out
of or relating to this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees.
17. SURVIVAL
--------
The provisions of Sections 10, 11, 12, 13, 14, 15, and 19 shall survive
termination of this Agreement.
18. NO ASSIGNMENT
-------------
This Agreement and any rights or obligations hereunder shall not be
assignable by contract or by operation of law without the prior written consent,
not to be unreasonably withheld, of the non-assigning party. In addition, either
party
14
<PAGE>
may assign this Agreement upon thirty (30) days' prior written notice in
connection with a merger, consolidation, reorganization, or sale of
substantially all of the assigning party's assets. This Agreement will be
binding upon and inure to the benefit of the parties, their successors and
permitted assigns.
In the event that such successor or permitted assignee abandons the
marketing and distribution of the MODIFIED SOURCE CODE or the MODIFIED TEST
SUITE, then such successor or assignee shall promptly deliver a complete copy of
the source code form of the MODIFIED SOURCE CODE or the MODIFIED TEST SUITE, as
applicable, to MS. Effective upon such delivery, COMPANY grants to MS a
nonexclusive, nontransferable, non-assignable (subject to Section 18), royalty-
free, worldwide, perpetual (subject to Section 19) license to (1) use, modify,
enhance, port to any hardware platform and network and under any operating
system, prepare derivative works and translate, the MODIFIED SOURCE CODE or the
MODIFIED TEST SUITE, as applicable, in any form (including without limitation,
binary, source, electronic or printed form whether in whole or in part), and (2)
reproduce, distribute, market and relicense the MODIFIED SOURCE CODE or MODIFIED
TEST SUITE or modifications, enhancements, ports, derivative works or
translations thereof on any hardware platform and network and under any
operating system.
In the event of an assignment or attempted assignment by COMPANY not
permitted under this Section 18, the SOURCE CODE and the ODBC TEST SUITE
licenses shall terminate and all copies of the SOURCE CODE and the ODBC TEST
SUITE in COMPANY's possession or control shall be returned to MS within ten (10)
days.
19. TERM AND TERMINATION: OBLIGATIONS ON TERMINATION
-------------------------------------------------
(a) This Agreement shall be effective from the date of the last signatory
below, and may be terminated without cause by either party upon ninety (90) days
prior written notice, except that this Agreement may not be terminated without
cause by MS prior to the delivery to COMPANY of the complete ODBC 3.0 version of
the SOURCE CODE and the ODBC TEST SUITE. In the event that this Agreement is
terminated without cause at any time after such delivery, then COMPANY's rights
pertaining to the then-current version of SOURCE CODE, ODBC TEST SUITE, MODIFIED
SOURCE CODE and/or MODIFIED TEST SUITE shall survive subject to ongoing payment
of the per-Entity royalty, but not the annual fee, and MS' rights pertaining to
the then current versions of any SDK Ports and MODIFIED TEST SUITES delivered to
it by COMPANY shall survive, but neither party shall have the right to receive
updates, enhancements or subsequent releases from the other party.
(b) MS may at any time convert the exclusive licenses granted herein to
non-exclusive licenses pursuant to this section without terminating the
Agreement. In the event that MS desires to convert from the exclusive to non-
exclusive COMPANY's license under this Agreement for operating systems not
developed and marketed by MS, then MS will deliver a written notice to COMPANY
specifying the
15
<PAGE>
reason(s) for such conversion. If COMPANY has not cured, to MS' sole
satisfaction and determined in its sole and exclusive discretion, the reason(s)
for MS' desire to convert the exclusive nature of COMPANY's license within
thirty (30) days after the delivery of such notice, then MS shall so notify
COMPANY in writing at the end of such thirty (30) day period and the exclusive
license under this Agreement shall immediately become nonexclusive.
(c) In the event that a party is in material breach of this Agreement,
then the aggrieved party may give written notice to the breaching party of such
material breach and of the aggrieved party's intent to terminate the licenses
granted to the breaching party under this Agreement. If such material breach is
not cured by the breaching party within thirty (30) days of receipt of such
written notice, then the licenses granted under this Agreement to the breaching
party by the aggrieved party will automatically terminate. Upon such
termination, the breaching party shall return all copies of the aggrieved
party's LICENSED SOFTWARE in the breaching party's possession or under its
control within ten (10) days following the termination date. The breaching party
shall provide a declaration signed by an officer of the breaching party
attesting that all copies of the LICENSED SOFTWARE have been returned to the
aggrieved party. Notwithstanding such termination, the aggrieved party's
licenses granted by the breaching party shall remain in full force and effect.
All licenses properly granted by the breaching party pursuant to this Agreement
prior to such termination shall remain in full force and effect.
(d) Notwithstanding the foregoing, the licensed party may include any
code or corresponding documentation which functionally replaces the LICENSED
SOFTWARE in the licensed party's products, provided that such code or
corresponding documentation is developed independently by persons who have had
no access to the LICENSED SOFTWARE of the licensing party, or a license is
independently acquired by the licensed party.
20. NOTICES
-------
Any notice required to be sent under this Agreement will be in writing,
effective on receipt by the other party, and will be sent by fax, first-class
mail or personal delivery to:
To MS: MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
Fax: (206) 936-7329
To COMPANY: VISIGENIC SOFTWARE, INC.
951 Mariner's Island Blvd., Suite 460
San Mateo, CA 94404
Attention: President
Fax: (415) 286-2464
16
<PAGE>
Either party may change its notice address by giving written notice to the
other party at the other party's notice address.
21. WAIVER AND SEVERABILITY
-----------------------
The waiver of one breach or default under this Agreement will not
constitute the waiver of any subsequent breach or default. Any provision of
this Agreement held to be illegal or unenforceable will be deemed amended to
conform to applicable laws or regulations, or if it cannot be so amended without
materially altering the intention of the parties, it will be stricken and the
remainder of this Agreement will continue in full force and effect.
IN WITNESS WHEREOF, MS and COMPANY have caused this Agreement to be
executed by their duly authorized representatives as of the date first written
above.
MICROSOFT CORPORATION VISIGENIC SOFTWARE, INC.
- --------------------------------- ---------------------------------
By By
- --------------------------------- ---------------------------------
Name (Print) Name (Print)
- --------------------------------- ---------------------------------
Title Title
- --------------------------------- ---------------------------------
Date Date
EXHIBITS:
- --------
Exhibit A: MS Source Code -- Definitions
Exhibit B: ODBC Test Suite
Exhibit C- 1: Acceptance Criteria
Exhibit C-2: Performance Criteria
Exhibit D: Sample Effects of Royalties
Exhibit E: Development Fee Schedule
Exhibit F: Localization -- Additional Driver
17
<PAGE>
EXHIBIT A
---------
MS Source Code -- Definitions
1. Core Components
The Core Components are a subset of the SDK containing the following
components:
ODBC Driver Manager (DM)
------------------------
The primary purpose of Driver Manager is to load drivers on behalf of an
application. The Driver Manager also performs the following:
. Maps data source names to a specific driver
. Processes several ODBC initialization calls
. Provides entry points to ODBC functions for each driver
. Provides parameter validation and sequence validation for ODBC
calls
Cursor Library (Cur Lib)
------------------------
This is a layer that resides between Driver Manager and the driver. It
implements block scrollable cursors for any driver that complies with the
Level 1 API conformance level.
SDK Header Files (Headers)
--------------------------
The SDK Header Files are those declarations for variables and structures in
the "C" language that are provided for the purpose of compiling ODBC
applications so that they can access the ODBC API.
Library Files (Libs)
--------------------
These files are linked with applications and drivers in order to use and
communicate with Driver Manager and other components. These files are
provided for those operating systems that use library files.
These files are provided in addition as Core Components for the Mac Ports
ODBC Driver Setup Toolkit
-------------------------
This is the Macintosh equivalent of the ODBC Driver Setup Toolkit, used to
create a driver setup program which can be customized by the developer.
18
<PAGE>
Installer (Install)
-------------------
This is a tool used to install ODBC software components, for example, the
Driver Manager, drivers and translators.
2. SDK
The SDK is the complete Microsoft ODBC Software Development Kit, as
delivered to Visigenic and described in the publication "ODBC 2.0
Programmer's Reference and SDK Guide", published by Microsoft Press, and
any accompanying documentation, and successors of these documents.
19
<PAGE>
EXHIBIT B
---------
ODBC Test Suite
This exhibit identifies the ODBC TEST SUITES by specifying their component
directories and files, as they existed for version 2.0. Deviations will occur
for subsequent releases, but the Test Suites will include all functions below
and their successors.
