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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
Commission File Number 0-23446
ENLIGHTEN SOFTWARE SOLUTIONS, INC.
999 Baker Way, Fifth Floor, San Mateo, California 94404
(650) 578-0700
I.R.S. Employer
Incorporated in Identification Number
CALIFORNIA 94-3008888
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
The registrant's revenues for the fiscal year ended December 31, 1998
were $3,758,408.
The approximate aggregate market value of the registrant's Common Stock
held by nonaffiliates on February 28, 1999 was $9,028,521. This amount excludes
shares held by directors, executive officers, and holders of 5% or more of the
outstanding Common Stock since such persons may be deemed to be affiliates of
the registrant. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of common shares outstanding as of February 28, 1999 was
3,959,701.
DOCUMENTS INCORPORATED BY REFERENCE:
Form 10-KSB reference
(1) Proxy Statement for Shareholder Meeting
scheduled for May 20, 1999 Part III
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PART I
This report includes a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. In this report, the words "anticipates," "believes," "expects,"
"intends," "future," and similar expressions identify forward-looking
statements. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from historical results or those anticipated. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in this Item 1 under the heading "Business Risks" on page 18 of
this report. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
ITEM 1. BUSINESS
OVERVIEW
Enlighten Software Solutions, Inc. ("Enlighten Software" or the
"Company") develops, markets, and supports software products for UNIX and
UNIX/Windows environment workgroup administration and enterprise management. The
Company's product solutions are designed for open systems distributed computing
environments in the range of ten to 1,000 servers/clients. The Enlighten(R)
Distributed Systems Manager(TM) ("EnlightenDSMTM") product allows companies to
manage their information systems by enabling systems managers and administrators
to control their systems from diverse UNIX/Windows platform vendors such as
Digital Equipment Corporation ("DEC"), Hewlett-Packard ("HP"), IBM, Microsoft,
Santa Cruz Operation ("SCO"), Silicon Graphics, Inc. ("Silicon Graphics"), and
Sun Microsystems ("Sun"). The Company's award winning EnlightenDSM product suite
provides cost-effective systems administration solutions for such open systems
environments. The product suite is a fully integrated software solution
providing a middle-tier framework that is a standards-based multi-function
management system covering the breadth of workgroup administration and systems
management disciplines.
Founded in 1986, the Company was a leading provider of systems
management software on the Tandem platform, providing a range of automated
systems management products to over 400 companies in 30 countries. On October 1,
1997, the Company sold its Tandem operation in order to focus efforts on its
UNIX/Windows product suite.
RECENT DEVELOPMENTS FOR THE COMPANY
Fiscal 1998 was a new beginning for Enlighten Software. Following the
sale of the Tandem product line in October 1997, the Company was able to focus
solely on its UNIX/Windows product line for the first time since that product
line's introduction in
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late 1995. The results of that focus were demonstrated during 1998 in
significant and meaningful ways. At the time of the Tandem disposition, the
Company's annual revenue from the UNIX/Windows product line was less than
$500,000 and the Company had no significant partner relationships. Shortly
thereafter, in January 1998, Enlighten entered into its first OEM bundling
agreement with Silicon Graphics. In May 1998 the Company raised $2.2 million via
a secondary public offering in order to bolster its cash position and its net
assets. In August 1998 the Company aligned with Access Graphics, a subsidiary of
General Electric's ("GE's") IT Distribution Group. In the third quarter of 1998,
Enlighten recognized its first operating profit from its UNIX/Windows product
line. Most recently, during the first quarter of 1999, the Company announced the
additions of Microsoft Windows95 and Windows98 to its UNIX and Microsoft NT
platforms. That announcement was followed by Sun Microsystems' announcement that
it had chosen EnlightenDSM as an integration partner with their Sun Enterprise
SyMON(TM) performance management software. Finally, and most significantly, in
February 1999 the Company and IBM announced a licensing arrangement in which
EnlightenDSM will be integrated into IBM's Suites for Solaris and AIX UNIX
operating system platforms.
OEM Bundling Agreement
On January 22, 1998, the Company entered into a three-year worldwide OEM
bundling agreement with Silicon Graphics. Under the terms of the agreement,
Silicon Graphics ships a bundled limited feature version of EnlightenDSM,
EnlightenDSM/Workgroup, on new server and workstation product shipments as well
as with operating system upgrades shipped to already installed Silicon Graphics
customers. Silicon Graphics also offers and includes on its price list a full
feature version of EnlightenDSM as well as agent modules to enable the
management of other UNIX/Windows vendor servers and workstations. The products
are supported through Silicon Graphic's global customer support organization. In
addition to OEM bundling, Silicon Graphics markets the products through its
telesales force, direct field organization, and authorized resellers.
GE IT Distribution Group Distribution Agreement
On August 28, 1998, the Company entered into a two-year global
distribution agreement with two of GE's subsidiaries, Access Graphics and
Integration Alliance. Under the agreement, Access Graphics and Integration
Alliance offer certified resellers the EnlightenDSM/Workgroup product bundled
with the businesses' high-end server offerings from Sun Microsystems and
Hewlett-Packard, and offer its authorized resellers the entire Enlighten product
line for distribution. This agreement extends the DSM/Workgroup product bundling
opportunity beyond the Silicon Graphics platform to include all server hardware
carried by Access Graphics and Integration Alliance. Access Graphics is the
largest master reseller for Sun Microsystems and Silicon Graphics. Integration
Alliance is the premier distributor of integrated enterprise solutions with a
focus on the HP commercial computing environment.
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Sun Microsystems' SyMON Integration
In February 1999 Sun Microsystems announced plans to integrate Sun
Enterprise SyMON software with leading management solutions from Enlighten and
other premier systems management software companies in order to simplify their
customers' system management environment. With the products from Enlighten and
the other companies, Sun intends to address three critical areas of system
management: enterprise management, application management and operating system
administration. The announcement was the result of months of working closely
with the SyMON technical personnel at Sun in order to provide a seamless
integration of EnlightenDSM's system administration capabilities and Sun
Enterprise SyMON software.
IBM Licensing Agreement
In the most significant announcement by the Company since the Silicon
Graphics' relationship, IBM and Enlighten announced on February 22, 1999 that
they had entered into a licensing agreement for Enlighten's flagship product,
EnlightenDSM. Under this agreement, IBM will integrate EnlightenDSM into the new
IBM Suites for Solaris and AIX operating systems. The agreement will provide
IBM's Suites customers with Enlighten's cross-platform solution for workgroup
management and administration of heterogeneous UNIX and Windows systems. In
addition to EnlightenDSM, the Suites includes IBM DB2 Universal Database,
WebSphere Application Server, Lotus Domino, and other IBM products. IBM and its
business partners will market the Suites worldwide with EnlightenDSM as an
integral part.
IBM Suites for Solaris and AIX are new from IBM. They are designed to
provide reliability, security, and support available for connected enterprises
and autonomous departments using applications on UNIX servers. Software
developers, value-added distributors and resellers, system integrators and other
solution providers can use the IBM Suites as a secure technology base for
developing "e-business" solutions for customers in diverse industries and
markets.
INDUSTRY BACKGROUND
In recent years there has been a significant change in the market for
networked, enterprise-wide computer systems. Technology advances in hardware and
software have created a new paradigm in computing based upon a client/server
architecture, where the user and the information server are connected via high
speed networks, locally via LANs, or remotely via communications networks. In
many cases, these systems are being deployed to replace the existing mainframe
systems. Yet the Company believes that, in the majority of cases, these systems
are additional and complementary to an organization's existing computing
capability. In the latter situations, computer systems based upon UNIX and
Windows operating systems are generally being deployed at the
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divisional and departmental levels, although many companies are increasingly
using UNIX and Windows systems for more critical applications used in the
organization's day-to-day operations. The transition to open distributed
computing has been accelerated by the adoption of Internet and Intranet
technologies that utilize such open systems. The development of client/server or
distributed systems has created a significant market for hardware and software
companies that have developed products for these open environments based on UNIX
or Windows. Sun Microsystems, Hewlett Packard, IBM, and Silicon Graphics are a
few of the hardware companies that ship large quantities of UNIX workstations
and servers. Database and programming development products from companies such
as Oracle, Informix, Sybase, Forte, SAP, and Baan have also enjoyed success
based upon the development of open systems.
Open systems environments offer several benefits, such as common
standards, allowing for combinations of hardware and software from a variety of
vendors. These environments also provide easy portability of applications from
one vendor's UNIX system to another, thereby protecting a customer's original
investment. Other benefits include lower price points, cost effective
networking, and a large pool of experienced technical personnel. However,
managing the operations of large client/server systems can be difficult and
labor intensive. As corporate customers migrate mission critical applications
from mainframes to distributed UNIX and Windows systems, they are demanding the
same type of management and administration tools provided in the mainframe
environment. The diversity of systems and applications has increased
significantly in recent years. The introduction and proliferation of the NT
operating system, the increased scope of applications from core business
transactional software to decision support, groupware, and Internet/Intranet
products, and the advancement of requirements of a centralized information
technology ("IT") department to manage systems in remote physical locations has
greatly expanded the systems management expertise required within IT
organizations of these companies. Additionally, an inherent characteristic of
open systems is a lack of complete integration of the various vendors' products.
The development of standards such as Simple Network Management Protocol
("SNMP"), the leading protocol for network management and the leading standard
for information collection in multi-vendor computing environments, and OpenView
provide a standard framework for systems management products in open
environments, but these standards must be integrated and managed. Many hardware
manufacturers have been slow to provide effective multi-vendor solutions to
manage their own, let alone their competitor's hardware, creating a market need
for truly heterogeneous system administration solutions.
While open systems have produced significant advantages, the management
of distributed, heterogeneous open systems presents a major challenge. Unlike
the mainframe environments where an operations department typically has both
trained resources and extensive systems utilities, the responsibility for
managing open systems has become the responsibility of technicians who typically
use limited system utilities and "home grown" routines.
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These market needs are currently being addressed either through manual
procedures by a company's internal IT organization, or by one of three types of
solutions: (i) point products, or stand-alone products designed to address one
particular function or requirement; (ii) interfaced products, or a set of point
products loosely coupled by a common interface but not truly integrated; and
(iii) enterprise systems management frameworks, or large monolithic products
designed to manage a customer's entire computing infrastructure from mainframe
systems, to UNIX/Windows systems, to desktop PCs. Many products serving this
market were developed by porting dated mainframe technology and architecture to
the UNIX environment. These solutions are typically expensive to acquire and
implement due to the extensive efforts associated with installing and
configuring these products to a customer's particular environment.
THE ENLIGHTEN SOFTWARE SOLUTION
Enlighten Software offers a middle-tier framework for workgroup
administration and systems management for UNIX and Windows open systems.
Enlighten Software's mission is to provide the industry's most pervasive
software solutions which help enterprises monitor, manage, and administer
distributed, heterogeneous computers simply and inexpensively. The Company
intends to establish a presence as a market leader for easy to use,
out-of-the-box, broad-based functionality for workgroup administration and
systems management across major open systems platforms. While numerous standards
are being introduced and companies are vying to position themselves in the open
systems management market, Enlighten Software is positioning its Enlighten
product suite as the one product that is vital and affordable to open systems
managers in mixed UNIX/Windows environments.
Enlighten Software's systems management solution differentiates itself
from other companies' systems management approaches. The Company believes that
systems managers demand management tools that are simple to use, easy to
install, scalable and customizable, intuitive to learn, and reasonably priced.
The Enlighten product suite is targeted to the broadest segment of the open
systems market: customers with ten to 1,000 workstations from a variety of the
most popular vendors. The Company believes the product's key strengths that
address the needs of this market niche are:
- Ease of use: EnlightenDSM is designed to be easily installed, and
configured. Typically, EnlightenDSM installs and begins operating in
hours, and can be fully configured with customized event alarms and
thresholds and integration with other third-party products in weeks.
Enterprise systems management products such as Computer Associates'
Unicenter and Tivoli Systems' TME are very complex and often require a
substantially increased investment of time and money to make useful when
compared to the Company's product.
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- Broad functionality: The customer in the Company's target market
typically has a limited budget, limited resources, and limited staff.
Therefore, the Company designed the product to be able to address a
broad range of system management and administration needs, alleviating
the customer's need to make a series of investments in point product
solutions. EnlightenDSM provides a common interface for an integrated
product that addresses (i) user account configuration, (ii) printer
resource management, (iii) network services configuration and
management, (iv) security auditing, (v) disk and file management, (vi)
archive management, (vi) systems management, and (vii) event generation
and monitoring.
- Price performance: The Company believes its product is generally priced
below comparable point products in the market, as well as enterprise
framework products.
- Open architecture: EnlightenDSM is based on an architecture which is
designed to be easily integrated with most existing point solutions as
well as solutions developed by customers internally. The product is also
designed to communicate "up" to the enterprise framework products with
event mechanisms or easy-to-write scripts in the product's Programmable
Event Processor ("PEP"). EnlightenDSM uses Structured Query Language
("SQL") with any Open Database Connectivity ("ODBC") databases and SNMP.
The product can operate as an integral part of an enterprise management
environment in a larger customer environment, or as the focal point of
administration and management in a smaller customer environment, or in
divisions/sites of a larger customer environment.
EnlightenDSM is scalable to large networks and supports the day-to-day
operational requirements of networked systems, such as adding users and nodes,
reconfiguring system processes, managing disk storage, and managing
Internet/Intranet users. The Company believes its product suite is affordably
priced, scalable from ten to 1,000 systems, designed to install within one half
hour for most configurations, and will integrate with other system console and
network administration products, such as Tivoli, CA Unicenter, Remedy, and many
others.
COMPANY STRATEGY
Enlighten Software's objective is to become a market leader in
integrated open systems workgroup administration and systems management. To
achieve this objective, Enlighten Software has adopted a business strategy
incorporating the following elements:
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Focus on the "under-served" market
The Company believes that most of the products in the enterprise systems
management market are currently focused toward Fortune 500 companies that can
afford the time and expense, and possess the resources necessary to implement a
monolithic enterprise-wide systems management solution. Mid-sized companies, and
smaller sites or departments of larger companies, cannot effectively and
efficiently implement these solutions and require less intrusive, more
cost-effective means to manage their UNIX/Windows systems. The Company believes
there are very few products to assist these organizations in managing and
monitoring their open systems networks. Enlighten Software's focus for its
UNIX/Windows products is this under-served market, defined as sites with ten to
1,000 UNIX or Windows workstations or servers without a large mainframe
presence. The Company feels its low-cost, easy-to-use, non-intrusive workgroup
administrations and systems management solution is the most effective tool for
these companies to use for managing and monitoring their systems.
Penetrate the market primarily through third-party relationships
The Company shifted its sales and marketing focus from direct sales to
indirect channels sales in late 1997 following the sale of the Tandem operation.
Shortly after this shift occurred, the Company entered into the OEM bundling
agreement with Silicon Graphics, which was then followed by the distribution and
licensing agreements with GE's IT Distribution Group and IBM Corporation, and
the integration with Sun's SyMON software. The Company's product architecture
and design, price point, and ease of use of the EnlightenDSM product allow it to
be effectively bundled with both a hardware manufacturer's operating system and
a software company's independent applications. The relationships with these
entities will allow the Company to continue penetrating the market by
proliferating its products on thousands of systems, thereby providing a base
within which to sell the full feature version of EnlightenDSM, as well as other
products. The Company intends to continue to pursue additional partnering
relationships and intends to continue to focus its sales and marketing efforts
on the following:
- Systems management and other software application vendors - The
Company believes its product suite is complementary with several
software vendors' applications. EnlightenDSM's architecture is
designed to allow integration with other third-party software
products with minimal engineering requirements. The Company
intends to pursue relationships with software companies
providing systems management, help desk software, and other
"customer care" applications with which the Company's product
could be integrated and sold as a combined solution.
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- Additional UNIX hardware manufacturers - The Company believes
that several UNIX hardware manufacturers lack effective systems
management solutions. As the competition for UNIX hardware
increases and price points drop, the Company believes these
manufacturers will need to differentiate themselves through the
ability to offer solutions to customers that provide lower cost
of ownership through ease of use and administration for their
systems. With relationships established with Silicon Graphics,
IBM, and Sun, the Company has successfully attracted three of
the major UNIX hardware manufacturers. The Company's strategy in
this area will be to leverage its relationships with its current
vendors to either broaden or deepen the relationship, as well as
enter into agreements other UNIX vendors.
- Systems integrators and consultants - The Company also believes
that companies providing systems management consulting and
outsourcing services to IT organizations are in need of
effective administration and management tools to provide their
clients with improved efficiencies in managing heterogeneous
open systems environments.
- Selected end-users - The Company has shifted its primary focus
from direct to indirect channels to market and distribute its
product. However, it maintains a small direct sales force
focused on select opportunities where the Company can provide
value through stronger, more dedicated customer relationships.
The preceding discussion regarding the Company's response to the systems
management market and its product and marketing strategy contains
forward-looking statements, and actual results may vary substantially depending
upon a variety of factors, including, but not limited to, the development of
emerging markets for systems management and administration software,
competition, technological change, changing customer needs, evolving industry
standards, any product development delays, and the ability of the Company to
manage future growth and new distribution channels, if any. These and other
factors are more fully discussed under the caption "Business Risks" on page 18
of this report.
PRODUCTS
Enlighten Software offers software products designed to automate the
management and administration of computer systems. Set forth below is a summary
of the Company's principal product offerings by product family.
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OPEN SYSTEMS MANAGEMENT
In the fast-paced UNIX/Windows environment, millions of new computers
are being deployed annually. All system administrators must learn to manage
networks in which users are added on a regular and continuous basis. The tools
these system administrators need to effectively perform their jobs should be
simple, easy to implement, and intuitive; not complex, rules-based systems
management software. The Company acquired core technology for UNIX systems
administration products in December 1994, and released two complementary UNIX
products in the second quarter of 1995. The features of these two products were
combined in EnlightenDSM version 2.0, which was released in May 1996. The
Company is currently shipping version 2.7 of EnlightenDSM. Product license fees
from the Company's open systems product family represented 100% and 27% of total
product license fees in 1998 and 1997, respectively.
Enlighten Distributed Systems Manager (EnlightenDSM)
EnlightenDSM is a standards-based, multi-function management system
covering the following disciplines: user administration, file system management,
Internet/Intranet management, printer management, security checking, archiving,
subsystem monitoring, event generation/tracking, and other system functions.
EnlightenDSM runs on a variety of open systems computer platforms, including
HP/UX, SUN/Solaris, IBM/AIX, Intel 486/SCO, Silicon Graphics/IRIX, Digital UNIX,
and Microsoft Windows. Cross-platform functionality enables the management of
diverse and distributed systems from a centralized console.
EnlightenDSM automatically collects and saves status, configuration,
performance, and capacity information and makes it available for monitoring by
most commercial SNMP managers. The product monitors system resources including
peripheral devices, processes, resources, and services. Thresholds can be set to
generate alarms that warn users of an error or problem about to occur. The
product can also be set to take corrective action automatically. EnlightenDSM
monitors and reports changes in system inventory and can track the addition or
removal of memory, disk drives, tape drives, and other devices, thereby reducing
costly downtime and improving system performance.
TANDEM SYSTEMS MANAGEMENT
The Company was originally a provider of software tools and utilities to
more effectively manage the performance of Tandem computer systems. Beginning
with one product in 1986, the Company expanded to seven products that were used
by over 400 customers in 30 countries. As the Company shifted its strategic
focus away from the Tandem platform and toward the UNIX/Windows environment, the
Company's Tandem products were sold. Product license fees from the Company's
Tandem product line accounted for 0% and 73% of total product license fees in
1998 and 1997, respectively.
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In October 1997, the Company sold all of the technology and operating assets
associated with its Tandem product line to New Dimension Software, Inc. ("NDS").
SALES AND DISTRIBUTION
The Company's revenues are derived from four sources: product license
fees, product maintenance fees, consulting services, and royalties.
Product license fees
During 1998, Enlighten Software marketed its products through third
party distributors and OEMs and, to a lesser extent, a direct field sales force.
The direct sales of the Company's products were marketed primarily throughout
North America and Europe by its product sales organization located at the
Company's headquarters in San Mateo, California.
Product license fees in 1998 consisted primarily of revenue from the
granting of perpetual licenses and from the licensing of product upgrades
necessary when customers upgrade their system hardware. Product license fees
include license fees from third party distribution relationships as well as
license fees from end-users licensed directly by the Company. Revenue from third
parties is recognized in the quarter in which the third party has shipped
product. Revenue from end-user licenses is payable in full at the commencement
of the license period and is recognized after all of the following events have
occurred: (i) a product evaluation has been shipped to the customer; (ii) the
customer elects to purchase the software following an evaluation period; and
(iii) the customer signs the related contract. Product license fees represented
65% and 34% of total revenue in 1998 and 1997, respectively.
Following the disposition of its Tandem product line during the fourth
quarter of 1997, the Company shifted its sales strategy to one based primarily
upon third-party distributors and restructured its sales department as a result
of this shift. This restructuring included personnel changes as well as the
closing of field sales offices in the Chicago and New York areas, as well as the
U.K. sales and support office.
Enlighten Software then built its sales, marketing, and customer support
organizations with a focus on delivery of its products to OEM partners,
resellers, system integrators, and select end-users. An essential element of the
Company's sales and marketing strategy has been and will continue to be the
development of indirect distribution channels, such as original equipment
manufacturers ("OEMs"), independent software vendors ("ISVs"), and value added
resellers ("VARs"), as well as other systems management and application software
vendors whose products are complementary with those of the Company.
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In January 1998, the Company established its first OEM relationship with
Silicon Graphics. Under the agreement, Silicon Graphics incorporates a limited
version of EnlightenDSM bundled with its operating system on new servers and
workstations as well as with operating system upgrades shipped to already
installed Silicon Graphics customers. Silicon Graphics also offers and includes
in their price book licenses for the full-feature version of EnlightenDSM as
well as agent modules to enable the management of other UNIX/Windows vendor's
servers and workstations as optional enhancements. The products are supported
through Silicon Graphic's global customer support organization. In addition to
OEM bundling, Silicon Graphics markets the products through its telesales force,
direct field organization, and authorized resellers. The Company receives a
license fee for each copy distributed by Silicon Graphics to its customers.
In August 1998, the Company entered into a distribution agreement with
Access Graphics and Integration Alliance, two of GE's subsidiaries in their IT
Distribution Group. Under the agreement, the companies offer certified resellers
the EnlightenDSM/Workgroup product bundled with the businesses' high-end server
offerings from Sun Microsystems and Hewlett-Packard, and offer its authorized
resellers the entire Enlighten product line for distribution. The Company
receives a license fee and support revenue from Access Graphics and Integration
Alliance for each copy of EnlightenDSM licensed by their resellers to end-users.
In February 1999 Sun Microsystems reached an agreement with the Company
that will integrate Sun Enterprise SyMON software with EnlightenDSM and other
leading management solutions from other software companies. Sun will participate
in co-marketing activities with the Company and will cooperatively work with
Enlighten's sales and marketing team in end-user sales opportunities.
Also in February 1999, the Company entered into a licensing agreement
with IBM. Under this agreement, IBM will integrate EnlightenDSM into the new IBM
Suites for Solaris and AIX operating systems. The agreement will provide IBM's
Suites customers with Enlighten's cross-platform solution for workgroup
management and administration of heterogeneous UNIX and Windows systems. In
addition to EnlightenDSM, the Suites includes IBM DB2 Universal Database,
WebSphere Application Server, Lotus Domino, and other IBM products. IBM and its
business partners will market the Suites worldwide with EnlightenDSM as an
integral part. Enlighten will receive a license fee equal to a percentage of the
revenue IBM generates from the Suites products in which EnlightenDSM is
integrated.
The Company is currently investing, and intends to continue to invest,
significant resources to develop the OEM, ISV, and VAR channels, which could
have a material adverse affect on the Company's operating margins. The Company's
efforts to expand its third-party channels are intended to penetrate the market
and achieve widespread commercial acceptance of the Company's products as a
workgroup administration
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standard. There can be no assurance that the Company will be successful in its
efforts to increase the revenues represented by this channel. The Company will
be dependent upon its current and future third-party relationships for a
significant portion of its revenue for the foreseeable future. There is no
assurance that the Company's third party distributors will effectively
distribute and exploit the Company's products. The failure of existing
distributors to sell the Company's products effectively, to the inability to
recruit additional third parties to distribute, market, and support the
Company's products could have a material adverse affect the Company's business,
operating results, and financial condition. A more detailed discussion of these
and other risks associated with the Company's business is set forth under the
caption "Business Risks" on page 18 of this report.
Product maintenance fees
All customers subscribing to Enlighten Software's maintenance service
agreements are entitled to receive (i) technical support and consultation,
primarily over the telephone, and (ii) subsequent product enhancement and
maintenance releases periodically produced by the Company. Product maintenance
support is provided directly to customers as well as through the Company's
authorized distributors. Since the Company has shifted its sales efforts from
direct to indirect channels, the Company has become more dependent on its
third-party distributors for technical support and consultation to end-users.
The Company will need to continue to increase its training and education efforts
related to its third-party distributors to ensure the technical proficiency and
knowledge of such third parties with respect to the Company's products.
Product maintenance fees consist of all maintenance revenue on new and
existing installed software products as well as support fees paid to the Company
by its third party resellers. The Company generally charges, on an annual basis,
20% of the current list price of its products in exchange for telephone support,
product updates, and product enhancements. In cases in which a third party
provides support to its end-users, the Company recognizes a portion of the
support fees charged by such third party to its customers. Product maintenance
revenue is recognized ratably over the maintenance contract period (typically
one year). Product maintenance fees accounted for 17% and 61% of total revenue
in 1998 and 1997, respectively.
Consulting services
Revenue from consulting services consists of fees charged for contract
services, product training, and other service activities. This division of the
Company's technical support organization provides fee-based consulting services
to the Company's customers throughout the U.S. Consulting service revenue is
recognized when services are performed for time and material contracts and on a
percentage of completion basis for fixed price contracts. Consulting services
represented 7% and 5% of total revenue in 1998 and 1997, respectively.
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Royalties
The Company recognizes royalties from NDS from product license fees and
product maintenance fees generated by the Tandem product line sold to NDS in
October 1997. Royalties represented 11% and 0% of total revenue in 1998 and
1997, respectively.
PRODUCT DEVELOPMENT
The computer software industry is characterized by rapid technological
change and is highly competitive in regard to timely product innovation.
Accordingly, the Company believes that its future success depends on its ability
to enhance current products that meet a wide range of customer needs and to
develop new products rapidly to attract new customers and provide additional
solutions to existing customers. In particular, the Company believes it must
continue to respond quickly to users' needs for broad functionality and open
systems support.
Enlighten Software addresses the needs of current users through
regularly scheduled maintenance and enhancement releases. At the same time, the
Company seeks to acquire and develop new products to meet the needs of a broader
group of users.
The Company provides an integrated workgroup administration and systems
management product for open systems running on six different UNIX-based systems
along with Microsoft Windows NT, Windows98, and Windows95. The EnlightenDSM
product consists of the following features: user administration, file system
management, Internet/Intranet management, printer management, security checking,
archiving, subsystem monitoring, and event alarm generation/tracking.
The Company significantly enhanced its EnlightenDSM product with several
releases during 1998. The new releases contained new features such as LDAP and
Automount support, security enhancements to the communication layer including
40-bit DES encryption and support for the new operating system releases from the
supported operating system. Appropriate adjustments were made to the
EnlightenDSM product to assure proper product operation beyond the year 2000 and
to support installations of language localized environments. Electronic
documentation for the EnlightenDSM product was enhanced. Both the User Guide and
Reference Manuals are now supplied in a single-file Adobe Acrobat format,
complete with electronic hyperlinks and cross references. In addition, the
Company added to its supported platforms with ports to Windows98 and Windows95.
In preparation of a third-party distribution effort, the Company customized its
central storage facility to integrate with the IBM DB2 Database.
The Company's strategy is to continue to enhance EnlightenDSM's
functionality through new releases and new feature development to meet the
continually advancing systems administration and management requirements of its
customers, including:
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<PAGE> 15
- increased scalability and performance;
- increased integration with other systems management point
solutions as well as other enterprise systems management
frameworks;
- increased levels of automation and ease of use to further reduce
administrative costs and overhead;
- increased range of supported platforms; and
- continued customization for the Company's current and new
third-party distributors.
There can be no assurance that the Company will be successful in
developing and marketing new features or products that respond to technological
change or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction, and marketing of any new features or products, or that its new
features or products will adequately meet the requirements of the marketplace
and achieve market acceptance. Additionally, the Company's product development
staff will be under increased pressure as the Company's products are deployed on
a significantly greater number and variety of machines by virtue of the
Company's current third party relationships (or other additional third-party
relationships, if any). Due to the complexity of the product and the large
number of network configurations in the market, it is extremely difficult to
fully test EnlightenDSM in all possible environments and, although the Company
employs a continual effort to assure a quality product, there is no assurance
that errors will not be found in the released commercial product resulting in
delays of new feature development. If the Company is unable, due to lack of
resources or for technological or other reasons, to develop and introduce new
features and products in a timely manner in response to changing market
conditions or customer requirements, the Company's business, operating results,
and financial condition will be materially adversely affected. See "Business
Risks" on page 18 of this report.
As of December 31, 1998, the Company had 17 professional and technical
employees engaged in research and development. During the fiscal years ended
December 31, 1998 and 1997, the Company's research and development expenditures
before the capitalization of software development were $1,691,950 and
$2,125,944, respectively.
COMPETITION
The systems management market in which the Company competes is intensely
competitive, highly fragmented and rapidly changing. In order to compete, the
Company must enhance its current products, enhance the operability of its
products with other products, management frameworks, and operating systems
through a truly open architecture, develop new products in a timely fashion, and
develop key strategic
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<PAGE> 16
partnerships with other hardware and software vendors. Many of the Company's
competitors in the open systems markets are larger and have greater financial,
technical, marketing, and other resources than the Company. Because there are
relatively low barriers to entry in the software market, the Company expects
additional competition from other established and emerging companies. Increased
competition is likely to result in price reductions, reduced gross margins, and
increased difficulty in establishing market share, any of which could have a
material adverse effect on the Company's business, operating results, and
financial condition. See "Business Risks" on page 18 of this report.
The Company's principal competition in the market for open systems
workgroup administration and system management products is from enterprise
systems management vendors such as Tivoli, a wholly-owned subsidiary of IBM, and
Computer Associates, as well as point products from BMC Software, Inc., Platinum
Technologies, Inc., Veritas Software, Inc., Compuware, and Legato Systems, Inc.
The Company also faces competition from internal development groups of
prospective end-user customers and OEMs, including operating system vendors,
many of which have substantial internal programming resources and are capable of
developing specific operating system level products for their own needs. In
addition, certain operating systems vendors have already incorporated systems
management capabilities into their operating system, including HP, Sun, IBM, and
Microsoft, which reduces such vendors' need for the Company's products.
Additional hardware manufacturers may elect to offer similar competitive
products in the future.
The Company believes that it competes favorably with its competitors
with respect to product features and functionality, such as scalability,
interoperability across multiple platforms, adherence to standards, security, as
well as reliability, ease-of-use, price/performance ratio, and an ability to
integrate easily with third-party vendors' products. However, given the
Company's size, its recent entry into the UNIX/Windows markets, and the
advantages its competition enjoys with respect to size and resources, there can
be no assurances the Company can effectively compete in this market.
PRODUCT PROTECTION
The Company relies on a combination of copyright, trade secret and
trademark laws, and software security measures, along with employee and
third-party nondisclosure agreements, to protect its intellectual property
rights, products, and technology. The Company's products are typically licensed
on a "right to use" basis pursuant to perpetual licenses that restrict the use
of the products to the customer's internal purposes. The Company distributes its
software under license agreements that are signed by its end-users. Despite the
precautions taken by the Company to protect its software, unauthorized parties
may attempt to reverse engineer, copy, or obtain and use information the Company
regards as proprietary. Policing unauthorized use of the Company's products is
difficult, and software piracy is expected to be a persistent problem.