The main directory, test20 (or wherever directory the tests are installed into),
contains the following subdirectories:
- -------------------------------------------------------------------------------
Subdirectory Contained Files or Subdirectories
- -------------------------------------------------------------------------------
test20 cursfunc.dll; gator/; gatortst/; gatortst.dll;
include/; lib/; odbccurs.dll; tests/
- -------------------------------------------------------------------------------
test20/gator odbctest.exe
- -------------------------------------------------------------------------------
test20/gatortst commtest.obj; commtest.sbr; dllpick.obj;
dllpick.sb.; errcheck.obj; errcheck.sbr;
gatortst.bsc; gatortst.dll; gatortst.lib;
gatortst.mak; gatortst.map; gatortst.obj;
gatortst.pdb; gatortst.res; gatortst.sbr;
gatortst.vcw; gatortst.wsp; grppick.obj;
grppick.sbr; gtrtst32.mak; inhouse.obj;
inhouse.sbr; maketbl.obj; maketbl.sbr; msvc.bnd;
runtest.obj; runtest.sbr; src/; srcpick.obj;
srcpick.sbr; udl.obj; udl.sbr; wnlftptc.log
- -------------------------------------------------------------------------------
test20/gatortst/src autotest.bmp; autotest.h; bitarray.h; commtest.c;
commtest.h; dllpick.c; dllpick.h; errcheck.c;
errcheck.sav; gatortst.c; gatortst.def;
gatortst.h; gatortst.rc; group.bmp; grppick.c;
grppick.h; gtrtst32.def; inhouse.c; inhouse.h;
maketbl.c; maketbl.h; maketbl.sav; minus.bmp;
plus.bmp; res.h; retail.def; retail32.def;
runtest.c; runtest.h; srcpick.c; srcpick.h; tags;
testcase.bmp; tests.h; tests.str; udl.c; udl.h;
wnlftptc.log
- -------------------------------------------------------------------------------
test20/include ctl3d.h; odbcinst.h; portable.h; sql.h; sqlext.h;
standard.h
- -------------------------------------------------------------------------------
20
<PAGE>
- -------------------------------------------------------------------------------
Subdirectory Contained Files or Subdirectories
- -------------------------------------------------------------------------------
test20/lib lib16/; lib32/
- -------------------------------------------------------------------------------
test20/lib/lib16 ctl3dv2.lib; cursfunc.lib; gatortst.lib;
odbc.lib; odbcinst.lib
- -------------------------------------------------------------------------------
test20/lib/lib32 ctl3d32.lib; cursfn32.lib; errc32ut.lib;
gtrtst32.lib; odbc32.lib; odbccp32.lib
- -------------------------------------------------------------------------------
test20/tests build.exe; build.ini; cursfunc/; debug/;
dllstub.c; include/; makefile; makefile.vcw;
makefile.ww; msvc.pdb; odbcver/; resource/;
setl6.bat; set32.at; set32.bat; src/; tests.mak;
tests.vcw; test.wsp
- -------------------------------------------------------------------------------
test20/tests/cursfunc cmpdata.obj; cmpdata.sbr; cursin32.mak;
cursfunc.bsc; cursfunc.dll; cursfunc.lib;
cursfunc.mak; cursfunc.obj; cursfunc.pdb;
cursfunc.sbr; curslib.obj; curslib.sbr; src/
- -------------------------------------------------------------------------------
test20/tests/cursfunc/src cmpdata.c; cursfn32.def; cursfunc.c;
cursfunc.def; curslib.c
- -------------------------------------------------------------------------------
21
<PAGE>
- -------------------------------------------------------------------------------
Subdirectory Contained Files or Subdirectories
- -------------------------------------------------------------------------------
test20/tests/debug alloccon.dll; alloccon.obj; alloccon.res;
allocenv.dll; allocenv.obj; allocst.dll;
allocst.obj; allocst.res; bindcol.def;
bindcol.dll; bindcol.mak; bindcol.obj;
bindcol.pdb; bindcol.res; bindcol.sbr;
bindcol.vcw; bindcol.wsp; bindcoll.obj;
bindcoll.sbr; bindcol2.obj; bindcol2.sbr;
bindpara.dll; bindpara.obj; bindpara.res;
browscon.dll; browscon.obj; browscon.res;
cancel.dll; cancel.obj; cancel.res; colattr.dll;
colattr.obj; colattr.res; colpriv.dll;
colpriv.obj; colpriv.res; columns.dll;
columns.obj; curhandl.dll; curhandl.obj;
curhandl.res; curinval.dll; curinval.obj;
curinval.res; curlimit.dll; curlimit.obj;
curlimit.res; curnativ.dll; curnativ.obj;
curnativ.res; cursdel.dll; cursdel.obj;
cursdel.res; ursmisc.dll; cursmisc.obj;
cursqry.dll; cursqry.obj; cursqry.res;
cursquik.dll; cursquik.obj; cursquik.res;
curstest.dll; curstest.obj; cursupdt.dll;
cursupdt.obj; cursupdt.res; curverfy.dll;
curverfy.obj; custom.dll; custom.obj;
datasrc.dll; datasrc.obj; datasrc.res;
desccol.dll; desccol.obj; desccol.res;
descpara.dll; descpara.obj; descpara.res;
discon.dll; discon.obj; discon.res; dllstub.obj;
drivers.dll; drivers.obj; drivers.res;
drvconn.dll; drvconn.obj; drvconn.res; error.dll;
error.obj; error.res; execdir.dll; execdir.obj;
execdir.res; execute.dll; execute.obj;
execute.res; extfetch.dll; extfetch.obj;
fetch.dll; fetch.obj; fetch.res; forekeys.dll;
forekeys.obj; forekeys.res; freecon.dll;
freecon.obj; freecon.res; freeenv.dll;
freeenv.obj; freestmt.dll; freestmt.obj;
freestmt.res; getcurso.dll; getcurso.obj;
getcurso.res; getdata.dll; getdata.obj;
getdata.res; getfunct.dll; getfunct.obj;
getfunct.res; getinfo.dll; getinfo.obj;
getinfo.res; gettype.dll; gettype.obj;
gettype.res; moreres.dll; moreres.obj;
moreres.res; nativesq.dll; nativesq.obj;
nativesq.res; numparam.dll; numparam.obj;
numparam.res; numresco.dll; numresco.obj;
numresco.res; paramdat.dll; paramdat.obj;
paramdat.res; paramopt.dll; paramopt.obj;
perform.dll; perform.obj; perform.res;
prepare.dll; prepare.obj; prepare.res;
primkeys.dll; primkeys.obj; primkeys.res;
proccols.dll; proccols.obj; proccols.res;
procs.dll; procs.obj; procs.res; rowcount.dll;
rowcount.obj; rowcount.res; scalar.dll;
scalar.obj; scalar.res; scalarl.obj; scalar2.obj;
setconop.dll; setconop.obj; setconop.res;
setcurso.dll; setcurso.obj; setcurso.res;
setparam.dll; setparam.obj;
- -------------------------------------------------------------------------------
22
<PAGE>
- -------------------------------------------------------------------------------
Subdirectory Contained Files or Subdirectories
- -------------------------------------------------------------------------------
setparam.res; setpos.dll; setpos.obj;
setscrol.dll; setscrol.obj; setstopt.dll;
setstopt.obj; setstopt.res; speccol.dll;
speccol.obj; stat.dll; stat.obj; stat.res;
tables.dll; tables.obj; tables.res; tablpriv.dll;
tablpriv.obj; tconnect.dll; tconnect.obj;
tconnect.res; template.dll; template.obj;
template.res; test.dll; test.obj; test.res;
transact.dll; transact.obj; transact.res;
tstress.dll; tstress.obj; tstress.res;
tstressl.obj; ww.rls
- -------------------------------------------------------------------------------
test20/tests/include alloccon.h; allocst.h; autotest.h; bindcol.h;
bindcol.old; bindpara.h; bitarray.h; browscon.h;
cancel.h; colattr.h; colpriv.h; commtest.h;
ctl3d.h; curhandl.h; curinval.h; curlimit.h;
curnativ.h; cursdel.h; curslib.h; cursqry.h;
cursquik.h; cursupdt.h; data.h; datasrc.h;
debug.h; desccol.h; descpara.h; discon.h;
dllpick.h; drivers.h; drvconn.h; error.h;
execdir.h; execute.h; fetch.h; forekeys.h;
freecon.h; freestmt.h; gatortst.h; getcurso.h;
getdata.h; getfunct.h; getinfo.h; gettype.h;
grppick.h; inhouse.h; initsz.h; keys.h;
maketbl.h; moreres.h; nativesq.h; numparam.h;
numresco.h; odbcinst.h; paramdat.h; perform.h;
portable.h; prepare.h; primkeys.h; proc.h;
proccols.h; procs.h; res.h; rowcount.h;
runtest.h; scalar.h; setconop.h; setcurso.h;
setparam.h; setstopt.h; sql.h; sqlext.h;
srcpick.h; standard.h; stat.h; stats.h; tables.h;
tconnect.h; template.h; test.h; tests.h;
transact.h; tstress.h; udl.h
- -------------------------------------------------------------------------------
test20/tests/odbcver check.h; readme.doc; sq110.h; sq120.h;
sqlext10.h; sqlext20.h;x100h_10.c;x100h_20.c;
x200h_10.c; x200h_20.c
- -------------------------------------------------------------------------------
test20/tests/resource alloccon.rc; allocst.rc; bindcol.rc; bindpara.rc;
browscon.rc; cancel.rc; colattr.rc; colpriv.rc;
curhandl.rc; curinval.rc; curlimit.rc;
curnativ.rc; cursdel.rc; cursqry.rc; cursquik.rc;
cursupdt.rc; datasrc.rc; desccol.rc; descpara.rc;
discon.rc; drivers.rc; drvconn.rc; error.rc;
execdir.rc; execute.rc; fetch.rc; forekeys.rc;
freecon.rc; freestmt.rc; getcurso.rc; getdata.rc;
getfunct.rc; getinfo.rc; gettype.rc; moreres.rc;
nativesq.rc; numparam.rc; numresco.rc;
paramdat.rc; perform.rc; prepare.rc; primkeys.rc;
proccols.rc; procs.rc; rowcount.rc; scalar.rc;
setconop.rc; setcurso.rc; setparam.rc;
setstopt.rc; stat.rc; tables.rc; tconnect.rc;
template.rc; test.rc; transact.rc; tstress.rc
- -------------------------------------------------------------------------------
23
<PAGE>
- -------------------------------------------------------------------------------
Subdirectory Contained Files or Subdirectories
- -------------------------------------------------------------------------------
test20/tests/src alloccon.c; allocenv.c; allocst.c; bindcol.c;
bindcoll.c; bindcol2.c; bindpara.c; browscon.c;
cancel.c; cmpdata.c; colattr.c; colpriv.c;
columns.c; curhandl.c; curinval.c; curlimit.c;
curnativ.c; cursdel.c; cursmisc.c; cursqry.c;
cursquik.c; curstest.c; cursupdt.c; curverfy.c;
custom.c; datasrc.c; desccol.c; descpara.c;
discon.c; drivers.c; drvconn.c; error.c;
execdir.c; execute.c; extfetch.c; fetch.c;
forekeys.c; freecon.c; freeenv.c; freestmt.c;
getcurso.c; getdata.816; getdata.c; getfunct.c;
getinfo.c; gettype.c; moreres.c; nativesq.c;
numparam.c; numresco.c; paramdat.c; paramopt.c;
perform.c; prepare.c; primkeys.c; proccols.c;
procs.c; rowcount.c; scalar.c; scalarl.c;
scalar2.c; setconop.c; setcurso.c; setparam.c;
setpos.c; setscrol.c; setstopt.c; speccol.c;
stat.c; tables.c; tablpriv.c; tconnect.c;
template.c; test.c; transact.c; tstress.c;
tstressl.c
- --------------------------------------------------------------------------------
24
<PAGE>
EXHIBIT C-1
-----------
Acceptance Criteria
The components that will be affected by this document are the following:
1. ODBC Core Components for the 68K Macintosh
2. ODBC Core Components for the PowerMacintosh
3. 32-bit Oracle 7 ODBC Driver for Windows NT and Windows 95
General Testing Requirements
The following are the general requirements that Microsoft needs to verify
COMPANY components.
Autotest Logs
Autotest logs must be provided for each milestone release to Microsoft.
Logs must be dated and indicate which version of the driver they are from.
Version Stamps
All files of all components must contain version stamps. Each new drop of
files must increment the version stamp.
Autotest Criteria
The COMPANY components will be verified with the latest version of the ODBC
Autotests from Microsoft. The autotest must be run with the following criteria:
1. No General Protection Faults
2. All failures must be documented and explained
No General Protection Faults
The COMPANY components must run with no General Protection Faults (GPF) in
the ODBC Autotests. Should the autotests need to be modified because of an
acceptable GPF, that failure must be documented and explained.
Acceptable Failures
We recognize that a particular driver may report acceptable failures. These
failures may occur due to server or platform specific properties. In such a
case, any failures in the ODBC Autotests must be documented and explained.
Microsoft reserves the right to request a fix to any failure.
25
<PAGE>
EXHIBIT C-2
-----------
Performance Criteria
Performance Criteria for the Visigenic 32-bit Oracle 7 Driver
This document specifies the performance criteria of the Visigenic 32-bit Oracle
7 Driver (Visigenic Driver) for Windows NT and Windows 95. The performance of
the Visigenic Driver will be compared to the Intersolv Oracle 7 Driver
(Intersolv Driver) using NSTL benchmark tests and Microsoft Visual Basic v. 4.0
Performance tests. Each of the queries will be given a priority -- 1 or 2.
Visigenic will seek to meet or beat the Intersolv Driver in all priority 1
queries. In the event that any priority 1 query fails to achieve this
objective, the parties will analyze how performance might be improved and/or
evaluate whether the performance is acceptable as is. In any event, the
Visigenic Driver must be no slower than 10% of the Intersolv Driver in all
priority 1 and 2 queries.
A listing of all of the queries and their associated priorities are as follows.
NSTL Benchmark Queries
All of the queries below for the NSTL tests are priority 1.
- -------------------------------------------------------------------------------
Query SQL
- -------------------------------------------------------------------------------
nstl3a(a) SELECT luniqld FROM dfile WHERE suniqld='EYFFR03333'
- -------------------------------------------------------------------------------
nstl3b(a) SELECT luniqld FROM dfile WHERE suniqld='JWKDG06666'
- -------------------------------------------------------------------------------
nstl4(b) SELECT luniqld FROM dfile WHERE suniqld (greater than)
'ELKRO3000' AND SUNIQLD (less than) 'EPHDN03101' order by
luniqld
- -------------------------------------------------------------------------------
nstl5(c) SELECT luniqld FROM efile WHERE shunde= 'AABIK00001'
ORDER BY luniqle
- -------------------------------------------------------------------------------
nstl6 SELECT luniqld FROM dfile WHERE sthoud IN ('AAFMO00005',
'AAQAG00016', 'AAZJP00025', 'ABKUH00036', 'ABTGQ00045',
'ACER100056', 'ACNDR00065', 'ACYOJ00076', 'ADHAS00085',
'ADSLK00096')
- -------------------------------------------------------------------------------
nstl7(d) SELECT shunde, SUM(ionee) FROM efile GROUP BY shunde
ORDER BY shunde
- -------------------------------------------------------------------------------
nstl8(e) SELECT shunda, Sum(ioned) SumOfloned FROM afile A, dfile D
WHERE A.suniqla = D.sthoud GROUP BY shunda ORDER BY
shunda
- -------------------------------------------------------------------------------
26
<PAGE>
- -------------------------------------------------------------------------------
Query SQL
- -------------------------------------------------------------------------------
nstl10(f) SELECT luniqle, luniqla FROM dfile D, efile E, afile A WHERE
A.suniqla = D.suniq2d and D.suniqld = E.suniq2e ORDER BY
luniqle
- -------------------------------------------------------------------------------
nstl11(g) SELECT shunda, Sum(ionee) SumOflonee FROM dfile D, efile E,
afile A WHERE A.suniqla = D.suniq2d AND D.suniqld =
E.suniq2e GROUP BY shunda ORDER BY shunda
- -------------------------------------------------------------------------------
nstl12(h) SELECT luniqlb FROM afile A, bfile B., dfile D, efile E WHERE
A.suniqla = D.sthoud AND D.suniqld = E.suniq2e AND E.suniqle
= B.suniqlb AND A.stwoa = 'AABIK00001' AND D.sthoud (greater
than) 'BEVCL00800' ORDER BY luniqlb
- -------------------------------------------------------------------------------
nstl14(i) SELECT suniq2a, suniq2b FROM afile A, bfile B WHERE
A.shunda = B.shundb and A.suniqla (less than) 'AHSAA00200' AND
B.suniqlb (less than) 'AHSAA00200'
- -------------------------------------------------------------------------------
browse1 SELECT luniqld FROM dfile ORDER BY suniqld
- -------------------------------------------------------------------------------
browse2 SELECT luniqle FROM efile WHERE suniqle (greater than)
'ELKRO3000' AND suniqle (less than) 'EPHDN03101'
- -------------------------------------------------------------------------------
browse3 SELECT luniqld FROM dfile WHERE ((sthoud='AAFMO00005'
Or sthoud='AAQAG00016' Or sthoud='AAZJP00025' Or
sthoud='ABKUH00036' Or sthoud='ABTGQ00045' Or
sthoud='ACER100056' Or sthoud='ACNDR00065' Or
sthoud='ACYOJ00076' Or sthoud='ADHAS00085' Or
sthoud='ADSLK00096'))
- -------------------------------------------------------------------------------
browse4 SELECT luniqle FROM efile WHERE suniqle LIKE 'BM%'
- -------------------------------------------------------------------------------
browse4a SELECT luniqle FROM efile WHERE suniqle LIKE 'B%'
- -------------------------------------------------------------------------------
browse5 SELECT shunda, ioned FROM afile A, dfile D WHERE A.suniqla
= D.sthoud
- -------------------------------------------------------------------------------
BROWSE6 SELECT shunda, ioned FROM afile A, dfile D WHERE A.suniqla
= D.sthoud ORDER BY suniqld
- -------------------------------------------------------------------------------
AGG1 SELECT Sum(ioned) FROM efile
- -------------------------------------------------------------------------------
AGG2 SELECT Sum(ioned) FROM dfile WHERE suniqld (greater than)
'ELKRO3000' AND suniqld (less than) 'EPHDN03101 '
- -------------------------------------------------------------------------------
DROPTBL DROP TABLE tefile
- -------------------------------------------------------------------------------
CRTTBL CREATE TABLE tefile AS SELECT * FROM EFILE
- -------------------------------------------------------------------------------
CRTIDXIA CREATE UNIQUE INDEX tefile on tefile(suniq1e)
- -------------------------------------------------------------------------------
CRTIDXIB CREATE UNIQUE INDEX tefile2 on tefile(suniq2e)
- -------------------------------------------------------------------------------
27
<PAGE>
- -------------------------------------------------------------------------------
Query SQL
- -------------------------------------------------------------------------------
NSTL15A UPDATE tefile SET stene = 'AABBCCDDEE' WHERE stene =
'AABIK00001'
- -------------------------------------------------------------------------------
NSTL15B UPDATE tefile SET stene = 'AABIK00001' WHERE stene =
'AABBCCDDEE'
- -------------------------------------------------------------------------------
NSTL17 DELETE FROM tefile WHERE stene = 'AAGNP00006'
- -------------------------------------------------------------------------------
DELETE1 DELETE FROM tefile
- -------------------------------------------------------------------------------
Visual Basic v. 4.0 Performance Queries
The Visual Basic 4.0 Performance queries are divided into the Update and Select
queries. The following are the requirements for each type of query.