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<PAGE> 17
Additionally, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States.
The Company has entered into source code escrow agreements with some of
its customers that require the release of source code to the customer in the
event there is a bankruptcy proceeding by or against the Company, the Company
ceases to do business, or the Company is unable to fulfill its contractual
obligations with respect to support. In the event of a release of the source
code, the customer is required to maintain its confidentiality and, in general,
to use the source code solely for the purpose of maintaining the software's
usability. The provision of source code may increase the likelihood of
misappropriation or other misuse of the Company's intellectual property.
The Company is not aware that its products, trademarks, or other
proprietary rights infringe the proprietary rights of third parties. However,
from time to time, the Company receives notices from third parties asserting
that the Company has infringed their patents or other intellectual property
rights. In addition, the Company may initiate claims or litigation against third
parties for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Any such claims could be
time-consuming, result in costly litigation, cause product shipment delays or
lead the Company to enter into royalty or licensing agreements rather than
disputing the merits of such claims. As the number of software products in the
industry increases and the functionality of such products further overlap, the
Company believes that software developers may become increasingly subject to
infringement claims. Any such claims, with or without merit, can be time
consuming and expensive to defend. An adverse outcome in litigation or similar
proceedings could subject the Company to significant liabilities to third
parties, require expenditure of significant resources to develop non-infringing
technology, require disputed rights to be licensed from others, or require the
Company to cease the marketing or use of certain products, any of which could
have a material adverse effect on the Company's business, operating results, and
financial condition. See "Business Risks" on page 18 of this report.
EMPLOYEES
As of December 31, 1998, the Company employed 35 people at its offices
in San Mateo, CA and Denver, CO. Of these employees, 17 were engaged in product
development, 12 in sales, marketing, and customer support, and 6 in finance and
other administrative departments. The Company believes its future success
depends in large part upon the continued service of its key technical and senior
management personnel and its ability to attract and retain highly qualified
technical and managerial personnel. Competition for such personnel is intense,
as certain of these personnel have significant prior industry experience and are
in great demand. There can be no assurance that the Company can retain its key
technical and managerial employees or that it can attract, assimilate or retain
other highly qualified technical and managerial personnel in the future. None of
the Company's employees are subject to any collective bargaining
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<PAGE> 18
agreements. Each employee of the Company has executed an agreement not to
disclose trade secrets or other confidential information. Enlighten Software
believes its employee relations are good.
BUSINESS RISKS
In addition to the other information in this Report on Form 10-KSB and
other documents the Company files from time to time with the Securities and
Exchange Commission, the following risk factors should be considered carefully
in evaluating the Company and its business:
Fluctuating Operating Results
The Company has experienced significant quarterly fluctuations in
operating results and expects that these fluctuations will continue in future
periods. These fluctuations have been caused by a number of factors, including
the timing of new product or product enhancement introductions by the Company or
its competitors, the development and introduction of new operating systems that
require additional development efforts, purchasing patterns of its customers,
size and timing of individual orders, the rate of customer acceptance of new
products, and pricing and promotion strategies undertaken by the Company or its
competitors. Future operating results may fluctuate as a result of these and
other factors, including the Company's ability to continue to develop, acquire,
and introduce new products on a timely basis, the timing and level of sales by
the Company's OEM or other third-party licensees of computer systems or software
incorporating the Company's products, technological changes in computer systems
and environments, quality control of the products sold, the Company's success in
shifting its primary sales strategy from direct to indirect channels, and
general economic conditions. Additionally, the Company's operating results may
be influenced by seasonality and overall trends in the global economy. Because
the Company operates with a relatively small backlog, quarterly sales and
operating results generally depend on the volume and timing of orders received
during the quarter, which are difficult to forecast. Historically, the Company
has recognized a substantial portion of its license revenues in the last month
of the quarter, particularly the last week. Since the Company's staffing levels
and other operating expenses are based upon anticipated revenues, delays in the
receipt of orders can cause significant fluctuations in income from quarter to
quarter.
Uncertainty of Success in Open Systems Market
The Company has derived a substantial portion of its revenue to date
from its Tandem-based products. The Company, however, sold all rights to its
Tandem technology in October 1997. The future success of the Company is
substantially dependent on its ability to generate significant revenue from its
UNIX/Windows product offering. The Company's initial product entry into the open
systems market in 1995 was
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<PAGE> 19
unsuccessful. Version 2.0 of EnlightenDSM was released in mid-1996. This version
and its extensions represented 100% and 27% of the Company's license revenues in
1998 and 1997, respectively. In January 1998, the Company signed an OEM bundling
agreement with Silicon Graphics in which Silicon Graphics will bundle a limited
version of the Company's product on each UNIX system shipped. In August 1998,
the Company signed a distribution agreement with Access Graphics and Integration
Alliance, distributors with approximately $2 billion annually in hardware
revenue. In February 1999, the Company signed a licensing and integration
agreement with IBM under which IBM will integrate EnlightenDSM with its new
Suites product line for Solaris and AIX operating systems. Additionally in
February 1999, Sun and the Company announced that EnlightenDSM will be
integrated with Sun's SyMON systems management product. However, the open
systems market is characterized by rapid technological growth and intense
competition. For example, in 1998 the Linux operating system, a derivative of
the UNIX operating system that has been available as "shareware" for several
years, began to achieve significant commercial success. The Company does not
currently have a product that operates in a Linux environment. There can be no
assurance that the Company has the resources, both financial and personnel, to
effectively capitalize on, and continue with, its early and limited success in
this market.
Expansion of New Distribution Channels; Reliance on Resellers
Prior to October 1997, the Company employed primarily a direct sales
model, complemented with a telesales force, for the sale of its software
products. In the fourth quarter of 1997, the Company began to shift a majority
of its sales and marketing resources toward third-party resellers in both the
United States and internationally. The Company's growth is dependent on its
ability to expand its third-party distribution channel to market, sell, and
support the Company's software products. The Company is currently investing, and
intends to continue to invest, significant resources to develop this channel,
which could materially adversely affect the Company's operating margins. The
Company has only limited experience in marketing its products through
distributors. Additionally, the Company will have no control over its
third-party distributors including their shipping dates or volumes of systems
shipped by its OEM and other third-party customers. There can be no assurance
that the Company will be successful in its efforts to generate significant
revenue from this channel, nor can there can be any assurance that the Company
will be successful in recruiting new organizations to represent the Company and
its products.
Additionally, since the Company has shifted its sales efforts from
direct to indirect channels, the Company is more dependent on its third-party
distributors for the technical support and consultation to end-users. The
Company will need to continue to increase its training and education efforts
related to its third-party distributors to enable such third parties to obtain
the technical proficiency and knowledge with respect to the Company's products.
Despite these efforts, there can be no assurance that the Company will
successfully train its third party distributors to enable them to provide
adequate technical
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<PAGE> 20
support to the customer base. This may result in, among other things, increased
workload on the Company's internal support and engineering staff, or poor
customer acceptance of the products, or both, either of which would have a
material adverse effect on the Company's business, operating results, and
financial condition.
In 1998 and early 1999, the Company entered into agreements with Silicon
Graphics, Access Graphics and Integration Alliance, and IBM, as well as teamed
with Sun Microsystems on product integration, all of which provides new
distribution channels for the Company's products. While the Company believes
these arrangements will be beneficial, there can be no assurance that the
Company will be able to deliver its products to these vendors in a timely manner
or that these vendors will license the Company's products in volumes anticipated
by the Company. Further, these agreements are the Company's only significant
third-party distribution agreements to date. While the Company's strategy is to
obtain additional resellers to reduce the dependence on these few vendors, there
can be no assurance of successfully attracting additional vendors to distribute
the Company's products. Any such failure would result in the Company having
expended significant resources with little or no return on its investment, which
would have a material adverse effect on the Company's business, operating
results, and financial condition.
These additional investments and responsibilities will require the
expenditure by the Company of substantial resources, including the diversion of
employees from other projects to provide the support services and development
efforts required to provide products and services to its current resellers and
any other new third parties, if any.
Intense Competition
The Company experiences intense competition from other systems
management companies, and the market is rapidly changing. The Company believes
that its ability to compete successfully depends on a number of factors,
including the performance, price, and functionality of its products relative to
those of its competitors. Most of the Company's competitors are larger and have
greater financial, technical, marketing, support, and other resources than the
Company. As a result, they may be able to respond more quickly to new or
emerging technologies and changes in customer requirements. In addition, the
software industry is characterized by low barriers to entry. There can be no
assurance that the Company's current competitors or any new market entrants will
not develop systems management products that offer significant performance,
price, or other advantages over the Company's technology. In addition, operating
system vendors could introduce new or upgrade existing operating systems or
environments that include systems management functionality offered by the
Company, which could render the Company's products obsolete and unmarketable.
There can be no assurance that the Company will be able to successfully compete
against current or future competitors which could have a material adverse effect
on the Company's business, operating results, and financial condition.
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<PAGE> 21
Possible Volatility of Stock Price
The trading price of the Company's Common Stock has been subject to
significant fluctuations since its initial public offering in 1994. The trading
price of the Company's Common Stock could be subject to wide fluctuations in the
future due to factors such as announcements of technological innovations, new
product introductions by the Company, its competitors and other third parties,
quarterly variations in the Company's operating results, and market conditions
in high technology industries generally and in the software industry in
particular. In addition, the stock market has experienced volatility that has
particularly affected the market prices of many high technology companies which
has often been unrelated to the operating performance of such companies. These
broad market fluctuations may adversely affect the market price of the Company's
Common Stock.
Product Concentration
The Company expects that a substantial majority of the Company's revenue
in future periods will be derived from its UNIX/Windows product, EnlightenDSM.
This product accounted for 100%, and 27% of the Company's license revenue in the
years ended December 31, 1998, and 1997, respectively. The Company disposed of
its Tandem product line that accounted for the balance of its license revenue in
1997. The Company expects that the EnlightenDSM product and its extensions and
derivatives will continue to account for a substantial majority, if not all, of
the Company's revenue for the foreseeable future. Broad market acceptance of
EnlightenDSM is, therefore, critical to the Company's future success. Failure to
achieve broad market acceptance of EnlightenDSM, as a result of competition,
technological change, or otherwise, would have a material adverse effect on the
business, operating results, and financial condition of the Company. The
Company's future financial performance will depend in significant part on the
successful development, introduction, and market acceptance of EnlightenDSM and
its product enhancements. There can be no assurance that the Company will be
successful in marketing EnlightenDSM or any new products, applications, or
product enhancements, and any failure to do so would have a material adverse
effect on the Company's business, operating results, and financial condition.
Support Of Multiple Environments; Product Development
The Company's future success will depend on the timely and successful
development and introduction of new products (including new releases,
applications, and enhancements). Such activities can involve substantial
commitments of financial, product development, and other resources. Moreover,
even if such efforts are successful, the Company might have focused on
particular applications that do not achieve or maintain widespread market
acceptance or whose users are predisposed to obtain their management tools from
other sources. The result of such occurrence could mean that
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<PAGE> 22
significant expenditures of time, effort, and funds by the Company have little
or no value, which could have a material adverse effect on the Company's
business, operating results, and financial condition.
The Company has developed and is continuing to develop various versions
of its products for the Windows NT, Windows98, and Windows95 environments. The
Company also intends to expand its products to support additional applications
and operate across more diverse open networks, which may encompass an increasing
variety of processor, server, and workstation types and multiple operating
systems. Such efforts will require significant commitments of financial and
product development resources, and there can be no assurance that such efforts
will be successful. The failure of such efforts or the failure of any resulting
products to achieve market acceptance could have a material adverse effect on
the Company's business, operating results, and financial condition.
Software products as complex as those offered by the Company often
contain undetected errors or failures when first introduced or as new versions
are released. The Company has in the past discovered software errors in certain
of its new products after their introduction and has experienced delays or lost
revenues during the period required to correct these errors. Testing of the
Company's products is particularly difficult because of the Company's limited
ability to simulate the wide variety of computing environments in which the
Company's customers may deploy such products Although the Company has not
experienced material adverse effects resulting from any such errors to date,
there can be no assurance that, despite testing by the Company and by current
and potential customers, errors will not be found in new products after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance, which could have a material adverse effect upon the Company's
business, operating results, and financial condition.
Rapid Technological Change
The market for the Company's products is characterized by rapid
technological developments, evolving industry standards, and rapid changes in
customer requirements. The introduction of products embodying new technologies,
including new operating systems, applications, hardware products, systems
management frameworks, and network management platforms, the emergence of new
industry standards, or changes in customer requirements could render the
Company's existing products obsolete and unmarketable. As a result, the
Company's success depends upon its ability to continue to enhance existing
products, respond to changing customer requirements, and develop and introduce
in a timely manner, new products that keep pace with technological developments
and emerging industry standards.
Additionally, there can be no assurance that other operating systems,
such as Windows NT or Linux, will not significantly affect deployment of
traditional UNIX systems for business critical applications. A significant
portion of the Company's
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<PAGE> 23
revenue will continue to be derived from UNIX-based computer systems for the
foreseeable future. While the Company has ported its products to the Windows NT,
Windows98, and Windows95 platforms, the product requires customers to control
systems management for their heterogeneous environment from traditional
UNIX-based systems. A significant decline in sales of traditional UNIX-based
systems would decrease the demand for the Company's products and would have a
material adverse effect on the Company's business, operating results, and
financial condition. Finally, there can be no assurance that the Company will be
successful in developing and marketing, on a timely basis, product enhancements
or new products that respond to technological change or evolving industry
standards, that the Company will not experience difficulties that could delay or
prevent the successful development, introduction, and sale of these products, or
that any such new products or product enhancements will adequately meet the
requirements of the marketplace and achieve market acceptance.
Product Liability
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. In licensing its products, the Company relies primarily on a
combination of signed license agreements that incorporate by reference "shrink
wrap" licenses that are included electronically with the product. In the future,
particularly in connection with any OEM and other bundling relationships, the
Company will rely on "shrink wrap" licensees that are not signed by the
end-users, and, therefore, such licenses may be unenforceable under the laws of
certain jurisdictions. As a result of these and other factors, the limitation of
liability provisions contained in the Company's license agreements may not be
effective. The Company's products can be used to manage systems critical to
organizations, and, as a result, the sale and support of products by the Company
may entail the risk of product liability claims. A successful product liability
claim brought against the Company could have a material adverse effect upon the
Company's business, operating results, and financial condition.
Dependence on Growth of Systems Management Market
For the foreseeable future, all of the Company's business will be in the
open systems (UNIX and Windows) systems management market, which is still an
emerging market. The Company's future financial performance will depend in large
part on continued growth in the number of companies adopting systems management
solutions for their client/server computing environments. There can be no
assurance that the market for systems management solutions will continue to
grow. If the systems management market fails to grow or grows more slowly than
the Company currently anticipates, or in the event of a decline in unit price or
demand for the Company's products, as a result of competition, technological
change, or other factors, the Company's business, operating results, and
financial condition would be materially adversely affected. During recent years,
segments of the computer industry have experienced
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<PAGE> 24
significant economic downturns characterized by decreased product demand,
production overcapacity, price erosion, work slowdowns, and layoffs. The
Company's operations may in the future experience substantial fluctuations from
period-to-period as a consequence of such industry patterns, general economic
conditions affecting the timing of orders from major customers, and other
factors affecting capital spending. There can be no assurance that such factors
will not have a material adverse effect on the Company's business, operating
results, and financial condition.
Management Of Growth; Dependence on Key Personnel
The Company's success in the future is dependent upon its ability to
grow rapidly and effectively manage growth. Such growth, if any, will require
increased managerial, technical, direct sales, and other personnel, expanded
information systems and additional financial and administrative control
procedures. Expansion of the Company's indirect and direct sales channels will
require significant financial and managerial commitments by the Company. There
can be no assurance that the Company will be able to effectively manage such
growth, if any. Its failure to do so would have a material adverse effect on its
business, operating results, and financial condition. Competition for qualified
technical, sales, and other qualified personnel is intense, and there can be no
assurance that the Company will be able to attract or retain highly qualified
employees in the future. The Company's future success also depends in part upon
the continued service of its key technical, sales and senior management
personnel. The loss of the services of one or more of these key employees could
have a material adverse effect on its business, operating results, and financial
condition.