Update Queries
There are 1000 update queries. These queries are listed in the UQUERIES.TXT
document. All of these queries are Priority 1.
Select Queries
The table below details the queries and priorities of each of the Select
queries.
================================================================================
Query SQL
#Result Num/Type
Rows Cols. Priority
- --------------------------------------------------------------------------------
agg1 SELECT sum(ionee) FROM efile 1 int 1
- --------------------------------------------------------------------------------
agg2 SELECT sum(ionee) FROM dfile WHERE 1 int 2
suniq1d"greater than" 'ELKRO3000' and
suniqld "less than"'EPHDN03101'
- --------------------------------------------------------------------------------
browse1 SELECT luniqld FROM dfile ORDER 10000 String 1
BY suniqld
- -------------------------------------------------------------------------------
browse2 SELECT luniqle FROM efile WHERE suniqle 100 String 2
"greater than" 'ELKRO3000' and suniqle
"less than"'EPHDN03101'
- -------------------------------------------------------------------------------
browse3 SELECT luniqld FROM dfile WHERE sthoud = 100 String 2
'AAFMO00005' OR sthoud = 'AAQAG00016'
OR sthoud = 'AAZJP00025'OR sthoud =
'ABKUH00036' OR sthoud ='ABTGQ00045'
OR sthoud ='ACERI00056' OR sthoud =
'ACNDR00065' OR sthoud ='ACYOJ00076' OR
sthoud = 'ADHAS00085'0
- -------------------------------------------------------------------------------
browse4 SELECT luniqle FROM efile WHERE suniqle 26 String 1
LIKE 'BM%'
- -------------------------------------------------------------------------------
28
<PAGE>
================================================================================
Query SQL
#Result Num/Type
Rows Cols. Priority
- --------------------------------------------------------------------------------
browse4a SELECT luniqle FROM efile WHERE suniqle 676 String 2
LIKE 'B%'
- --------------------------------------------------------------------------------
browse5 SELECT shunda,ioned FROM afile A, 10000 String, Int 2
dfile D WHERE .suniqla = D.sthoud
- --------------------------------------------------------------------------------
browse6 SELECT shunda, ioned FROM afile 10000 String, Int 2
A, dfile D WHERE A.suniqla = D.
sthoud ORDER BY D.suniqld
- --------------------------------------------------------------------------------
nstl10 SELECT luniqle, luhiqla FROM 1000 String, 2
(afire AS A INNER JOIN dfile String
AS D ON suniqla = suniq2d) INNER
JOIN efile AS E ON suniqld =
suniq2e ORDER BY luniqle
- --------------------------------------------------------------------------------
nstl11 SELECT shunda, sum(ionee) AS 100 String, Int 1
SumOfIonee FROM (afire AS A
INNER JOIN dfile AS D ON suniqla =
suniq2d) INNER JOIN efile AS E
ON suniqld = suniq2e GROUP BY shunda
ORDER BY shunda
- --------------------------------------------------------------------------------
nstl12 SELECT luniqlb FROM ((afile AS A 101 Int 1
INNER JOIN dfile AS D ON suniqla =
sthoud) INNER JOIN efile AS E ON
suniqld = suniq2e) INNER JOIN bfile
AS B ON suniqle = suniqlb WHERE
stwoa = "AABIK00001 " and sthoud
"greater than" "BEVCL00800"
ORDER BY luniqlb
- --------------------------------------------------------------------------------
nstl14 SELECT suniq2a, suniq2b FROM 400 String, Int 2
afile A, bfile B WHERE A.shunda =
B.shundb AND A.suniqla "less than"
"AHSAA00200" and B.suniqlb "less than"
"AHSAA00200"
- --------------------------------------------------------------------------------
nst13a SELECT luniqld FROM dfile WHERE 1 String 2
suniqld = 'EYFFR03333'
- --------------------------------------------------------------------------------
nst13b SELECT luniqld FROM dfile WHERE 1 String 2
suniqld = 'JWKDG06666'
- --------------------------------------------------------------------------------
nst14 SELECT luniqld FROM dfile WHERE 100 String 1
suniqld "greater than" 'ELKRO3000' and
suniqld "less than" 'EPHDN03101' ORDER
BY luniqld
- --------------------------------------------------------------------------------
nst15 SELECT luniqle FROM efile WHERE 100 String 1
shunde = 'AABIK00001' ORDER BY luniqle
- --------------------------------------------------------------------------------
nst16 SELECT luniqld FROM dfile WHERE 100 String 1
sthoud IN ('AAFMO00005', 'AAQAG00016',
'AAZJP00025', 'ABKUH00036',
'ABTGQ00045', 'ACER100056',
'ACNDR00065', 'ACYOJ00076',
'ADHAS00085', 'ADSLK00096')
- --------------------------------------------------------------------------------
29
<PAGE>
================================================================================
Query SQL
#Result Num/Type
Rows Cols. Priority
- --------------------------------------------------------------------------------
nst17 SELECT shunde, sum(ionee) FROM 100 String, Int 1
efile GROUP BY shunde ORDER BY
shunde
- -------------------------------------------------------------------------------
nst18 SELECT shunda, sum(ioned) 100 String, Int 1
SumOfloned FROM afile A, dfile D
WHERE A.suniqla = D.sthoud GROUP BY
A.shunda ORDER BY A.shunda
================================================================================
30
<PAGE>
EXHIBIT D
---------
Sample Effects of Royalties
Event 1. Visigenic grants Customer A license to use part but not all SOURCE
- -------
CODE, including the Core Components, but not the SDK and the Documentation.
Effect 1. Visigenic owes Microsoft the higher of $5,000 or 10% of Visigenic
- --------
initial source code license fee. For the 10% of revenue to be relevant, a
single entity SOURCE CODE license would have to be sold by Visigenic for more
than $50,000 to that single entity for that in-house use source license. This
is unlikely. Even if fees charged by Visigenic are annual, or any other period,
or contain subsequent maintenance fees, training or consulting fees, all such
payments beyond the initial license fee are irrelevant with regard to the 10%
test. For this exercise, we will assume that the relevant payment is $5,000.
Event 2. Visigenic grants Customer B a license to use all of the SOURCE CODE,
- -------
but not distribute it.
Effect 2. Visigenic owes Microsoft $20,000.
- --------
Event 3. Visigenic expands the rights of Customer A to include the SDK,
- -------
thereby licensing all of the SOURCE CODE .
Effect 3. Visigenic owes Microsoft $15,000, not $20,000, because $5,000 of the
- --------
$20,000 that was due as a result of Effect 2 was paid in Effect 1.
Event 4. Visigenic expands the rights of Customer A to include the right to
- -------
distribute the SOURCE CODE.
Effect 4. Visigenic owes Microsoft nothing because the $20,000 per Entity has
- --------
already been paid.
Event 5. Visigenic licenses Customer C just the rights to print the
- -------
documentation, but not rights to the SOURCE CODE.
Effect 5. Visigenic owes Microsoft $3,000.
- --------
Event 6. Visigenic licenses Customer C the source code to just the Core
- -------
Components.
Effect 6. Visigenic owes Microsoft $2,000, because $3,000 of the $5,000 that
- --------
would have been due for licensing the Core Components was already paid in Effect
5.
Event 7. Visigenic grants Customer C the right to distribute source code to
- -------
just Core Components.
31
<PAGE>
Effect 7. Visigenic owes Microsoft $15,000, because $5,000 total has already
- --------
been paid with Effect 5 and Effect 6.
Event 8. Visigenic grants Customer D a license to the source code of only the
- -------
Core Components (but not the SDK). Customer D ports Core Components to 8
machines running different versions of the UNIX Operating System, as well as a
port to OS/2.
Effect 8. Visigenic owes Microsoft $5,000 for licensing the source code of Core
- --------
Components to a customer. How many ports, how many copies are used by that
customer or what operating systems ported to is not relevant to the royalty owed
to Microsoft.
Event 9. Visigenic grants Customer D the right to distribute the Core
- -------
Components in source code form.
Effect 9. Visigenic owes Microsoft an additional $15,000.
- --------
Event 10. Customer D grants to Customer E the right to use the Core Components
- --------
in source code form, but not redistribute it.
Effect 10. Visigenic owes Microsoft an additional $5,000, because another
- ---------
entity (Customer E) was granted the right to use source code, for the Core
Components.
Event 11. Customer D grants Customer F the right to distribute source code for
- --------
the Core Components.
Effect 11. Visigenic owes Microsoft $20,000.
- ---------
Event 12. Customer F sells 5 more copies of SOURCE CODE to Core Components, 3
- --------
to Customers F, G and H, and 2 to Customer I.
Effect 12. Visigenic owes Microsoft $20,000, because four new entities received
- ---------
SOURCE CODE to Core Components. The fact that Customer I received two copies is
irrelevant.
32
<PAGE>
EXHIBIT E
---------
Development Fee Schedule
. Port of Core Components to Macintosh Platform
Macintosh 68k
-------------
Beta Release $90,000
Final Release $45,000
PowerMac
--------
Beta Release $45,000
Final Release $36,000
Oracle 7 Driver ("Additional Driver")
Beta Release $67,500
Final Release $22,500
Localization $7,200 for each driver for 10 languages - total $72,000
Grand Total: $378,000
33
<PAGE>
EXHIBIT F
---------
Localization -- Additional Driver(s)
Localization:
COMPANY and MS will work together to localize the Additional Driver(s) into 10
additional languages as follows: (i) COMPANY will hand off the localizable DLL
to MS; (ii) MS will determine list of strings to translate and request
verification from COMPANY; (iii) once verified, MS will translate strings and
hand off new DLL to COMPANY; (iv) COMPANY will then run the Additional Driver
through all the acceptance tests in Exhibits C-1 and C-2 and send final
deliverables for that version of the driver to MS.
34
<PAGE>
MICROSOFT CORPORATION
AMENDMENT TO SOURCE CODE LICENSE AND DEVELOPMENT AGREEMENT
This Agreement ("Amendment") is entered into by and between MICROSOFT
CORPORATION ("MS") and VISIGENIC SOFTWARE, INC. ("COMPANY") as of December 14,
1995.
WHEREAS, on June 20, 1995 the parties entered into a certain Source Code
License and Development Agreement (the "Agreement") pursuant to which MS has
previously provided to COMPANY certain source code for COMPANY's use in the
design, development and marketing of its software products that support Open
Database Connectivity ("ODBC") and cross-platform database connectivity
solutions; and
WHEREAS, the parties wish to establish certain new technology to be
developed by COMPANY; and
WHEREAS, MS wishes to provide COMPANY with certain consideration for
COMPANY's development costs related to COMPANY's software development services
performed under this Amendment;
NOW, THEREFORE, in consideration of the above and of the following terms and
conditions, and of other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties agrees as follows:
1. DELIVERABLES/DELIVERY SCHEDULE
------------------------------
Section 5(a) of the Agreement shall be amended by adding the following
deliverables and delivery schedule.
(iii) Oracle 7 Driver for Windows 95 and Windows NT. COMPANY
---------------------------------------------
shall develop and deliver an enhanced ODBC version 2.5 32-bit driver running
on Windows 95 and Windows NT ("Enhanced 2.5 Additional Driver(s)") based on
the following delivery schedule:
<TABLE>
<CAPTION>
Release Delivery Date
------- -------------
<S> <C>
Beta release 01/08/96
Final release 01/15/96
First 5 languages 02/09/96*
(French, German, Spanish
Portuguese, Italian)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Release Delivery Date
------- -------------
<S> <C>
Second 5 languages 03/08/96*
(Swedish, Danish, Dutch,
Norwegian, Finnish)
</TABLE>
* Dates subject to MS' delivery to COMPANY of translated
code strings as described in Exhibit F of the Agreement,
but in any event to be delivered to MS within 30 days of
COMPANY's receipt of translated code strings.
The specifications for the work shall be described in Attachment 1 of this
------------
Amendment. The Additional Drivers shall be localized by COMPANY and MS as
described in Exhibit F of the Agreement.
---------
2. DEVELOPMENT FEES -- PAYMENTS BY MS
----------------------------------
Section 9 of the Agreement shall be amended by inserting the following:
(d) In consideration of COMPANY's development and delivery of software, in
form and manner as described in Section 5(a)(iii) of this Agreement, MS shall
pay COMPANY Sixty Five Thousand Dollars ($65,000.00) which represents the sum of
fees for the Enhanced 2.5 Additional Driver(s), upon MS' acceptance of the
Enhanced 2.5 Additional Driver(s), and the sum of Ten Thousand Dollars
($10,000.00) upon MS' acceptance of Visigenic's test results for the translated
language Enhanced 2.5 Additional Drivers ($1,000 per language).
(b) Payments under this Section 9(d) are due within 30 days of MS'
acceptance of the Enhanced 2.5 Additional Driver(s). COMPANY shall submit
invoice(s) for all amounts due under this Subsection.
3. Exhibit F shall be amended by inserting "and Enhanced 2.5 Additional
---------
Driver(s)".
4. This Amendment shall amend, modify and supersede, to the extent of any
inconsistencies, the above mentioned provisions of the Agreement. Except as
expressly affected by this Amendment, all other terms and conditions of the
Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement as of the date set forth above. All signed copies of this Amendment
to the Agreement shall be deemed originals. This Amendment does not constitute
an offer by MS. This Amendment shall be effective upon execution on behalf of
COMPANY and MS by their duly authorized representatives.
MICROSOFT CORPORATION VISIGENIC SOFTWARE, INC.
- ----------------------------- -----------------------------
(Sign) (Sign)
- ----------------------------- -----------------------------
Name (Print) Name (Print)
- ----------------------------- -----------------------------
Title Title
- ----------------------------- -----------------------------
Date Date
<PAGE>
ATTACHMENT 1
Proposal to Microsoft
to Add SQLExtendedFetch and Other Features
to Oracle7 Driver
Visigenic will provide to Microsoft on ODBC 2.5 Oracle7 driver that
contains an implementation of SQLExtendedFetch and other significant
enhancements as follows:
This deliverable will be based on the latest Visigenic Oracle driver
release 1.1 and will be fully tested by Visigenic using the "Test30" ODBC 2.5
Test Suites exactly as already received from Microsoft. It is agreed that
Visigenic will not be running the RJET tests against the driver.
1. SQLExtendedFetch Enhancement
Visigenic proposes to extend the functionality of the Oracle7 ODBC Driver
currently provided to Microsoft to include support for "Extended Fetch"
capability. The features supported, along with the additional changes
required to support ancillary API calls affected by the changes, are
described below.
SQLExtendedFetch
The options which will be supported include:
fFetchType Relative Positioning Options Supported:
SQL_FETCH_NEXT
SQL_FETCH_PRIOR
SQL_FETCH_RELATIVE
Absolute Positioning Options Supported:
SQL_FETCH_FIRST
SQL_FETCH_LAST
SQL_FETCH_ABSOLUTE
Option NOT supported:
SQL_FETCH_BOOKMARK
<PAGE>
Other Affected Functions
SQLGetInfo
The driver will return "N" for the SQL_ROW_UPDATES option to applications
calling SQLGetInfo. This reflects the fact that the Oracle Driver will be
unable to support the rgfRowStatus indicator in the SQLExtendedFetch API call.
SQLSetPos
All applicable functionality for this API call will be enhanced to work with the
SQLExtendedFetch requirements not currently supported. This work will include
SQL_POSITION, SQL_REFRESH, SQL_UPDATE and SQL_DELETE.
SQLSetScroll Options
The options which will be supported include:
fCurrency SQL_CUR_ROWVER
SQL_READ_ONLY
crowKeyset SQL_SCROLL_KEYSET_DRIVER
crowRowset This value will be utilized in the SQLExtendedFetch retrievals.
SQLSSetStmtOptions
The following fOptions will be enabled for use with the SQJ-ExtendedFetch API
call.
<TABLE>
<CAPTION>
fOptions Value
<S> <C>
SQL_BIND_TYPE SQL_BIND_BY_COLUMN
SQL_CURSOR_TYPE SQL_CURSOR_KEYSET_DRIVEN
SQL_KEYSET_SIZE <32-bit-integer-value>
SQL_ROWSET_SIZE <32-bit-integer-value>
SQL_RETRIEVE_DATA SQI_RD_ON
SQL_CONCURRENCY SQL_CONCUR_ROWVER
SQL_USE_BOOKMARKS SQL_UB_OFF
</TABLE>
2. Improved Performance for SQLColumns Function
Currently the SQLColumns function correctly treats Oracle synonyms as
tables and returns the column names for synonyms as well as tables. The
<PAGE>
SQLColumns function also returns any Oracle comments about the columns that
exist in the database. In order to retrieve synonym column names and
comments, the driver uses a multitable join that results in slower
retrieval of the column information that it would if synonyms and comments
were ignored.