Year 2000 Compliance
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium ("Year 2000") approaches. The
Year 2000 problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to 00.
Systems that do not properly recognize date sensitive information when the year
changes to 2000 could generate erroneous data or cause a system to fail.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance.
The Company has conducted Year 2000 compliance reviews for current
versions of its products. The reviews include assessment, implementation, and
validation testing. The Company believes that all of its existing products are
or will become Year 2000 compliant during fiscal 1999 and new products will be
designed to be Year 2000 compliant. Contingency plans for the handling of its
reasonably likely worst case scenarios will be created during fiscal 1999 to
determine how the Company will handle its reasonably likely worst case
scenarios. Although the Company believes its products will be Year 2000
compliant, its products may not contain all the necessary software routines and
programs for the accurate calculation, display, storage and manipulation of
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<PAGE> 25
data involving dates. Any failure of the Company's products to perform,
including system malfunctions due to the onset of the calendar year 2000, could
result in claims against the Company, which could have a material adverse effect
on the Company's business, financial condition or results of operations.
To the extent information is publicly available, the Company has
assessed the Year 2000 compliance status of its customers. The failure of its
current or future customers to achieve Year 2000 compliance, or if they divert
technology expenditures to address Year 2000 compliance problems, could have a
material adverse effect on the Company's business, financial condition or
results of operations.
We believe the software and hardware we use internally comply with Year
2000 requirements or will comply during 1999. During 1998, we replaced or
upgraded much of our internal use hardware and software. In 1998, the Company
incurred approximately $100,000 in its Year 2000 remediation efforts. Enlighten
expects additional remediation costs of approximately $50,000 in 1999, which
includes expenditures for hardware and software upgrades. In addition, we are
not aware of any material operational issues or costs associated with preparing
our internal use software and hardware for the Year 2000. However, serious,
unanticipated negative consequences, including material costs caused by
undetected errors or defects in the technology used in our internal systems may
occur. The occurrence of any of the foregoing could seriously harm our business,
operating results or financial condition.
The Company has not yet fully developed a comprehensive contingency plan
to address situations that may result if the Company is unable to achieve Year
2000 readiness of its critical operations. The cost of developing and
implementing such a plan may itself be material.
ITEM 2. PROPERTIES
The Company leases approximately 17,000 square feet of office space in
San Mateo, California under a lease which expires in March 2001 and leases a
sales and support office in Denver Colorado under a lease which expires in
August 1999. The Company believes that its current facilities are adequate for
its needs for the foreseeable future and should additional space be needed, it
will be available to accommodate the expansion of the Company's operations on
commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings and is
not aware of any proceedings that any party is contemplating to bring against
the Company, although from time to time it may become involved in disputes in
connection with the operation of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Since April 20, 1994, the Company's Common Stock has been traded on the
Nasdaq SmallCap Market under the symbol "SFTW." As of December 31, 1998, there
were 37 record holders of the Company's Common Stock. As of the same date,
3,899,761 shares of Common Stock were outstanding and 10,000,000 shares of
Common Stock were authorized.
The following table sets forth the range of high and low closing sale
prices for each of the periods indicated for the shares of Common Stock.
<TABLE>
<CAPTION>
1997
<S> <C> <C>
Quarter Ended
- -------------
March 31, 1997 $5.25 $2.75
June 30, 1997 $3.25 $1.38
September 30, 1997 $3.50 $0.94
December 31, 1997 $3.00 $2.00
</TABLE>
<TABLE>
<CAPTION>
1998
<S> <C> <C>
Quarter Ended
- -------------
March 31, 1998 $5.25 $3.00
June 30, 1998 $4.50 $2.75
September 30, 1998 $3.69 $2.13
December 31, 1998 $3.81 $1.91
</TABLE>
DIVIDEND POLICY
The Company has never paid cash dividends and does not anticipate paying
cash dividends in the foreseeable future. The Company anticipates that it will
retain earnings, if any, for future growth and expansion of its business.
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<PAGE> 27
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following statements regarding the Company's future revenues,
revenue sources, operating expenses, and capital expenditures include
forward-looking information. Actual results may vary substantially depending
upon a variety of factors including those described in "Item 1 - Business
Business Risks" on page 18 of this report, or elsewhere in this report.
OVERVIEW
Enlighten Software Solutions develops, markets, and supports software
products for UNIX and UNIX/Windows environment workgroup administration and
enterprise management. The Company's product solutions are designed for open
systems distributed computing environments in the range of ten to 1,000
servers/clients. The EnlightenDSM product allows companies to manage their
information systems by enabling systems managers and administrators to control
their systems from diverse UNIX/Windows platform vendors such as DEC, HP, IBM,
SCO, Silicon Graphics, Sun, and Microsoft.
Founded in 1986, the Company was a leading provider of systems
management software on the Tandem platform, providing a range of automated
systems management products to over 400 companies in 30 countries.
On October 1, 1997, the Company sold its Tandem product line to NDS in
order to focus efforts on its UNIX/Windows product suite. In connection with
this sale, the Company received approximately $2.5 million in cash, of which
$1.6 million was received in 1997, and the rights to receive royalties on Tandem
related products for a period of three years based upon NDS' licensing and
support of the Tandem software products. The sale of the Tandem product line
also included the transfer to NDS of approximately 12 employees associated with
the Company's Tandem operation.
Following the disposition of its Tandem product line, the Company
shifted its sales strategy to one based primarily upon third-party distributors
and restructured its sales department as a result of this shift. The Company
intends to build its sales, marketing, and customer support organizations with a
focus on delivery of its products to OEM partners, resellers, system
integrators, and select end-users. An essential element of the Company's sales
and marketing strategy is the development of indirect distribution channels,
such as OEMs, ISVs, and VARs, as well as other systems management and
application software vendors whose products are complementary with those of the
Company.
-27-
<PAGE> 28
VARIABILITY OF QUARTERLY RESULTS
The Company has experienced significant quarterly fluctuations in
operating results and expects that these fluctuations will continue in future
periods. These fluctuations have been caused by a number of factors, including
the timing of new product or product enhancement introductions by the Company or
its competitors, purchasing patterns of its customers, size and timing of
individual orders, the rate of customer acceptance of new products, and pricing
and promotion strategies undertaken by the Company or its competitors. Future
operating results may fluctuate as a result of these and other factors,
including the Company's ability to continue to develop, acquire, and introduce
new products on a timely basis. Additionally, the Company's operating results
may be influenced by seasonality and overall trends in the global economy.
Because the Company operates with a relatively small backlog, quarterly sales
and operating results generally depend on the volume and timing of orders
received during the quarter, which are difficult to forecast. Historically, the
Company has recognized a substantial portion of its license revenues in the last
month of the quarter, particularly the last week. Since the Company's staffing
levels and other operating expenses are based upon anticipated revenues, delays
in the receipt of orders can cause significant fluctuations in income from
quarter to quarter.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
Total revenue. Total revenue decreased 11% from $4,231,000 in 1997, to
$3,758,000 in 1998. This decrease was primarily due to the sale of the Company's
Tandem products on October 1, 1997, which primarily affected product license
fees and product maintenance fees. Total revenue from the Company's UNIX/Windows
product line increased 538% from $506,000 in 1997, to $3,229,000 in 1998. Total
revenue from the Company's disposed Tandem product line decreased 86% from
$3,725,000 in 1997, to $529,000 in 1998.
Revenue from product license fees increased 68% from $1,439,000 in 1997,
to $2,417,000 in 1998. The increase was primarily attributable to the revenue
associated with license fees from the Silicon Graphics OEM relationship, signed
in January 1998, which more than offset the decrease in revenue from the
Company's disposed Tandem product line. Revenue from the Company's UNIX/Windows
product license fees increased by 518%, from $391,000 in 1997, to $2,417,000 in
1998. There was no revenue from the Company's Tandem product license fees in
1998 compared to $1,047,000 in 1997.
Product maintenance fees decreased by $1,943,000, or 75%, to $656,000 in
1998 compared to 1997. This decline is entirely due to the disposition of the
Tandem product line on October 1, 1997. There were no product maintenance fees
from the Tandem
-28-
<PAGE> 29
product line in 1998, compared to $2,515,000 in 1997. This decrease was
partially offset by an increase in product maintenance fees for the Company's
UNIX/Windows product line of $572,000, or 686%, for the year ended December 31,
1998, when compared to 1997.
Consulting services revenue increased by $67,000, or 35%, to $261,000 in
1998 when compared with 1997. The increase is primarily attributable to
consulting project work performed in association with Silicon Graphics.
The Company recognizes royalties from NDS from product license fees and
product maintenance fees generated by the Tandem product line sold to NDS in
October 1997. Royalties were $426,000 in 1998 and there were no comparable
amounts in 1997.
Cost of revenue. Cost of revenue consists of royalties paid to third
parties, amortization of software development and acquisition costs, product
packaging and documentation, software media, and the costs of employees and
contractors providing consulting services. Cost of revenue decreased by
$307,000, or 31%, to $670,000 in 1998. The reduction in cost of revenue is
caused primarily by the decrease in costs associated with royalties and
technology amortization related to the Company's Tandem product line. Costs
associated with royalties decreased by 37%, to $201,000, while costs associated
with technology amortization decreased 74%, to $139,000. Both these decreases
were a result of the disposition of the Tandem product line.
Research and development. Research and development expenses consist of
personnel expenses and associated overhead, and costs of short-term independent
contractors required in connection with the Company's product development
efforts, less amounts capitalized. Net research and development expenses
decreased by 18% from $2,059,000, or 49% of revenue in 1997, to $1,692,000, or
45% of revenue in 1998. This decrease is solely attributable to the decrease in
development costs associated with the Company's disposed Tandem product line.
The decrease in Tandem-related development costs were partially offset by an
increase in development costs in connection with the UNIX/Windows product line.
Costs incurred in the research and development of new software products
are expensed as incurred until technological feasibility is established.
Recently, the establishment of technological feasibility of the Company's
EnlightenDSM product and general release substantially coincided. As a result,
the Company has capitalized a lesser portion of its software development costs
since a majority of such costs have not been significant. The Company expects
research and development expenses to increase in absolute dollars as the Company
continues to invest in the enhancement of existing products and the development
of new products.
Sales and marketing. Sales and marketing expenses include costs of sales
and marketing personnel, advertising and promotion expenses,
-29-
<PAGE> 30
travel and entertainment, and other selling and marketing costs. Sales and
marketing expenses decreased by 49%, from $3,820,000, or 90% of revenue in 1997,
to $1,959,000, or 52% of revenue in 1998. The decrease is attributable to the
Company's restructuring of the sales and marketing department related to the
shift in sales strategy from primarily a direct sales approach to an indirect
channels approach. This shift occurred during the fourth quarter of 1997. During
the fourth quarter of 1997, the Company closed its field sales offices in the
Chicago and New York areas and in the U.K. For the foreseeable future, the
Company expects sales and marketing costs to increase in absolute dollars as it
expands its sales and marketing force to enhance its ability to sell and service
its products through third-party resellers.
General and administrative. General and administrative expenses, which
include personnel costs for finance, administration, information systems, and
general management, as well as professional fees, legal expenses, and other
administrative costs, decreased by 40%, from $1,551,000, or 37% of revenue in
1997, to $930,000, or 25% of revenue in 1998. The decrease in expense is
primarily related to decreased legal fees associated with an arbitration hearing
settled in 1997, and other reduced infrastructure costs associated with the
disposed Tandem operations.
Gain on sale of Tandem product line. On October 1, 1997, the Company
sold its Tandem product line to NDS. The Company recognized a gain on the sale
of the operating assets of the Tandem product line of $515,000 and $2,158,000 in
1998 and 1997, respectively. The Company received approximately $2.5 million in
cash and the rights to receive royalties on Tandem related products for a period
of three years. The Tandem operations contributed revenue, excluding royalties,
of $104,000 and $3,725,000 in 1998 and 1997, respectively. The sale of the
Tandem product line also included the transfer to NDS of approximately 12
employees associated with the Company's Tandem operation.
Other income (expense). Other income and expense includes interest
income net of interest expense and gains and losses on foreign currency
transactions. Interest income is primarily derived from interest on the
Company's savings accounts and short-term interest-bearing securities. Interest
expense is comprised of interest on bank notes and capital leases of computer
equipment. Other income and expense (net) increased by $105,000, or 174%, in
1998 when compared to 1997 as a result of increased cash balances, resulting in
an increase in interest income from cash reserves.
Income tax expense (benefit). The Company recognized a tax benefit of
$41,000 in 1998 as a result of receiving tax refunds on net operating loss
carrybacks in excess of amounts previously provided for by the Company. The tax
benefit was partially offset by a $15,000 tax expense incurred as a result of
the filing of the final tax return for the U.K. operations. The Company's tax
expense recognized in 1997 is primarily due to taxes paid to foreign
jurisdictions. No tax benefit, other than that stated above, was recognized in
either year due to the uncertainty related to the Company's ability to recognize
a tax benefit for loss and credit carryforwards.
-30-
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company's cash, cash equivalents, and short
term investments were $3,186,000, representing 65% of total assets. The
Company's working capital as of December 31, 1998, was $3,274,000. Cash
equivalents are highly liquid investments with purchased maturities of ninety
days or less. The Company's short term investments are primarily investment
grade commercial paper and other highly liquid investments. The Company had no
debt as of December 31, 1998, other than normal trade payables and accrued
liabilities. Shareholders' equity as of December 31, 1998, was $4,224,000.
The Company's operating activities used cash of $1,334,000 in 1998,
compared to cash used by operating activities of $1,915,000 in the prior year.
The decrease in cash used by operating activities was principally caused by
decreased net losses. This was partially offset by an increase in accounts
receivable, a decrease in accrued and other liabilities, and a decrease in
deferred revenue.
The Company's investing activities have consisted primarily of the
disposition of the Tandem operation, short-term investments, and additions to
capital equipment. Investing activities used cash of $684,000 in 1998, compared
with providing cash of $2,473,000 in 1997. The decrease is primarily due to an
increase in purchases of short-term investments and the decrease in proceeds
from the sale of the Tandem operation.
Financing activities provided cash of $2,512,000 in 1998, compared with
cash provided of $158,000 in the prior year. The increase in cash provided from
financing activities resulted from the Company's issuance and sale of 700,000
shares of Common Stock in a public offering.
In May 1998, the Company completed a public offering (the "Offering") of
700,000 shares of common stock. The net proceeds from the Offering of $2.2
million were, and will be used for funding operations and capital expenditures
and for other general corporate purposes, including working capital.
On October 1, 1997, the Company sold its Tandem product line to New
Dimension Software, Inc. ("NDS"). The Company received approximately $2.5
million in cash and the rights to receive royalties on Tandem related products
for a period of three years. The Company received $1.6 million in cash in 1997,
which included a $300,000 prepayment of future royalties.
The Company will require substantial cash flow to continue operations on
a satisfactory basis and complete its research and development and its sales and
marketing programs. The Company anticipates that cash and short-term investments
and net proceeds from the Offering will provide sufficient liquidity to fund
these requirements for the next twelve months. However, the Company's continued
ability to fund operations
-31-
<PAGE> 32
and meet its other obligations depends on its future performance, which, in
turn, is subject to general economic conditions, and business and other factors
beyond the Company's control. If the Company is unable to generate sufficient
cash flow from operations, it may be required to obtain additional financing.
There can be no assurance that the Company would be able to obtain such
financing, or that any financing would result in a level of net proceeds
required.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
See Consolidated Financial Statements included herein beginning on page
F-1.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-32-
<PAGE> 33
Certain information required by Part III is omitted from this report, in
that the Company will file its Proxy Statement for its Annual meeting of
Shareholders with the Securities and Exchange Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
report, and certain information included therein is incorporated herein by
reference.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 9 is set forth in the Company's
Proxy Statement for its Annual Meeting of Shareholders to be held on May 20,
1999, under the captions "Directors and Executive Officers" and "Section 16(b)
Beneficial Ownership Reporting Compliance," and is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item 10 is set forth in the Company's
Proxy Statement for its Annual Meeting of Shareholders to be held on May 20,
1999, under the caption "Executive Compensation and Other Matters," and is
incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 11 is set forth in the Company's
Proxy Statement for its Annual Meeting of Shareholders to be held on May 20,
1999, under the caption "Stock Ownership of Certain Beneficial Owners and
Management," and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 12 is set forth in the Company's
Proxy Statement for its Annual Meeting of Shareholders to be held on May 20,
1999, under the caption "Certain Relationships and Related Transactions," and is
incorporated herein by reference.
-33-
<PAGE> 34
PART IV
ITEM 13. FINANCIAL STATEMENTS, EXHIBITS, SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a)(1) Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets:
December 31, 1998 and 1997 F-2
Consolidated Statements of Operations:
Years ended December 31, 1998 and 1997 F-3
Consolidated Statements of Shareholders' Equity:
Years ended December 31, 1998 and 1997 F-4
Consolidated Statements of Cash Flows:
Years ended December 31, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6
(a)(2) Exhibits:
</TABLE>
See Exhibits Index on Page 35. The Exhibits listed in the accompanying
Exhibits Index are filed or incorporated by reference as part of this report.
Exhibit Nos. 10.28, 10.29, 10.31, and 10.32 are compensatory plans or
arrangements.
(b) Reports on Form 8-K:
None
-34-
<PAGE> 35
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1(1) Amended and Restated Articles of Incorporation.
3.2(1) By Laws.
10.27(2) Agreement dated as of September 22, 1997, by and among
Enlighten Software Solutions, Inc., Peter J. McDonald, and New
Dimension Software, Inc.
10.28(4)(@) Employment letter, dated July 3, 1997, by and between Enlighten
Software Solutions, Inc. and Mike Seashols.
10.29(4)(@) Employment letter, dated August 28, 1997, by and between Enlighten
Software Solutions, Inc. and David D. Parker.
10.30(4) Agreement dated as of January 21, 1998, by and between Enlighten Software
Solutions, Inc. and Silicon Graphics, Inc.
10.31(@) Employment letter, dated July 15, 1998, by and between Enlighten
Software Solutions, Inc. and Bill Bradley.
10.32(@) Employment letter, dated January 15, 1999, by and between Enlighten
Software Solutions, Inc. and Tim Gardner.
10.33 Agreement dated as of December 31, 1998, by and between Enlighten
Software Solutions, Inc. and International Business Machines.
21.1(3) Subsidiaries of the Company.
23.1 Consent of KPMG LLP.
27.1 Financial Data Schedule .
</TABLE>
- ----------
(1) Incorporated by reference from exhibits of the same number in the
Company's Registration Statement on Form S-1, which became effective
April 19, 1994.
(2) Incorporated by reference from exhibit 10.27 in the Company's Current
Report on Form 8-K dated October 1, 1997.
(3) Incorporated by reference from an exhibit of the same number in the
Company's Annual Report on Form 10-K for the year ended December 31,
1994.
(4) Incorporated by reference from an exhibit of the same number in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1997.
(@) Compensatory or employment arrangement.
-35-
<PAGE> 36
ENLIGHTEN SOFTWARE SOLUTIONS, INC.
FORM 10-KSB, DECEMBER 31, 1998
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
ENLIGHTEN SOFTWARE SOLUTIONS, INC.
/s/ David D. Parker
------------------------------------
David D. Parker
Chief Executive Officer
/s/ David D. Parker
- ------------------------------------
David D. Parker, March 31, 1999
Chief Executive Officer
/s/ Michael A. Morgan
- ------------------------------------
Michael A. Morgan, March 31, 1999
Chief Financial Officer
/s/ Michael Seashols
- ------------------------------------
Michael Seashols, March 31, 1999
Chairman of the Board
/s/ Peter J. McDonald
- ------------------------------------
Peter J. McDonald, March 31, 1999
Director
/s/ Peter J. Sprague
- ------------------------------------
Peter J. Sprague, March 31, 1999
Director
/s/ Bruce Cleveland
- ------------------------------------
Bruce Cleveland, March 31, 1999
Director
-36-
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Enlighten Software Solutions, Inc.:
We have audited the consolidated financial statements of Enlighten Software
Solutions, Inc. and subsidiary as listed in the index under Item 13(a)(1). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Enlighten
Software Solutions, Inc. and subsidiary as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the two-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Mountain View, California
February 5, 1999
F-1
<PAGE> 38
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,899,976 $ 1,406,141
Short term investments 1,285,551 286,000
Accounts receivable, less allowance for doubtful accounts of
$25,000 and $125,000 respectively 653,438 240,444
Refundable income taxes -- 127,035
Prepaid expenses and other assets 140,170 449,256
----------- -----------
Total current assets 3,979,135 2,508,876
Property and equipment, net 588,630 748,736
Acquired technology and software development costs, net 92,248 231,063
Other assets 269,409 226,034
----------- -----------
$ 4,929,422 $ 3,714,709
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 202,547 $ 134,043
Accrued and other current liabilities 458,568 728,975
Deferred revenue 43,809 359,361
----------- -----------
Total current liabilities 704,924 1,222,379
----------- -----------
Shareholders' equity:
Preferred stock; 1,000,000 shares authorized; none issued
and outstanding -- --
Common stock; 10,000,000 shares authorized; 3,899,761
and 2,963,635 shares issued and outstanding
in 1998 and 1997, respectively 7,591,538 5,079,505
Accumulated other comprehensive income 5,551 --
Accumulated deficit (3,372,591) (2,587,175)
----------- -----------
Total shareholders' equity 4,224,498 2,492,330
----------- -----------
$ 4,929,422 $ 3,714,709
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-2
<PAGE> 39
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenue:
Product license fees $ 2,416,725 $ 1,438,805
Product maintenance fees 655,510 2,598,679
Consulting services 260,596 193,358
Royalties 425,577 --
----------- -----------
Total revenue 3,758,408 4,230,842
----------- -----------
Cost of revenue:
Product licenses 550,511 698,714
Product maintenance 7,115 182,096
Consulting services 111,976 95,525
----------- -----------
Total cost of revenue 669,602 976,335
----------- -----------
Gross profit 3,088,806 3,254,507
----------- -----------
Operating expenses:
Research and development 1,691,950 2,059,495
Sales and marketing 1,958,827 3,819,738
General and administrative 929,683 1,551,457
Gain on sale of Tandem product line (515,487) (2,157,827)
----------- -----------
Total operating expenses 4,064,973 5,272,863
----------- -----------
Operating loss (976,167) (2,018,356)
Other income, net 165,357 60,323
----------- -----------
Loss before income taxes (810,810) (1,958,033)
Income taxes (25,394) 2,390
----------- -----------
Net loss (785,416) (1,960,423)
Other comprehensive income - unrealized
gains on securities 5,551 --
----------- -----------
Comprehensive loss $ (779,865) $(1,960,423)
=========== ===========
Basic and diluted net loss per share $ (0.22) $ (0.67)
=========== ===========
Shares used in computing basic and diluted net loss per share 3,508,258 2,944,228
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE> 40
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Comprehensive Accumulated Shareholders'
Shares Amount Income Deficit Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 2,910,956 $ 4,921,208 $ -- $ (626,752) $ 4,294,456
Stock options exercised 27,963 125,215 -- -- 125,215
Employee stock purchase plan
shares issued 24,716 33,082 -- -- 33,082
Net loss -- -- -- (1,960,423) (1,960,423)
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 2,963,635 5,079,505 -- (2,587,175) 2,492,330
Stock options exercised 184,449 242,055 -- -- 242,055
Employee stock purchase plan
shares issued 51,677 52,606 -- -- 52,606
Stock offering, net 700,000 2,217,372 -- -- 2,217,372
Unrealized gain on investments -- -- 5,551 -- 5,551
Net loss -- -- -- (785,416) (785,416)
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1998 3,899,761 $ 7,591,538 $ 5,551 $(3,372,591) $ 4,224,498
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE> 41
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (785,416) $(1,960,423)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 504,374 813,636
Gain on sale of Tandem product line (515,487) (2,157,827)
Loss on disposal of property and equipment -- 38,422
Changes in operating assets and liabilities:
Accounts receivable (412,994) 1,259,607
Refundable income taxes 127,035 273,634
Prepaid expenses and other assets 265,711 (251,087)
Trade accounts payable 68,504 (210,223)
Accrued and other liabilities (270,407) 133,724
Deferred revenue (315,552) 145,359
----------- -----------
Net cash used for operating activities (1,334,232) (1,915,178)
----------- -----------
Cash flows from investing activities:
Purchases of short-term investments (1,200,000) --
Sales of short-term investments 206,000 1,353,065
Proceeds from sale of Tandem product line 515,487 1,285,378
Capitalization of software development costs -- (66,449)
Purchases of property and equipment (205,453) (98,583)
----------- -----------
Net cash (used in) provided by investing activities (683,966) 2,473,411
----------- -----------
Cash flows from financing activities:
Proceeds from public offering of stock, net 2,217,372 --
Proceeds from issuance of stock 294,661 158,297
----------- -----------
Net cash provided by financing activities 2,512,033 158,297
----------- -----------
Net increase in cash and cash equivalents 493,835 716,530
Cash and cash equivalents at beginning of year 1,406,141 689,611
----------- -----------
Cash and cash equivalents at end of year $ 1,899,976 $ 1,406,141
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE> 42
ENLIGHTEN SOFTWARE solutions, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1998 and 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business
Enlighten Software Solutions develops, markets, and supports software
products for UNIX and UNIX/Windows environment workgroup
administration and enterprise management. The Company's product
solutions are designed for open systems distributed computing
environments in the range of ten to 1,000 servers/clients.
Founded in 1986, the Company was a leading provider of systems
management software on the Tandem platform, providing a range of
automated systems management products to over 400 companies in 30
countries. On October 1, 1997, the Company sold its Tandem product
line to New Dimension Software, Inc. ("NDS"), a subsidiary of New
Dimension Software, Ltd. in order to focus efforts on its UNIX/NT
product suite. The Company recognized a gain on the sale of the
operating assets of the Tandem product line of approximately $0.5
million and $2.2 million, in 1998 and 1997, respectively. In
addition, NDS is required to pay the Company royalties through
September 2000 from NDS' licensing and support of the Tandem software
products. The sale of the Tandem product line included the transfer
of property and equipment, purchased and internally developed
software, and deferred maintenance revenue with net book values of
$141,000, $248,000, and $1,261,000, respectively. The sale of the
Tandem product line also included the transfer to NDS of
approximately 12 employees associated with the Company's Tandem
operation.
F-6
<PAGE> 43
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Enlighten Software Solutions, Inc. and its wholly-owned
subsidiary, a field sales office in Europe. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Revenue Recognition
The Company adopted the provisions of Statement of Position No. 97-2,
or SOP No. 97-2, Software Revenue Recognition, as amended by
Statement of Position No. 98-4, Deferral of the Effective Date of
Certain Provisions of SOP No. 97-2, effective January 1, 1998. SOP
No. 97-2 supersedes Statement of Position No. 91-1, Software Revenue
Recognition. SOP No. 97-2 generally requires revenue earned on
software arrangements involving multiple elements to be allocated to
each element based on its relative fair value. The fair value of the
element must be based on objective evidence that is specific to the
vendor. If the vendor does not have objective evidence of the fair
value of all elements in a multiple-element arrangement, all revenue
from the arrangement must be deferred until such evidence exists or
until all elements have been delivered. Under SOP No. 97-2, the
Company recognizes license revenue upon shipment if a signed contract
exists, the fee is fixed and determinable, collection of resulting
receivables is probable and product returns are reasonably estimable.
Product license fees are recognized after the following events have
occurred: a product evaluation has been shipped to the customer; the
customer elects to purchase the software following an evaluation
period; the customer signs the related contract; and collection of
the sales price is probable. Royalty revenues that are contingent
upon sale to an end-user by OEMs are recognized upon receipt of a
report of shipment. Product maintenance fees committed as part of new
product licenses and maintenance resulting from renewed maintenance
contracts are deferred and recognized ratably over the contract
period, generally one year. Consulting service revenue is recognized
when services are performed for time and material contracts and on a
percentage of completion basis for fixed price contracts. The
adoption of SOP No. 97-2 did not have a material effect on the
Company's operating results.
Cash Equivalents and Short Term Investments
The Company considers all liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
The Company has classified its investments in commercial paper and
U.S. Treasury notes as "held-to-maturity." All such investments
mature in less than one year and are stated at amortized cost, which
approximates fair value. Interest income is recorded using an
effective interest rate, with the associated discount or premium
amortized to interest income.
F-7
<PAGE> 44
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Additionally, the Company has classified its investments in preferred
stock and municipal bonds as "available-for-sale." Such investments
are recorded at fair market value based on quoted market prices, with
unrealized gains and losses reported as a separate component of
stockholders' equity. As of December 31, 1998 and 1997, unrealized
gains and losses were not significant. The cost of securities sold is
determined based on the specific identification method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated
on the straight-line method over the estimated useful lives of the
assets, generally five years. Leasehold improvements are amortized on
a straight-line basis over the lease term or the estimated useful
life of the asset, whichever is less.
The Company reviews property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of property and
equipment is measured by comparison of its carrying amount to future
net undiscounted cash flows the property and equipment are expected
to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the property and equipment exceeds its fair value.
To date, the Company has made no impairment adjustments to the
carrying values of its property and equipment.
Acquired Technology and Software Development Costs
Acquired technology represents amounts paid by the Company for the
rights to use certain completed software that is either incorporated
into the Company's products or sold as a stand-alone product, and is
amortized using the straight-line method over the estimated useful
lives of the related products, generally three years.
Software development costs incurred subsequent to the determination
of product technological feasibility are capitalized and amortized
over the products' estimated useful lives, generally three years.
Costs related to computer software development incurred prior to
establishing product technological feasibility are expensed as
incurred.
The Company periodically assesses the recoverability of these
intangible assets by comparing their amortized cost to the net
realizable value of the related products. The amount by which the
unamortized costs exceed the net realizable value is written off.
Foreign Currency Translation
The functional currency for the Company's foreign subsidiary is the
U.S. dollar. Accordingly, this entity remeasures monetary assets and
liabilities at year-end exchange
F-8
<PAGE> 45
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
rates while nonmonetary items are remeasured at historical rates.
Income and expense accounts are remeasured at the average rates in
effect during the year, except for depreciation which is remeasured
at historical rates. Transaction gains and losses are recognized in
income in the period of occurrence.
Use of Estimates
The Company's management has made a number of estimates and
assumptions relating to the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting period
to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results may differ from those
estimates.
Stock Based Compensation
The Company uses the intrinsic value-based method to account for all
of its employee stock-based compensation plans.
Fair Value of Financial Instruments and Concentration of Credit Risk
The fair value of the Company's cash, cash equivalents, accounts
receivable, and accounts payable approximate the carrying amount due
to the relatively short maturity of these items. The fair value of
the Company's short term investments are based on quoted market
prices. Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of short term
investments and trade account receivables. The Company has investment
policies that limit the amount of credit exposure to any one
financial institution and restrict placement of these investments to
financial institutions evaluated as credit worthy. Substantially all
of the Company's accounts receivable are derived from sales to large
OEM partners and select end-users.
Other Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No.
130, or SFAS 130, Accounting for Comprehensive Income, during the
fiscal year ended 1998. This statement establishes standards for
reporting and display of comprehensive income and its components
(including revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company's unrealized gains
on investments represent the only component of comprehensive income
which is excluded from net income for 1998 and prior years. The
Company's comprehensive income has been presented in the consolidated
financial statements. As of December 31, 1998 and 1997, the tax
effects
F-9
<PAGE> 46
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
allocated to the component of other comprehensive income and
accumulated other comprehensive income balances were not significant.