Visigenic proposes to add two check boxes to the setup dialogue box labeled
"SQLColumns Synonyms" and "SQLColumns Comments." In the default state
these check boxes would be deselected. If SQLColumns Synonyms is
deselected, then SQL Columns Comments is automatically deselected and
disabled. If the user or system administrator selects a combination of
check boxes, then upon completion of setup the corresponding combination of
flags will be set in ODBC.INI. When invoked, the SQLColumns function will
read the appropriate flags in the ODBC.INI file to determine whether or not
it should create a query to return synonym column names or comments.
3. Support of Stored Procedures
Microsoft has requested that Visigenic implement stored procedure support
to the extent that it is implemented in Microsoft's 16-bit ODBC 2.0 driver
supplied by PageAhead. Since neither Microsoft nor Visigenic has a
specification for this driver, Visigenic has made an investigation of the
PageAhead driver using ODBC Test and other tools to try to determine its
level of stored procedure support. We have determined that it supports the
following features.
. ODBC Call Syntax
(--(*vendor (Microsoft), product (ODBC)
([?=] call procedure-name ([parameter] [,(parameter)] ...)]") --
. in/out parameters for procedures
(i.e., SQL_PARAM_INPUT, SQL_PARAM_INPUT_OUTPUT and SQL_PARAM_OUTPUT
in SQLBindParameter)
. SQL Procedure
returns the list of procedure names stored in a specific date source
. SQLProcedureColumns
returns the list of input and output parameters
. SQLDescribeParam is not supported.
After development, Visigenic will apply the Test30 suites and a limited
number of manually generated tests of the stored procedure functionality.
However, application testing by Microsoft, particularly using ported 16-bit
applications that previously relied upon stored procedures using the PageAhead
driver, would be the
<PAGE>
best test of completeness of functionality. This could be accomplished during
alpha testing.
4. Mapping of "Integer" Datatype
Oracle converts the ANSI "INTEGER" datatype into the Oracle datatype
NUMBER(38,0). While INTEGER is not a valid ODBC datatype, several
applications assume that the INTEGER datatype is passed through to the
Oracle database. Consequently, the Oracle driver will map the Oracle
INTEGER type to ODBC SQL_DECIMAL.
5. Eliminating the 64K Blob Size Limit
Currently the Oracle driver supports Blobs (Oracle RAW and LONG RAW) only
to 64K long. The Oracle driver will be modified to map the ODBC
SQL_C_BINARY and SQL_C_CHAR datatypes of up to 2"-5 in length to Oracle RAW
and LONG RAW datatypes. We are not proposing to change or add any other
additional data type conversion at this time.
6. Integration and Testing with Oracle7 Networking Components for Windows 95
Visigenic will integrate and test the driver with Beta Oracle7 networking
components for Windows 95. The driver may need to be separately linked
with the Oracle7 networking components for Windows NT and for Windows 95.
This may mean that Microsoft will receive two versions of the driver, one
for Windows NT and the other for Windows 95. Microsoft's installation
program will need to determine which driver is appropriate. In the event
that Oracle has shipped a general release version of the networking
components for Windows 95 by December 1, 1995, then the Oracle7 driver will
be tested with the general release version.
<PAGE>
EXHIBIT 10.11
MICROSOFT CORPORATION
SOURCE CODE LICENSE AGREEMENT
This License Agreement ("Agreement") is made and entered into this 10th day
of February, 1995 ("Effective Date"), by and between MICROSOFT CORPORATION, a
Washington corporation, One Microsoft Way, Redmond, WA 98052-6399 ("MS"), and
VISIGENIC SOFTWARE, INC., a Delaware corporation ("COMPANY").
NOW, THEREFORE, in consideration of the following terms and conditions, and
of other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
-----------
(a) Source Code. The "Source Code" licensed by MS to COMPANY under this
-----------
Agreement shall consist of the source code form of the MS software described on
the attached Exhibit A, including, as available, the following: documentation
---------
in electronic and printed form, all foreign language translations or localized
versions, test suites, updates, enhancements, maintenance and any subsequent
versions and releases provided by MS from time to time.
(b) Ported Work. The "Ported Work" shall consist of the source code form
-----------
of the software resulting from COMPANY's modifications to the Source Code, which
are necessary to port the Source Code as provided for under this Agreement.
(c) SQL Driver(s). The "SQL Driver(s)" shall mean the object code or
--------------
executable code form of the Ported Work.
2. LICENSE GRANTS.
--------------
(a) MS grants to COMPANY the non-exclusive, non-transferable, worldwide,
royalty-free license to use, copy and modify the Source Code, by COMPANY's full-
time employees and consultants who are subject to COMPANY's nondisclosure
agreements at COMPANY's and MS' site, for the sole purpose of porting and
testing MS SQL Server ODBC drivers that: (1) run on any operating systems not
developed and marketed by MS; and (2) are targeted to support MS database
management technology ("Ported Work"). The Source Code and resulting Ported
Work and trade secrets contained therein shall not be used by COMPANY for any
other purpose. The license granted herein shall not be deemed a license to
modify the Source Code for the purpose of enhancing the Source Code, nor for
COMPANY's development of any derivative works, other than as provided for in
this Agreement.
The Source Code and Ported Work are subject to the provisions contained in
Section 10. Each party agrees that this Agreement does not grant marketing and
distribution rights to the source code of the other party. Neither party is
granted any implied license under any patents, trade secrets, copyright or other
proprietary rights. Each party reserves all rights not expressly granted
herein.
(b) (i) COMPANY will have exclusive ownership of all copyrights in any
Ported Work created by COMPANY based on the Source Code, including without
limitation the right to use COMPANY's copyright notice exclusively in and on any
such Ported Work. COMPANY agrees that the Ported Work will not be used by, or
distributed to, any third party (except as provided in Section 2(a) and 2(g))
without the express written consent of MS.
1
<PAGE>
(ii) COMPANY hereby grants to MS a non-exclusive, worldwide, royalty-
free license to use, reproduce, manufacture, distribute, sell, rent or lease and
sublicense copies of SQL Driver(s) solely in conjunction with MS-developed
software products targeted for the UNIX, Macintosh or Power Macintosh platform,
and to license third parties to exercise the foregoing rights, including the
right to license such rights to further third parties. The SQL Driver(s) may
not be distributed by MS on a "standalone" basis, nor in conjunction with
Microsoft SQL Server, nor as part of an ODBC Driver pack.
(c) MS grants to COMPANY the nonexclusive, worldwide, royalty-free license,
to use, reproduce, manufacture, distribute, sell, rent or lease and sublicense
copies of the SQL Drivers to end user customers and to license third parties to
exercise the foregoing rights, including the right to license such rights to
further third parties.
(d) COMPANY will deliver to MS, upon MS' request, the source code for any
SQL Driver created and made commercially available by COMPANY under this
Agreement. COMPANY grants to MS a non-exclusive, worldwide, royalty-free
license, in the event that COMPANY fails to perform its obligations under
Section 11(d), to use and modify the source code form of the Ported Work solely
for purposes of end-user customer product support for SQL Driver(s) distributed
by MS pursuant to Section 2(b). Any such customer product support modifications
made by MS will be deemed to be part of the Ported Work under this Agreement and
will be subject to this Agreement as such. MS agrees to promptly deliver to
COMPANY a copy of the source code of any such customer product support
modifications made to the Ported Work by MS.
(e) Subject to COMPANY's compliance with the terms of Section 2(a), MS
agrees that COMPANY may use MS' trademark "ODBC" in connection with the
distribution, marketing or sublicensing of COMPANY's products, including as
incorporated within or as part of the name of any COMPANY products, so long as
(1) the product using the name includes SQL Driver(s), whether or not in
compiled form, or modifications, enhancements, ports, derivative works or
translations thereof, which (2) remains compliant with, and is primarily based
on the ODBC specifications from which it was derived, and (3) COMPANY provides
trademark attribution to MS in the form of (A) use of a "TM" with its first use
of the term "ODBC" in each publication where the term appears, (B) inclusion of
a footnote acknowledging MS' ownership of the trademark ODBC on all packaging,
advertising and other material, and (C) COMPANY agrees that it will not seek a
registered trademark for the name ODBC.
MS further grants to COMPANY the right to sublicense all of those rights
provided in this Section 2(e). MS and COMPANY agree that COMPANY has the right
to impose reasonable guidelines on its sublicensees' use of the "ODBC"
trademark, artwork and marketing literature so sublicenses which shall at a
minimum require compliance with the terms of this Section 2(e). COMPANY will
exercise reasonable quality control over its sublicensees' conformance with such
guidelines.