Income Taxes
The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. Deferred tax assets are reduced by an allowance
to an amount whose realization is more likely than not. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Net Loss Per Share
Basic net earnings (loss) per share is computed using the weighted
average number of common shares outstanding during the period.
Diluted net earnings (loss) per share is computed using the weighted
average number of common and dilutive common equivalent shares
outstanding for the period, if any. Common equivalent shares from
stock options outstanding (see Note 7) have not been included as
their effect would be antidilutive.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP No. 98-1
requires that entities capitalize certain costs related to
internal-use software once certain criteria have been met. The
Company expects that the adoption of SOP No. 98-1 will have no
material impact on its financial position, results of operations or
cash flows. The Company will be required to implement SOP No. 98-1
for the year ending December 31, 1999.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs
of Start-Up Activities." SOP No. 98-5 requires that all start-up
costs related to new operations must be expensed as incurred. In
addition, all start-up costs that were capitalized in the past must
be written off when SOP No. 98-5 is adopted. The Company expects that
the adoption of SOP No. 98-5 will have no material impact on its
financial position, results of operations or cash flows. The Company
will be required to implement SOP No. 98-5
F-10
<PAGE> 47
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
for the year ending December 31, 1999.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 established methods of accounting for derivative financial
instruments and hedging activities related to those instruments as
well as other hedging activities. Because the Company currently holds
no derivative instruments and does not engage in hedging activities,
the Company expects that the adoption of SFAS No. 133 will have no
material impact on its financial position, results of operations or
cash flows. The Company will be required to implement SFAS No. 133
for the year ending December 31, 2000.
In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP
97-2, Software Revenue Recognition, with Respect to Certain
Transactions." SOP No. 98-9 requires recognition of revenue using the
"residual method" in a multiple-element software arrangement when
fair value does not exist for one or more of the delivered elements
in the arrangement. Under the "residual method," the total fair value
of the undelivered elements is deferred and recognized in accordance
with SOP No. 97-2. The Company will be required to implement SOP No.
98-9 for the year ending December 31, 2000. SOP No. 98-9 also extends
the deferral of the application of SOP No. 97-2 to certain other
multiple element software arrangements through the Company's year
ending December 31, 1999. The Company is evaluating the provisions of
SOP No. 98-9 and has not yet determined what impact, if any, SOP No.
98-9 will have on its financial position, results of operations or
cash flows.
(2) CASH, CASH EQUIVALENTS, AND SHORT TERM INVESTMENTS
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash $ 833,927 $ 400,794
Money market funds 1,066,049 1,005,347
---------- ----------
$1,899,976 $1,406,141
========== ==========
Short term investments consisted of the following:
Equity securities $ 285,551 $ 286,000
Municipal bonds 1,000,000 --
---------- ----------
$1,285,551 $ 286,000
========== ==========
</TABLE>
F-11
<PAGE> 48
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Equipment $1,090,062 $1,224,991
Furniture and fixtures 285,907 271,511
Leasehold improvements 142,238 136,669
---------- ----------
1,518,207 1,633,171
Less accumulated depreciation and amortization 929,577 884,435
---------- ----------
$ 588,630 $ 748,736
========== ==========
</TABLE>
(4) ACQUIRED TECHNOLOGY AND SOFTWARE DEVELOPMENT COSTS
A summary of acquired technology and software development costs
follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Acquired technology $416,444 $416,444
Less accumulated amortization 324,196 185,381
-------- --------
$ 92,248 $231,063
======== ========
</TABLE>
On October 1, 1997, the Company sold its Tandem product line and as a
result, the Company sold developed software with a gross cost of
$838,316 and accumulated amortization of $691,203. The Company also
sold acquired technology with a gross cost of $475,000 and
accumulated amortization of $374,375.
In 1997, the Company also had a write-off related to certain products
which totaled $324,422 of gross developed software that had an
accumulated amortization balance of $174,086. These products were not
expected to generate sufficient future revenue which would be
required for the Company to realize the carrying value of the assets.
F-12
<PAGE> 49
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) INCOME TAXES
Income taxes consist of:
<TABLE>
<CAPTION>
Current Deferred Total
------ ------ ------
<S> <C> <C> <C>
Year ended December 31, 1998:
Federal $(40,604) $ -- $(40,604)
State and local 800 -- 800
Foreign 14,410 -- 14,410
-------- ------ --------
$(25,394) $ -- $(25,394)
======== ====== ========
Year ended December 31, 1997:
Federal $ -- $ -- $ --
State and local 800 -- 800
Foreign 1,590 -- 1,590
-------- ------ --------
$ 2,390 $ -- $ 2,390
======== ====== ========
</TABLE>
The Company's income tax expense differed from the expected tax
benefit computed by applying the statutory U.S. federal income tax
rate (34%) to loss before income taxes as a result of the following:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1998 1997
--------- ---------
<S> <C> <C>
Computed "expected" tax benefit $(275,675) $(665,731)
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal benefit 528 528
Change in valuation allowance 229,832 673,086
Foreign taxes 14,410 1,590
Other 5,511 (7,083)
--------- ---------
$ (25,394) $ 2,390
========= =========
</TABLE>
F-13
<PAGE> 50
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The tax expense recognized in 1998 was due to the Company's inability
to recognize a tax benefit for loss and credit carryforwards. The tax
effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 10,035 $ 50,173
Covenant not to compete 62,647 64,189
Accrued compensation 22,645 18,144
Credit carryforward 500,535 326,212
Loss carryforward 851,132 784,782
----------- -----------
Deferred tax assets 1,446,994 1,243,500
Valuation allowance (1,342,962) (1,072,526)
----------- -----------
Net deferred tax assets 104,032 170,974
----------- -----------
Deferred tax liabilities:
Software development costs 37,026 92,744
Depreciation and amortization 67,006 78,320
----------- -----------
Total deferred tax liabilities 104,032 170,974
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
The Company has recorded a valuation allowance of $1,342,962 with
respect to the deferred tax assets as of December 31, 1998.
Management has determined that such portion of deferred tax assets
may not be realized.
The Company has federal and state net operating loss carryforwards of
approximately $2,852,000 and $2,458,000, respectively, that may be
used to offset future taxable income and federal and state research
tax credits of approximately $398,000 and $212,000, respectively,
that may be used to offset future tax liability. If unused, both the
net operating loss and research credit carryforwards will expire in
the year 2013.
F-14
<PAGE> 51
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(6) ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Accrued employee compensation $147,287 $250,747
Deferred rent 51,613 51,141
Royalty payable 45,415 3,820
Other 214,253 423,267
-------- --------
$458,568 $728,975
======== ========
</TABLE>
(7) SHAREHOLDERS' EQUITY
(a) Preferred Stock
The Board of Directors has the authority to issue, without further
action by the shareholders, up to 1,000,000 shares of Preferred Stock
in one or more series and to fix the rights, preferences, privileges,
and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms, and the number of shares constituting any series
or the designation of such series.
(b) Employee Stock Option and Purchase Plans
As of December 31, 1998, the Company had authorized 1,500,000 shares
of Common Stock for issuance under the 1992 Employee Stock Option
Plan (the Option Plan). The Option Plan may be administered by the
Board of Directors or a committee of the Board, which determines the
terms of the options granted under the Option Plan, including
exercise price, number of shares subject to each option, and the
exercisability thereof. The vesting periods determined by the Board
of Directors generally provides for shares to vest ratably over 3.5
years and expire over 10 years.
F-15
<PAGE> 52
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Company's option activity was as follows:
<TABLE>
<CAPTION>
Number of Weighted-average
shares exercise price
<S> <C> <C>
Balance at December 31, 1996 689,108 $3.06
Granted 869,655 1.70
Exercised (27,963) 2.47
Terminated (607,876) 2.95
--------
Balance at December 31, 1997 922,924 1.87
Granted 393,750 2.71
Exercised (184,449) 1.37
Terminated (65,432) 2.76
---------
Balance at December 31, 1998 1,066,793 2.21
=========
Available for grant at December 31, 1998 357,847
=========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------------------------- -----------------------------------------------
Range Weighted- Weighted- Weighted-
of average average average
exercise Number remaining exercise Number exercise
prices of shares contractual life price of shares price
------ ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$1.00 - 1.88 328,503 6.8 Years $1.36 232,681 $1.42
1.91 - 2.06 339,040 8.3 1.93 107,055 1.95
2.25 - 4.68 399,250 8.9 3.15 128,882 3.43
--------- -------
1.00 - 4.68 1,066,793 8.1 2.21 468,618 2.09
========= =======
</TABLE>
Under the Company's 1994 Employee Stock Purchase Plan (the Purchase
Plan) a total of 96,465 shares of common stock remain reserved for
issuance under the Purchase Plan. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions, which
may not be less than 1% nor exceed 10% of an employee's compensation,
not to exceed shares with a fair market value of $25,000. The price
of
F-16
<PAGE> 53
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
stock purchased under the Purchase Plan must be at least 85% of the
lower of the fair market value of the common stock at the beginning
of each six-month offering period or at the end of the present
purchasing period. Employees may end their participation in the
offering at any time during the offering period, and participation
ends automatically upon termination of employment with the Company.
(c) Accounting for Stock-Based Compensation Plans
The Company has elected to use the intrinsic value-based method in
accounting for its Plan. Accordingly, no compensation cost has been
recognized in the accompanying consolidated financial statements
because the exercise price of each option equaled or exceeded the
fair value of the underlying common stock as of the grant date for
each option. Had compensation cost for the Company's stock options
been determined in a manner consistent with SFAS No. 123, the
Company's net loss and net loss per share as reported would have been
increased to the pro forma amounts indicated below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Reported net loss $ (785) $ (1,960)
Pro forma net loss $ (1,302) $ (2,408)
Reported net loss per share $ (0.22) $ (0.67)
Pro forma net loss per share $ (0.37) $ (0.82)
</TABLE>
The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted
average assumptions: 1998 - an expected life of 3.5 years, risk-free
interest rates of 4.62%, 117.3% expected volatility, and no dividend
yield; 1997 - an expected life of 3.5 years, risk-free interest rates
of 5.84%, 140.4% expected volatility, and no dividend yield. The
weighted-average fair value of options granted during the period at
an exercise price equal to market price at grant date was $2.25 and
$1.57 for the periods ended December 31, 1998 and 1997, respectively.
The fair value of employees' stock purchase rights under the Purchase
Plan was estimated by calculating the difference between the share
purchase price and the fair market value of the share at the date of
the purchase.
Pro forma net income reflects only options granted since the
beginning of 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not
reflected in the pro forma net income amounts presented above because
F-17
<PAGE> 54
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
compensation cost is reflected over the options' vesting period of
3.5 years and compensation cost for options granted prior to January
1, 1995 is not considered.
(8) COMMITMENTS
Leases
The Company leases office space, automobiles, and certain office
equipment under noncancelable leases expiring through 2001. Future
minimum lease payments under these leases aggregate approximately
$407,092, $421,340, and $142,048 in 1999, 2000, and 2001. Rent
expense was $279,266 and $459,108 in 1998 and 1997, respectively.
Royalties
The Company has license agreements with unrelated third parties
covering certain of its products requiring royalty payments ranging
from 10% to 50% of product license and maintenance fees. Royalties
related to these agreements were $201,196 and $320,818 in 1998 and
1997, respectively.
(9) FOREIGN OPERATIONS
The Company has adopted the provisions of statement of financial
accounting standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information." The Company operates in one
segment and accordingly has provided only the required enterprise
wide disclosures. For the year ended December 31, 1998, sales to one
customer exceeded 10% of gross revenues. Sales to Silicon Graphics
Inc. as a percentage of gross revenues were 68% for the year ended
December 31, 1998. There were no sales to customers that exceeded 10%
of gross revenues in 1997.
The Company's operations outside of the United States consisted
solely of a sales office in the United Kingdom. During 1997, the
Company restructured its sales force and closed the sales office in
the United Kingdom. Domestic operations are responsible for
F-18
<PAGE> 55
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
the design, development, and licensing of all products. Following are
selected financial data, categorized by primary geographic area:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Sales to unaffiliated customers:
North America $ 3,758,408 $ 3,189,407
United Kingdom -- 1,041,435
----------- -----------
Total $ 3,758,408 $ 4,230,842
=========== ===========
Operating income (loss):
North America $ (976,167) $(2,052,865)
United Kingdom -- 34,509
----------- -----------
Total $ (976,167) $(2,018,356)
=========== ===========
Total assets:
North America $ 4,929,422 $ 3,400,998
United Kingdom -- 313,711
----------- -----------
Total $ 4,929,422 $ 3,714,709
=========== ===========
Export sales $ 59,519 $ 310,594
=========== ===========
</TABLE>
F-19
<PAGE> 56
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1(1) Amended and Restated Articles of Incorporation.
3.2(1) By Laws.
10.27(2) Agreement dated as of September 22, 1997, by and among
Enlighten Software Solutions, Inc., Peter J. McDonald, and New
Dimension Software, Inc.
10.28(4)(@) Employment letter, dated July 3, 1997, by and between Enlighten
Software Solutions, Inc. and Mike Seashols.
10.29(4)(@) Employment letter, dated August 28, 1997, by and between Enlighten
Software Solutions, Inc. and David D. Parker.
10.30(4) Agreement dated as of January 21, 1998, by and between Enlighten Software
Solutions, Inc. and Silicon Graphics, Inc.
10.31(@) Employment letter, dated July 15, 1998, by and between Enlighten
Software Solutions, Inc. and Bill Bradley.
10.32(@) Employment letter, dated January 15, 1999, by and between Enlighten
Software Solutions, Inc. and Tim Gardner.
10.33 Agreement dated as of December 31, 1998, by and between Enlighten
Software Solutions, Inc. and International Business Machines.
21.1(3) Subsidiaries of the Company.
23.1 Consent of KPMG LLP.
27.1 Financial Data Schedule .
</TABLE>
- ----------
(1) Incorporated by reference from exhibits of the same number in the
Company's Registration Statement on Form S-1, which became effective
April 19, 1994.
(2) Incorporated by reference from exhibit 10.27 in the Company's Current
Report on Form 8-K dated October 1, 1997.
(3) Incorporated by reference from an exhibit of the same number in the
Company's Annual Report on Form 10-K for the year ended December 31,
1994.
(4) Incorporated by reference from an exhibit of the same number in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1997.
(@) Compensatory or employment arrangement.
<PAGE> 1
EXHIBIT 10.31
July 15, 1998
Mr. Bill Bradley
3535 S. Sherman Street, Suite 700
Englewood, CO 80110
Dear Bill:
I am pleased to offer you a position with Enlighten Software Solutions, Inc.
(the "Company") as Vice President, Business Development (pending Board
approval), commencing on July 28, 1998. Your compensation is outlined in
Attachment A to this letter, which will be paid in accordance with the Company's
normal payroll procedures. As an Enlighten Software Solutions employee, you may
also receive, in accordance with each applicable plan document, certain employee
benefits including: incentive stock options (60,000 options initially,
additional options may be granted annually), participation in the employee stock
purchase plan, medical insurance, dental insurance, 401(k) plan, an accrued 20
days paid personal time off during each year of employment (to be used as
vacation, sick leave, etc.), plus paid public holidays recognized by the
Company. The grant date and price of the incentive stock options will be set at
the next Board of Directors meeting following your start date.
You should be aware that your employment with Enlighten Software Solutions is
for no specific period. As a result, you are free to resign at any time, for any
reason or no reason. Similarly, the Company is free to conclude its relationship
with you at any time, with or without cause.
For purposes of federal immigration law, you will be required to provide to
Enlighten Software Solutions documentary evidence of your identity and
eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
In the event of any dispute or claim relating to or arising out of our
employment relationship, you and Enlighten Software Solutions agree that all
such disputes shall be fully and finally resolved by binding arbitration
conducted by the American Arbitration Association in San Mateo, California,
HOWEVER, we agree that this arbitration provision shall not apply to any
disputes or claims relating to or arising out of the misuse or misappropriation
of Enlighten Software Solutions' trade secrets or proprietary information.
(a) You agree that, while you are an Enlighten Software Solutions employee, you
will not, directly or indirectly, work for, advise, consult, render services to
or invest directly or indirectly in any individual or entity (in any capacity)
which directly or indirectly engages in any business in which Enlighten Software
Solutions is engaged at the time of such work, advice, consultation, rendering
of services or investment. None of the forgoing shall restrict any direct or
indirect investments in any publicly traded company, provided such investment
does not exceed 5% of the company's total voting shares.
<PAGE> 2
Enlighten Software Solutions, Inc.
Page 2
(b) You further agree that for a period of two (2) years after termination of
your employment with Enlighten Software Solutions, you will not, directly or
indirectly, hire, or in any other manner persuade an employee, dealer or
customer of the Company to discontinue that person's relationship with or to
Enlighten Software Solutions as an employee, dealer or customer, as the case may
be.
(c) We both agree that: (i) the services to be rendered by you are special,
unique, and of an extraordinary character; (ii) because of the nature of the
business of Enlighten Software Solutions, and the types of information which you
will obtain with respect to the business of Enlighten Software Solutions, it
would be impractical or extremely difficult to determine actual damages in the
event of a breach of you promises in this letter; and (iii) resulting damages
would not adequately compensate Enlighten Software Solutions.
Accordingly, if you commit such a breach or threaten such a breach the Company
shall have the right to have the provisions of this agreement specifically
enforced by any court having equity jurisdiction without the posting of a bond
or other security, since such a breach or threatened breach would cause
irreparable injury to Enlighten Software Solutions.
(d) The above mentioned right is an addition to, and not in lieu of, any other
rights and remedies available to Enlighten Software Solutions under law or in
equity.
(e) This covenant shall be construed as a series of separate covenants, one for
each of the fifty-eight (58) counties in California, for each state in the
United States, and for each nation outside the United States.
To indicate your acceptance of Enlighten Software Solutions' offer, please sign
and date both letters in the space provided below and return them to me. This
letter, between you and Enlighten Software Solutions, sets forth the terms of
your employment with Enlighten Software Solutions and supersedes any prior
representations or agreements, whether written or oral. This letter may not be
modified or amended except by a written agreement, signed by Enlighten Software
Solutions and by you. This offer will remain valid until July 22, 1998.
We look forward to working with you at Enlighten Software Solutions. Welcome
Aboard!
AGREED TO AND ACCEPTED AGREED TO AND ACCEPTED
- -------------------------------- --------------------------------
David D. Parker Bill Bradley
President and CEO
Dated:________/________/_______ Dated:________/________/_______
<PAGE> 3
Enlighten Software Solutions, Inc.
Page 3
ATTACHMENT A
VICE PRESIDENT, BUSINESS DEVELOPMENT
1998 COMPENSATION PROGRAM
This document defines the compensation program for the position of Vice
President, Business Development at Enlighten Software Solutions, Inc. This
position is responsible for identification, engagement and closure of key
business alliances. These business alliances are intended to provide revenue
opportunities for the Company through bundling or distribution partnerships,
and/or business opportunities for the Company through merger or acquisition. The
total targeted compensation is made up of your base salary and quarterly
bonuses.
COMPENSATION
1. Base Salary: Your base salary is $100,000 per year, this
will be paid through the regular semi-monthly company
payroll at $4,166.66 per pay period.
2. Quarterly Bonuses: For the year ending December 31, 1998,
you will earn quarterly bonuses of $7,500.00 each quarter
provided the Company attains predetermined earnings
targets established by the Company's Compensation
Committee. The current earnings targets for each remaining
quarter of 1998 will be provided to you.
TERMINATION PROVISIONS
3. Benefits Upon Voluntary Termination: In the event that you
voluntarily resign from your employment with the Company
or in the event that your employment terminates as a
result of your death or disability, you shall be entitled
to no compensation or benefits from the Company other than
those earned under paragraphs 1 and 2 above through the
date of your termination.
4. Termination Following a Change in Control:
(i) In the event of a Change in Control and
your employment is terminated by the Company or its
successor within ninety (90) days of such Change in
Control, other than for cause, or you terminate your
employment because of a change in duties, you shall be
entitled to the following:
A. a termination severance package equal to six
(6) months of your then current base salary, or $50,000,
whichever is greater. Such severance package shall be
payable within thirty (30) days of your termination of
employment with the Company.
<PAGE> 4
Enlighten Software Solutions, Inc.
Page 4
(ii) For purposes of this Agreement a "Change
of Control" shall mean an Ownership Change in which the
shareholders of the Company before such Ownership Change
do not retain, directly or indirectly, at least a majority
of the beneficiary interest in the voting stock of the
Company after such transaction or in which the Company is
not the surviving corporation. For purposes of this
Agreement an "Ownership Change" shall be deemed to have
occurred in the event any of the following occurs with
respect to the Company:
A. the direct or indirect sale or exchange by
the shareholders of the Company of more than fifty percent
(50%) of the stock of the Company;
B. a merger or consolidation in which the
Company is a party;
C. the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
D. a liquidation or dissolution of the Company.
5. Accelerated Vesting Following a Change in Control:
(i) In the event of a Change in Control you
shall be entitled to the following:
B. full vesting of the 60,000 stock options
granted to you upon your hiring.
6. Exclusive Remedy: Subject to paragraph 4 above, you shall
be entitled to no further compensation for any damage or
injury arising out of the termination of your employment
by the Company.
7. Successors and Assigns: This Agreement shall inure to the
benefit of and be binding upon the Company and its
successors and assigns. In view of the personal nature of
the services to be performed by you under this Agreement,
you shall not have the right to assign or transfer any of
your rights, obligations, or benefits under this
Agreement.
<PAGE> 1
EXHIBIT 10.32
January 15, 1999,
Mr. Tim Gardner
Enlighten Software Solutions, Inc.
999 Baker Way, 5th floor
San Mateo, CA 94404
Dear Tim:
I am pleased to offer you a position with Enlighten Software Solutions, inc.
(the "Company") as Vice President, Sales commencing upon your written acceptance
below. Your compensation is outlined in Attachment A to this letter, which will
be paid in accordance with the Company's normal payroll procedures. As an
Enlighten Software Solutions employee, you may also receive, in accordance with
each applicable plan document, certain employee benefits including: incentive
stock options (40,000 options initially, additional options may be granted
annually), participation in the employee stock purchase plan, medical insurance,
dental insurance, 401(k) plan, an accrued 20 days paid personal time off during
each year of employment (to be used as vacation, sick leave, etc.), plus paid
public holidays recognized by the Company. The grant date and price of the
incentive stock options will be set at the next Board of Directors meeting
following your start date.
You should be aware that your employment with Enlighten Software Solutions is
for no specific period. As a result, you are free to resign at any time, for any
reason or no reason. Similarly, the Company is free to conclude its relationship
with you at any time, with or without cause.
For purposes of federal immigration law, you will be required to provide to
Enlighten Software Solutions documentary evidence of your identity and
eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
In the event of any dispute or claim relating to or arising out of our
employment relationship, you and Enlighten Software Solutions agree that all
such disputes shall be fully and finally resolved by binding arbitration
conducted by the American Arbitration Association in San Mateo, California,
HOWEVER, we agree that this arbitration provision shall not apply to any
disputes or claims relating to or arising out of the misuse or misappropriation
of Enlighten Software Solutions' trade secrets or proprietary information.
(a) You agree that, while you are an Enlighten Software Solutions employee, you
will not, directly or indirectly, work for, advise, consult, render services to
or invest directly or indirectly in any individual or entity (in any capacity)
which directly or indirectly engages in any business in which Enlighten Software
Solutions is engaged at the time of such work, advice, consultation, rendering
of services or investment. None of the forgoing shall restrict any direct or
indirect investments in any publicly traded company, provided such investment
does not exceed 5% of the company's total voting shares.
<PAGE> 2
Enlighten Software Solutions, Inc.
Page 2
(b) You further agree that for a period of two (2) years after termination of
your employment with Enlighten Software Solutions, you will not, directly or
indirectly, hire, or in any other manner persuade an employee, dealer or
customer of the Company to discontinue that person's relationship with or to
Enlighten Software Solutions as an employee, dealer or customer, as the case may
be.
(c) We both agree that: (i) the services to be rendered by you are special,
unique, and of an extraordinary character; (ii) because of the nature of the
business of Enlighten Software Solutions, and the types of information which you
will obtain with respect to the business of Enlighten Software Solutions, it
would be impractical or extremely difficult to determine actual damages in the
event of a breach of you promises in this letter; and (iii) resulting damages
would not adequately compensate Enlighten Software Solutions.
Accordingly, if you commit such a breach or threaten such a breach the Company
shall have the right to have the provisions of this agreement specifically
enforced by any court having equity jurisdiction without the posting of a bond
or other security, since such a breach or threatened breach would cause
irreparable injury to Enlighten Software Solutions.
(d) The above mentioned right is an addition to, and not in lieu of, any other
rights and remedies available to Enlighten Software Solutions under law or in
equity.
(e) This covenant shall be construed as a series of separate covenants, one for
each of the fifty-eight (58) counties in California, for each state in the
United States, and for each nation outside the United States.
To indicate your acceptance of Enlighten Software Solutions' offer, please sign
and date both letters in the space provided below and return them to me. This
letter, between you and Enlighten Software Solutions, sets forth the terms of
your employment with Enlighten Software Solutions and supersedes any prior
representations or agreements, whether written or oral. This letter may not be
modified or amended except by a written agreement, signed by Enlighten Software
Solutions and by you. This offer will remain valid until 5 p.m. today.
We look forward to working with you at Enlighten Software Solutions. Welcome
Aboard!
AGREED TO AND ACCEPTED
David D. Parker Tim Gardner
President and CEO
Dated: 1/15/99 Dated: 1/15/99
<PAGE> 3
Enlighten Software Solutions, Inc.
Page 3
ATTACHMENT A
VICE PRESIDENT, SALES
1999 COMPENSATION PROGRAM
This document defines the compensation program for the position of Vice
President, Sales at Enlighten Software Solutions, Inc. This position is
responsible for identification, engagement and closure of key business
alliances. These business alliances are intended to provide revenue
opportunities for the Company through bundling or distribution partnerships,
and/or business opportunities for the Company through merger or acquisition. The
total targeted compensation is made up of your base salary and quarterly
bonuses.
COMPENSATION
1. Base Salary: Your base salary is $110,000 per year, this will be paid
through the regular semi-monthly company payroll at $4,583.33 per pay
period.
2. Quarterly Bonuses: For the year ending December 31, 1999, you will be
targeted to earn quarterly incentive compensation of $15,000.00 each based
on sales objectives that you will participate in determining.
TERMINATION PROVISIONS
3. Benefits Upon Voluntary Termination: In the event that you voluntarily
resign from your employment with the Company or in the event that your
employment terminates as a result of your death or disability, you shall
be entitled to no compensation or benefits from the Company other than
those earned under paragraphs 1 and 2 above through the date of your
termination.
4. Termination Following a Change in Control:
(i) In the event of a Change in Control and your employment is terminated
by the Company or its successor within ninety (90) days of such
Change in Control, other than for cause, or you terminate your
employment because of a change in duties, or any reason stated in
paragraph 4(c), you shall be entitled to the following:
A. a termination severance package equal to four
(4) months of your then current base salary, or
$40,000, whichever is greater. Such severance
package shall be payable within thirty (30)
days of your termination of employment with the
Company; and
B. full vesting of the 40,000 stock options
granted to you upon your hiring; and
<PAGE> 4
Enlighten Software Solutions, Inc.
Page 4
(ii) For purposes of this Agreement a "Change of Control" shall mean an
Ownership Change in which the shareholders of the Company before such
Ownership Change do not retain, directly or indirectly, at least a
majority of the beneficiary interest in the voting stock of the
Company after such transaction or in which the Company is not the
surviving corporation. For purposes of this Agreement an "Ownership
Change" shall be deemed to have occurred in the event any of the
following occurs with respect to the Company:
A. the direct or indirect sale or exchange by the shareholders of the
Company of more than fifty percent (50%) of the stock of the
Company;
B. a merger or consolidation in which the Company is a party;
C. the sale, exchange, or transfer of all or substantially all of the
assets of the Company; or
D. a liquidation or dissolution of the Company.
5. Involuntary Termination
(i) In the event that the company decides to terminate your employment
prior to December 31, 1999, unless that termination is based on gross negligence
or malfeasance or dereliction, then you shall be entitled to the following:
A. a termination severance package equal to four (4) months of your
then current base salary, or $40,000, whichever is greater. Such
severance package shall be payable within thirty (30) days of
your termination of employment with the Company; and
B. no accelerated vesting of your stock.
6. Exclusive Remedy: Subject to paragraphs 4 and 5 above, you shall be
entitled to no further compensation for any damage or injury arising out
of the termination of your employment by the Company.
7. Successors and Assigns: This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns. In view of
the personal nature of the services to be performed by you under this
Agreement, you shall not have the right to assign or transfer any of
your rights, obligations, or benefits under this Agreement.
<PAGE> 1
EXHIBIT 10.33
LICENSED & DEVELOPED WORKS AGREEMENT
[*] [*]
This Agreement effective as of December 31, 1998 ("EFFECTIVE DATE"), between
International Business Machines Corporation ("BUYER") and Enlighten Software
Solutions, Inc. ("SUPPLIER"), establishes the basis for a multinational
procurement relationship under which Supplier provides to Buyer the Deliverables
and Services described in SOWs issued under this Agreement.
1.0 DEFINITIONS:
"AFFILIATES" means entities that control, are controlled by, or are under common
control with a party to this Agreement.
"AGREEMENT" means this agreement and any relevant Statements of Work ("SOW"),
Work Authorizations ("WA"), and other attachments or appendices specifically
referenced in this Agreement.
"APPEARANCE DESIGN" means the appearance presented by an object, formed in
hardware or by software, that creates a visual impression on an observer.
Appearance Design refers to the ornamental and not the functional aspects of the
object.
"BUYER" means either IBM or one of its Affiliates which purchases or licenses
Deliverables or Services under this Agreement.
"BUYER PERSONNEL" means agents, employees, contractors or remarketers engaged by
Buyer.
"CODE" means computer programming code, including both "OBJECT CODE" (computer
programming code substantially in binary form that is directly executable by a
computer after processing, but without compilation or assembly) and "SOURCE
CODE" (computer programming code that may be displayed in a form readable and
understandable by a programmer of ordinary skill, excluding Object Code).
"DELIVERABLE" means any item that Supplier prepares for or provides to Buyer as
described in a SOW. Deliverables include Developed Works, Licensed Works,
Preexisting Materials, and Tools.
"DERIVATIVE WORK" means a work that is based on an underlying work and that
would be a copyright infringement if prepared without the authorization of the
copyright owner of the underlying work.
"DEVELOPED WORKS" means Deliverables including their Externals, developed in the
performance of this Agreement that Buyer will own, and does not include Licensed
Works, Preexisting Materials, Tools, or items specifically excluded in a SOW.
"ENHANCEMENTS" means changes or additions, other than Error Corrections, to the
Deliverables. If an Enhancement adds substantial value to the Deliverables and
is offered to customers for an additional charge it will be considered a "MAJOR
ENHANCEMENT", and all other Enhancements, including those that support new
releases of operating systems and devices, will be considered "BASIC
ENHANCEMENTS".
"ERROR CORRECTIONS" means revisions (including workarounds) that correct errors
and deficiencies (collectively referred to as "errors") in the Deliverables.
"EXTERNALS" means any pictorial, graphic, or audiovisual works generated by
execution of code and any programming interfaces, languages or protocols
implemented in code to enable interaction with other computer programs or end
users. Externals do not include the code that implements them.
"HARMFUL CODE" is any computer Code, programming instructions, or set of
instructions that is constructed for the purpose of damaging, interfering with,
or otherwise adversely affecting computer programs, data files, or hardware,
without the consent or intent of the computer user. This definition includes,
but is not limited to, self-replicating and self-propagating programming
instructions commonly called "viruses" and "worms."