(f) MS agrees that COMPANY may use MS' tradename "Microsoft SQL Server"
solely in connection with COMPANY's distribution, marketing or sublicensing of
the SQL Driver(s) as provided under this Agreement, so long as COMPANY agrees
that on all packaging, advertising and other materials pertaining to the SQL
Driver(s), COMPANY does not abbreviate the tradename "Microsoft SQL Server" in
any manner. MS does not grant any license to COMPANY for the use of the
"Microsoft" trademark and COMPANY agrees that it shall not undertake any action
that will interfere with or diminish MS' right, title and/or interest in the
validity of any MS trademark or tradename.
(g) Either party may deposit at its own expense the other party's source
code into one or more bona fide escrow accounts (1) for which an independent
third party acts as a trustee in the regular course of business, (2) under which
the software is released under license to one or more customer beneficiaries
only in the event that the depositing party is adjudged to be bankrupt or ceases
to do business or support the software, and (3) only provided that such release
is made to the
2
<PAGE>
beneficiary under an obligation of confidentiality, and that use of the source
code is limited to support and maintenance purposes only. In addition, either
party may request from the other party the right to sublicense a copy of the
other party's source code to specified third parties.
3. Delivery Schedule. COMPANY shall make SQL Drivers running on the following
-----------------
platforms commercially available within the stated time frames for each Driver
Type and platform set forth in the table below, provided that MS delivers the
Source Code for the relevant Driver Type to COMPANY on a timely basis:
Version ("Driver Type") Sun Solaris; Macintosh IBM AIX, IBM OS/2,
680X0; Power Macintosh HP-UX, SCO UNIX
Original Source Code within 90 days of the within 180 days of the
release and delivery to release and delivery to
COMPANY of MS SQL Server COMPANY of MS SQL
95 Server 95
minor release within 60 days of MS' within 90 days of MS'
delivery to COMPANY of delivery to COMPANY of
the minor release the minor release
major release within 90 days of MS' within 120 days of MS'
delivery to COMPANY of delivery to COMPANY of
the major release the major release
The parties may mutually agree in writing to add or delete a platform, or to
modify the stated commercial availability time frame for any platform.
For the purposes of this Agreement, a "minor release" is designated by a
change in the digit(s) to the right of the first (or only) decimal point in the
release number, and a "major release" is designated by a change in the digit(s)
to the left of the first (or only) decimal point in the release number. For
example, in "xx.yy": xx identifies the major release and yy identifies the minor
release.
4. Distribution of SOL Drivers.
---------------------------
(a) Distribution of SQL Drivers by MS.
---------------------------------
(i) In the event that MS chooses, at its sole option, to distribute
the SQL Driver(s) pursuant to Section 2(b) in conjunction with any MS software
targeted for the UNIX platform, MS shall pay to COMPANY a one-time license and
engineering fee of Twenty Thousand Dollars (US$20,000) for each MS product title
that MS distributes containing the SQL Driver(s). Any fees due under this
Section 4(a)(i) shall be payable within 90 days of MS' commercial release of any
MS product containing such SQL Driver.
(ii) In the event that MS chooses, at its sole option, to distribute
the SQL Driver(s) pursuant to Section 2(b) in conjunction with any MS software
targeted for the Macintosh and/or Power Macintosh platform(s), such distribution
shall be free of charge to MS.
(b) Distribution of SOL Drivers by COMPANY.
--------------------------------------
(i) COMPANY agrees that any SQL Drivers distributed to end users
pursuant to this Agreement will be in conjunction with a copy of COMPANY's or
its sublicensee's written end user sublicense agreement that is: (1)
appropriate for such object code; and (2) consistent with the terms and
conditions of this Agreement.
3
<PAGE>
COMPANY agrees, free of charge to MS and at MS' request, to use
commercially reasonable efforts to include within each publication of any SQL
Driver(s) distributed by COMPANY, a file on disk or an in-package flyer
regarding MS' license terms with respect to use of the SQL Driver(s) with
Microsoft SQL Server. MS shall be responsible for delivering the information to
COMPANY in a mutually agreed upon format. MS shall be solely responsible for
any customer inquiries regarding the license information. However, COMPANY's or
its sublicensee's end user sublicense agreement license terms will govern the
end user's use of such SQL Driver.
(ii) COMPANY agrees to include, and to require its sublicensees to
include, in all SQL Driver(s) end-user documentation, and in SQL Driver(s)
software, a notice substantially as follows:
Microsoft SQL Server ODBC drivers developed with source code used under license
from Microsoft Corporation.
5. LIMITED WARRANTY.
----------------
EXCEPT AS PROVIDED IN SECTION 8, EACH PARTY'S SOFTWARE IS PROVIDED TO THE
RECEIVING PARTY "AS IS" WITHOUT WARRANTY OF ANY KIND. THE ENTIRE RISK AS TO THE
RESULTS AND PERFORMANCE OF THE LICENSED SOFTWARE IS ASSUMED BY THE RECEIVING
PARTY. EACH PARTY DISCLAIMS ALL WARRANTIES, EITHER EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, AND FITNESS
FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
DIRECT, CONSEQUENTIAL, INDIRECT, INCIDENTAL, OR SPECIAL DAMAGES WHATSOEVER,
INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS
INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE, ARISING OUT OF THE USE
OF OR INABILITY TO USE THE LICENSED SOFTWARE, EVEN IF IT HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME STATES DO NOT ALLOW THE EXCLUSION OR
LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE
LIMITATION MAY NOT APPLY.
6. LIMITATION OF LIABILITY.
-----------------------
EXCEPT AS PROVIDED IN SECTION 8, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
ANY CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES WHATSOEVER (INCLUDING WITHOUT
LIMITATION DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF
BUSINESS INFORMATION, AND THE LIKE) ARISING OUT OF THIS AGREEMENT EVEN IF ONE
PARTY HAS ADVISED THE OTHER OF THE POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME
STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL
OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY.
7. COMPANY Warranties.
------------------
(a) The SQL Drivers as delivered to MS do not infringe any copyright,
patent, trade secret, or other proprietary right held by any third party;
(b) The SQL Drivers will be created by full-time employees of COMPANY
within the scope of their employment and under obligation to assign SQL Drivers
to COMPANY or by COMPANY's consultants under written obligations to assign all
rights in the SQL Drivers to COMPANY; and
(c) The services provided by COMPANY shall be performed in a professional
manner and shall be of a high grade, nature, and quality.
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8. INDEMNIFICATION.
---------------
(a) MS warrants that the Source Code does not infringe any copyright,
patent, trade secret or other proprietary right held by a third party, and
agrees to indemnify and defend COMPANY from and against any claim or lawsuit
which, if found to be true, would constitute a breach of this warranty; provided
that COMPANY shall promptly notify MS of any such claim or lawsuit and fully
cooperate with MS in the defense of the same. MS shall have no liability under
this paragraph if the claim or lawsuit is based upon COMPANY's modification of
the Source Code, or upon the combination to the Source Code with other code,
data or equipment if the claim or lawsuit would have been avoided but for such
combination, and COMPANY agrees to indemnify and defend MS against any such
claims or suits, including reasonable attorney's fees.
(b) COMPANY agrees to indemnify, defend and hold MS harmless from and
against any claim or lawsuit which, if found to be true, would constitute a
breach of COMPANY's warranties in Section 7(a) or 7(b); provided that MS shall
promptly notify COMPANY of any such claim or lawsuit and fully cooperate with
COMPANY in the defense of the same. COMPANY shall have no liability under this
paragraph if the claim or lawsuit is based upon MS' combination of the SQL
Drivers with other code, data or equipment which has not been supplied by
COMPANY, if the claim or lawsuit would have been avoided but for such
combination, and MS agrees to indemnify and defend COMPANY against such claims
or suits, including reasonable attorney's fees.
9. TERM AND TERMINATION.
--------------------
(a) The term of this Agreement shall commence as of the Effective Date and
shall continue for three years, subject, however, to automatic successive
renewal periods of one year each unless either party notifies the other of its
intention not to renew within 60 days of the expiration of the then-current
term. In the event of such non-renewal by either party, each party's licenses
under Sections 2(a)-2(c) will survive the termination of this Agreement with
respect to that party's then-current version of software received from the other
party, but neither party shall have the right to receive updates and/or upgrades
from the other party.
(b) In the event that a party is in material breach of this Agreement, then
the aggrieved party may give written notice to the breaching party of such
material breach and of the aggrieved party's intent to terminate the licenses
granted to the breaching party under this Agreement. If such material breach is
not cured by the breaching party within thirty (30) days of receipt of such
written notice, then the licenses granted under this Agreement to the breaching
party by the aggrieved party will automatically terminate. Upon such
termination, the breaching party shall return all copies of the aggrieved
party's licensed software in the breaching party's possession or under its
control within ten (10) days following the termination date. The breaching
party shall provide a declaration signed by an officer of the breaching party
attesting that all copies of the licensed software have been returned to the
aggrieved party. Notwithstanding such termination, the aggrieved party's
licenses granted by the breaching party shall remain in full force and effect.
All licenses properly granted by the breaching party pursuant to this Agreement
prior to such termination shall remain in full force and effect.
(c) Notwithstanding the foregoing, the licensed party may include any code
or corresponding documentation which functionally replaces the licensed software
in the licensed party's products, provided that such code or corresponding
documentation is developed independently by persons who have had no access to
the licensed software of the licensing party, or a license is independently
acquired by the licensed party.
(d) This Agreement may terminate earlier if any of the following events of
default occur: (i) if either party materially fails to perform or comply with
this Agreement or any provision hereof; (ii) if either party fails to strictly
comply with the provisions of Section 10 or makes or attempts to make an
assignment in violation of Section 13(e); (iii) if COMPANY becomes insolvent or
admits in
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writing its inability to pay its debts as they mature, or makes an assignment
for the benefit of creditors; (iv) if a petition under any foreign, state, or
United States bankruptcy act, receivership statute, or the like, as they now
exist, or as they may be amended, is filed by COMPANY; or (v) if such a petition
is filed by any third party, or an application for a receiver of COMPANY is made
by anyone and such petition or application is not resolved favorably to COMPANY
within sixty (60) days. Termination under subsection 8(d)(ii) shall be
effective as of the date notice is given. In all other cases, termination shall
be effective thirty (30) days after notice of termination to the breaching party
if its defaults have not been cured. The rights and remedies of MS provided in
this Section shall not be exclusive and are in addition to any other rights and
remedies provided by law or this Agreement.
(e) If this Agreement is terminated for material breach, the breaching
party shall return to the aggrieved party or destroy all full or partial copies
of the source code of the aggrieved party in the breaching party's possession or
under its control within thirty (30) days following the termination date.
COMPANY agrees that in the event of any termination or non-renewal, the Ported
Work shall remain subject to the restrictions in Sections 2(a) and 2(b).
10. NONDISCLOSURE AGREEMENT
-----------------------
The receiving party expressly undertakes to retain in confidence and to require
its distributors to retain in confidence all information and know-how
transmitted to the receiving party by the disclosing party that the disclosing
party has identified as being proprietary and/or confidential or that, by the
nature of the circumstances surrounding the disclosure, ought in good faith to
be treated as proprietary and/or confidential (the "Confidential Information"),
and will make no use of the Confidential Information except under the terms and
during the existence of this Agreement. However, the receiving party shall have
no obligation to maintain the confidentiality of information that (i) it
received rightfully from another party prior to its receipt from the disclosing
party, (ii) the disclosing party has disclosed to a third party without any
obligation to maintain such information in confidence; or (iii) is independently
developed by the receiving party. Further, the receiving party may disclose
confidential information as required by governmental or judicial order, provided
the receiving party gives the disclosing party prompt notice of such order and
complies with any protective order (or equivalent) imposed on such disclosure.
The receiving party's obligation under this Section 10 shall survive any
termination or expiration of the Agreement and shall extend to the earlier of
such time as the source code and other information protected hereby is in the
public domain or ten (10) years following termination or expiration of this
Agreement.
11. SQL DRIVER TESTING/PRODUCT SUPPORT
----------------------------------
(a) MS shall provide COMPANY with appropriate test suites for testing SQL
Drivers and COMPANY shall perform all testing.
(b) Prior to any commercial release of SQL Drivers, COMPANY agrees to apply
to such SQL Drivers, in their entirety, test suites provided by MS, and any
additional test suites devised by COMPANY for purposes of quality assurance
testing.
(c) Each party shall be responsible for customer product support for the
SQL Drivers that it distributes; provided, however, that each party agrees to
provide the other party with a support escalation plan to allow expedited access
by product support technicians to the other party's technicians.
(d) COMPANY agrees to use commercially reasonable efforts to correct any
program errors identified by MS relating to the SQL Driver(s) distributed by MS
within a reasonable time, and in no event more than 30 calendar days of
COMPANY's receipt of notice of such errors from MS. The
6
<PAGE>
failure of COMPANY in good faith to achieve such 30-day objective shall not be a
material breach of this Agreement, but MS will have the remedy set forth in
Section 2(d) for such failure.
12. NOTICES AND REQUESTS.
--------------------
All notices, authorizations, and requests in connection with this Agreement
shall be deemed given on the day they are (i) deposited in the U.S. mails,
postage prepaid, certified or registered, return receipt requested; or (ii) sent
by overnight courier, charges prepaid, with a confirming fax; and addressed as
follows:
NOTICES TO COMPANY:
------------------
VISIGENIC SOFTWARE
951 Mariner's Island Blvd., Suite 460
San Mateo, CA 94404
Attn: President
NOTICES TO MS:
-------------
MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
Attn:
-------------------
Copy to: Law Corporate Affairs
or to such other address as the party to receive the notice or request so
designates by written notice to the other.
13. GENERAL.
-------
(a) This Agreement shall be construed and controlled by the laws of the
State of Washington, and COMPANY consents to jurisdiction and venue in the state
and federal courts sitting in the State of Washington. Process may be served on
either party by U.S. Mail, postage prepaid, certified or registered, return
receipt requested, or by such other method as is authorized by the Washington
Long Arm Statute.
(b) Neither this Agreement, nor any terms and conditions contained herein,
shall be construed as creating a partnership, joint venture, agency relationship
or as granting a franchise.
(c) This Agreement constitutes the entire agreement between the parties
with respect to the subject maker hereof and supersedes all prior and
contemporaneous agreements or communications. It shall not be modified except
by a written agreement dated subsequent to the date of this Agreement and signed
on behalf of COMPANY and MS by their respective duly authorized representatives.
No waiver of any breach of any provision of this Agreement shall constitute a
waiver of any prior, concurrent or subsequent breach of the same or any other
provisions hereof, and no waiver shall be effective unless made in writing and
signed by an authorized representative of the waiving party.
(d) If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, the remaining
provisions shall remain in full force and effect.
(e) This Agreement and any rights or obligations hereunder shall not be
assignable by contract or by operation of law without the prior written consent,
not to be unreasonably withheld, of the non-assigning party, except that either
party may assign this Agreement upon sixty (60) days'
7
<PAGE>
prior written notice to the other party in connection with a merger,
consolidation, reorganization or sale of substantially all of the assigning
party's assets. In the event that COMPANY gives such sixty (60) days notice to
MS, then MS will have thirty (30) days from the date of COMPANY's notice in
which to notify COMPANY of MS' decision, in MS' sole discretion, to unilaterally
cancel COMPANY's Source Code license under this Agreement. In the event of such
cancellation by MS, then COMPANY shall not deliver or disclose any Source Code
or Ported Work to COMPANY's intended assignee, and COMPANY shall return to MS or
destroy all full or partial copies of the Source Code and Ported Work in
COMPANY's possession or under its control within thirty (30) days following MS'
notice of cancellation. Notwithstanding such cancellation by MS of COMPANY's
Source Code license, or non-renewal by MS under Section 9(a), COMPANY and/or its
assignee will retain all of COMPANY's rights under Section 2(c) with respect to
COMPANY's then-current versions of the SQL Driver(s), provided that COMPANY
and/or its assignee is not in material breach of this Agreement. This Agreement
will be binding upon and inure to the benefit of the parties, their successors
and assigns.
(f) Copying or distribution of the Source Code or Ported Work in violation
of this Agreement will cause irreparable injury to the party owning the source
code contained therein, and the owning party shall be entitled to extraordinary
injunctive and other equitable relief, without necessity of posting bond, which
the other party expressly waives.
(g) Each party acknowledges that the software licensed hereunder is subject
to the export control laws and regulations of the United States, and any
amendments thereof. Each party confirms that with respect to the software
licensed under this Agreement, it will not export or re-export it, directly or
indirectly, either to (i) any countries that are subject to United States export
restrictions (currently including, but not necessarily limited to, Cuba, the
Federal Republic of Yugoslavia (Serbia and Montenegro), Iran, Iraq, Libya, North
Korea, Haiti, Syria, and Vietnam); (ii) any end user who that party knows or has
reason to know will utilize them in the design, development or production of
nuclear, chemical or biological weapons; or (iii) any end user who has been
prohibited from participating in the United States export transactions by any
federal agency of the United States government. Each party further acknowledges
that the products may include technical data subject to export and reexport
restrictions imposed by United States law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above. All signed copies of this Agreement shall be deemed originals.
MICROSOFT CORPORATION VISIGENIC SOFTWARE, INC.
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
Date: Date:
---------------------------- ----------------------------
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EXHIBIT A
---------
LICENSED SOFTWARE
1. Source code for Open Database Connectivity (ODBC) drivers version 2.5 for
Microsoft SQL Server.
2. Source code for ODBC drivers for Open Data Services (ODS).
3. Source code for TCP/IP network communications libraries.
4. Source code for AppleTalk Data Stream Protocol (ADSP) network
communications.
5. Source code for SQL Server ODBC driver for Macintosh 68K version 1.2.
9