"INVENTION" means any idea, design, concept, technique, invention, discovery or
improvement, whether or not patentable, conceived or reduced to practice by
Supplier or Supplier Personnel in the course of creation of a Developed Work.
"JOINT INVENTION" means any Invention made by Supplier or Supplier Personnel
with Buyer Personnel.
"LICENSED WORK" is any material described in or that conforms to the Description
of Licensed Work in the relevant SOW and includes Object Code (and if specified
in the applicable SOW, Source Code), associated documentation, Externals, Error
Corrections, and Enhancements.
"PERSONNEL" means agents, employees or subcontractors engaged by a party to this
Agreement.
"PREEXISTING MATERIALS" means items including their Externals, contained within
a Deliverable, in which the copyrights are owned by a third party or that
Supplier prepared or had prepared outside the scope of this Agreement.
Preexisting Materials exclude Tools, but may include material that is created by
the use of Tools.
"PRICES" means the agreed upon payments and currency for Deliverables and
Services, including all applicable fees, royalty payments and taxes, as
specified in the relevant SOW.
"PRODUCTS" means an offering to customers or other users, whether or not branded
by Buyer or its Affiliates, that includes a Deliverable or a Derivative Work of
a Deliverable. A SOW may provide a more restrictive definition of "Products" for
the purposes of such SOW.
"SERVICES" means the services identified in the relevant SOW.
"STATEMENT OF WORK" or "SOW" means any document attached to or included in this
Agreement which describes the Deliverables and Services, including any
requirements, specifications or schedules.
"SUPPLIER" means either Supplier or one of its Affiliates.
[*]=Confidential Treatment Requested--Edited Copies
Form Title: Licensed & Developed Works Agreement 1 of 8 Form Release: 8/98
Revision: 11/98
<PAGE> 2
LICENSED & DEVELOPED WORKS AGREEMENT
[*] [*]
"TOOLS" means not commercially available software, and their Externals, required
for the development, maintenance or implementation of a software Deliverable.
"WORK AUTHORIZATION" or "WA" means a purchase order or other Buyer designated
document, in either electronic or hard copy form, issued by Buyer's procurement
personnel, and is the only authorization for Supplier to perform any work under
this Agreement. A SOW is a WA only if designated as such in writing by Buyer.
2.0 STATEMENT OF WORK
2.1 LICENSED WORKS: Supplier will deliver to Buyer: (i) one complete copy of
the Deliverables described in the relevant SOW; (ii) a completed Certificate of
Originality in the form specified in the SOW with the Deliverables and with each
Enhancement to the Deliverables; (iii) complete copies of all Tools, including
updates to Tools as soon as practical; and (iv) a complete list of all
commercially available software required for the development, maintenance or
implementation of a software Deliverable, including updates to the list as soon
as practicable.
2.2 ADDITIONAL DELIVERABLES: Supplier will provide the Deliverables and
Services as specified in the relevant SOW only when specified in a WA. Supplier
will begin work only after receiving written authorization from Buyer. Buyer may
request changes to a SOW and Supplier will submit to Buyer the impact of such
changes. Changes accepted by Buyer will be specified in an amended SOW or change
order signed by both parties.
2.3 ENHANCEMENTS AND ERROR CORRECTIONS: Supplier will provide to Buyer, at no
charge, Basic Enhancements and Error Corrections for the Deliverables beginning
when Buyer accepts the Deliverables and [*] Enhancements to the Deliverables
that Supplier creates or authorizes others to create at terms no less favorable
than those offered to Supplier's most favored customers. If Buyer accepts
Supplier's offer, Buyer will amend the relevant SOW to include such charges,
terms and conditions, and the Major Enhancements will become part of the
Deliverables.
3.0 TERM AND TERMINATION
3.1 TERM: Deliverables and Services acquired by Buyer on or after the
Effective Date will be covered by this Agreement. This Agreement will remain in
effect until terminated.
3.2 TERMINATION OF THIS AGREEMENT: Either party may terminate this Agreement
in a signed writing, without any cancellation charge, for a material breach of
the Agreement by the other party or if the other party becomes insolvent or
files or has filed against it a petition in bankruptcy (each of such
circumstances referred to herein as "Cause"), to the extent permitted by law.
Such termination will be effective at the end of a ninety (90) day written
notice period if and only if the Cause remains uncured. Either party may
terminate this Agreement in a signed writing without Cause when there are no
outstanding SOWs.
3.3 TERMINATION OF A SOW OR WA: [*] Either party may terminate this Agreement
in a signed writing, without any cancellation charge, for Cause, to the extent
permitted by law. Such termination for Cause will be effective at the end of a
ninety (90) day written notice period if and only if the Cause remains uncured.
Upon the effective date of termination, in accordance with Buyer's written
direction, Supplier will immediately cease work on any Services under the
terminated SOW(s). In the event [*] Supplier terminates for Cause, Buyer will
compensate Supplier for the actual and reasonable expenses (including actual and
reasonable time expended at the non-recurring expense ("NRE") rates specified in
the applicable SOW) incurred by Supplier for NRE work in process authorized by
Buyer in a written SOW up to and including the effective date of termination,
provided such expenses do not exceed the Prices for such NRE work.
3.4 EFFECT OF TERMINATION:
(a) For the purposes of this Agreement and any SOW(s) entered into
hereunder, "Continuing Rights and Obligations" shall mean all rights, licenses
and obligations of the parties hereto under this Agreement and any SOW(s)
entered into hereunder except for:
[*]=Confidential Treatment Requested--Edited Copies
Form Title: Licensed & Developed Works Agreement 2 of 8 Form Release: 8/98
Revision: 11/98
<PAGE> 3
LICENSED & DEVELOPED WORKS AGREEMENT
[*] [*]
(i) Buyer's licenses (A) to prepare and have prepared Derivative
Works of documentation included in the Deliverables in source form, and (B) to
prepare Derivative Works of the Deliverables by bundling, incorporating and/or
combining the Deliverables (including Derivative Works of documentation included
in the Deliverables in source form) into Products;
(ii) acceptance and testing criteria and procedures with respect
to Deliverables delivered by Supplier after the effective date of termination;
and
(iii) Supplier's support obligations under this Agreement and any
SOW entered into hereunder for the Deliverables with respect to APAR Severity
Level 3 and 4 Errors (as defined in the applicable SOW(s)).
(b) Notwithstanding any termination of this Agreement or any SOW, all of
the Continuing Rights and Obligations shall survive any termination of the
Agreement or any SOW entered into hereunder and shall continue until the later
of (i) the scheduled end of the term(s) during which the termination occurs
(which may be initial term(s) or renewal term(s)) of the SOW(s) being
terminated, and (ii) the ninetieth (90th) day following the effective date of
the termination.
(c) Notwithstanding any termination of this Agreement or any SOW, the
rights and licenses granted to Buyer in the Deliverables shall survive any such
termination and shall continue perpetually for the sole purpose of permitting
Buyer to perform maintenance and support for Deliverables it directly or
indirectly distributes as permitted by this Agreement or the applicable SOW(s).
(d) Subject to termination under Section 3.4(a)(i) of this Agreement of
Buyer's licenses to create Derivative Works of Deliverables, no termination of
this Agreement or a SOW shall affect any license in Deliverables granted or
distributed by IBM prior to the effective date of the termination to a third
party as permitted by this Agreement or the applicable SOW(s).
(e) Except as expressly provided in this Section or Section 14.12 of
this Agreement, termination of this Agreement or a SOW revokes and terminates
all rights and obligations thereunder, including all rights and licenses granted
therein.
4.0 PRICING: Supplier will provide Deliverables and Services to Buyer for the
Prices. Except for pre-approved expenses specified in the relevant SOW, the
Prices for Deliverables and Services specified in a WA and accepted by Buyer
will be the only amount due to Supplier from Buyer.
5.0 PAYMENTS AND ACCEPTANCE
5.1 ACCEPTANCE: Payment of royalties or invoices will not be deemed
acceptance of Deliverables or Services, but rather such Deliverables or Services
will be subject to inspection, test and rejection in accordance with the
acceptance or completion criteria as specified in the relevant SOW. Buyer shall
not unreasonably withhold acceptance of Deliverables or Services. Buyer may, at
its option, either reject Deliverables or Services that do not comply with the
acceptance or completion criteria for a refund, or require Supplier, upon
Buyer's written instruction, to repair or replace such Deliverables or re-perfom
such Services, without charge and in a timely manner.
5.2 ROYALTY PAYMENTS: Royalties for Deliverables will be specified in the
relevant SOW. Buyer may suspend payments to Supplier for a Deliverable if
Supplier does not provide a properly completed Certificate of Originality.
Payment will resume upon Buyer's receipt of an acceptable Certificate. If
Supplier fails to perform any of its obligations, Buyer may reduce any amounts
due Supplier by an amount equal to the value not received, or have Supplier
reimburse Buyer for the value not received.
5.3 ROYALTY CALCULATIONS: Royalties, if any, are paid against revenue
recorded by Buyer for a royalty payment quarter. Payment will be made [*]
following the royalty payment quarter. In the U.S., a royalty payment quarter
ends on the last business day of the calendar quarter. Outside of the U.S., a
royalty payment quarter is defined according to Buyer's current administrative
practices. Royalties will be paid less adjustments and refunds due to Buyer.
Buyer will provide a statement summarizing the royalty calculation with each
payment. All payments will be made in U.S. dollars. Payments based on foreign
revenue will be converted to U.S. dollars on a monthly basis at the rate of
exchange published by Reuters Financial Service on approximately the same day
each month. Terms for payment of any non-royalty payments will be specified in
the relevant SOW or WA.
[*]=Confidential Treatment Requested--Edited Copies
Form Title: Licensed & Developed Works Agreement 3 of 8 Form Release: 8/98
Revision: 11/98
<PAGE> 4
LICENSED & DEVELOPED WORKS AGREEMENT
[*] [*]
5.4 EXCEPTIONS TO ROYALTY PAYMENT OBLIGATIONS: Buyer has no royalty
obligation for: (a) the Deliverables or its Derivative Works used for: (i)
development, maintenance or support activities conducted by Buyer or Buyer
Personnel; (ii) marketing demonstrations, customer testing or trial periods
(including early support, prerelease, encrypted or locked sampler distributions
not resulting in a license for full productive use, or other similar programs),
Product training or education; or (iii) backup and archival purposes; (b) a copy
of the Product installed by a licensed end user on an alternate work station
(e.g., home terminal or laptop), provided the end user may not use the Product
on both work stations at the same time; (c) the Deliverables (or a functionally
equivalent work) that becomes available generally by Supplier to third parties
without a payment obligation; (d) documentation provided with, contained in, or
derived from the Deliverables; (e) Error Corrections or Basic Enhancements; (f)
warranty replacement copies of the Product; and (g) Externals.
5.5 TAXES: Each party will be solely responsible for any taxes incurred by the
party, directly or indirectly, associated with its performance of this
Agreement. To clarify and fulfill the forgoing stated intent, Buyer shall
reimburse Supplier for any valid sales, use, excise, import or export or similar
taxes (excluding any taxes based on Supplier's income, and any penalties and
interest) ("Taxes") arising from distribution and sale transactions by Buyer of
licenses to copies of Products including the Deliverables under which
transactions Supplier is deemed a retailer to Buyer thereby causing such taxes
to be assessed against Seller (i.e., internal use by Buyer of Products including
the Deliverables). Buyer shall provide Supplier with reimbursement for Taxes
within thirty (30) days of receipt by Buyer of an invoice from Supplier. The
terms of any such invoice shall not be binding upon Buyer. All such invoices
must include the following information: (a) this Agreement number; (b)
Supplier's company and remit to address; (c) a short description for which
payment is due; and (d) Buyer's Purchase Order number, Supplier's invoice number
and its date. All such invoices will be addressed to Buyer and sent to the
following address: IBM Corporation, National Accounts Payable Center, P.O. Box
9005, 1701 North Street, Endicott, New York 13761-9005.
5.6 OUTSOURCING LICENSE: In the event Buyer provides outsourcing services to
any licensee of a Product, Buyer will [*] of a license to such Product or for
transfer of the applicable Product to a Buyer computer system which is of like
configuration as the computer system for which the Product was licensed provided
such licensee maintains a license for all copies of the Product which Buyer
accesses or receives during the period of such access or possession. The
foregoing is subject to Buyer providing Supplier notice of such Product to be
managed by Buyer and provided the Product will only be used on behalf of the
licensee. Upon expiration or termination of the agreement to provide outsourcing
services to the licensee, Buyer's right to use that copy of the Product will
end.
6.0 ONGOING WARRANTIES: Supplier makes the following ongoing representations and
warranties: (i) it has the right to enter into this Agreement and its
performance of this Agreement will not violate the terms of any contract,
obligation, law, regulation or ordinance to which it is or becomes subject; (ii)
no claim, lien, or action exists or, to Supplier's knowledge, is threatened
against Supplier that would interfere with Buyer's rights under this Agreement;
(iii) upon its final acceptance by Buyer, each Deliverable conforms or will
conform with the warranties, specifications and requirements in this Agreement
and applicable SOWs, provided that a performance defect in a Deliverable shall
not constitute a breach of this Section 6.0(iii) if such defect is corrected by
Supplier within the applicable correction time set forth in applicable SOWs and
such defect does not constitute a breach of an additional representation or
warranty in this Agreement or an applicable SOW; (iv) Services will be performed
using reasonable care and skill and in accordance with the relevant SOW; (v)
Deliverables and Services are Year 2000 ready such that they are capable of,
when used in accordance with its associated documentation, correctly processing,
providing, receiving and displaying date data, as well as exchanging accurate
date data with all products with which the Deliverables or Services are intended
to be used within and between the twentieth and twenty-first centuries, provided
that all other products (e.g., hardware, software and firmware) used in
combination with the Deliverables or Services properly exchange date data with
it; (vi) Deliverables and Services are euro-ready such that they will correctly
process, send, receive, present, store, and convert monetary data in the euro
denomination, respecting the euro currency formatting conventions (including the
euro symbol); (vii) Deliverables will be tested for, and do not contain, Harmful
Code; (viii) Deliverables and Services do not infringe any privacy, publicity,
reputation or intellectual property right of a third party; and (ix) all authors
have executed agreements which duly and validly assigned to Supplier all right,
title and interest in and to the Deliverables, to the extent permitted by law.
THE WARRANTIES AND CONDITIONS IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER
WARRANTIES AND CONDITIONS, EXPRESS, IMPLIED, OR STATUTORY INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, OR NON-INFRINGMENT. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR
IN A SOW, ALL SUCH WARRANTIES ARE EXPRESSLY DISCLAIMED.
[*]=Confidential Treatment Requested--Edited Copies
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LICENSED & DEVELOPED WORKS AGREEMENT
[*] [*]
7.0 DELIVERY: Deliverables or Services will be delivered as specified in the
relevant SOW. If Supplier cannot comply with a delivery commitment, Supplier
will promptly notify Buyer of a revised delivery date and Buyer may: (i) cancel
without charge Deliverables or Services not yet delivered if delivery on the
revised delivery date would constitute a significant delay with reference to
Buyer's development schedule; and (ii) exercise all other remedies provided at
law, in equity and in this Agreement.
8.0 INTELLECTUAL PROPERTY
8.1 LICENSES: Supplier grants Buyer the rights in the Deliverables, Licensed
Works, Preexisting Materials, Tools, names, trademarks, patents and other
matters as specified in the relevant SOW. Subject to Supplier's ownership of the
Licensed Work and Tools, Buyer will own any Derivative Works it creates which
are authorized by this Agreement or a SOW.
8.2 WORK MADE FOR HIRE: All Developed Works belong exclusively to Buyer and
are works made for hire. If any Developed Works are not considered works made
for hire owned by Buyer by operation of law, Supplier assigns the ownership of
copyrights in such works to Buyer.
8.3 INVENTION RIGHTS: Supplier will promptly provide to Buyer a complete
written disclosure for each Invention which identifies the features or concepts
which Supplier believes to be new or different. Inventions are owned by
Supplier, except for Joint Inventions and Inventions relating to an Appearance
Design. Supplier grants to Buyer an irrevocable, nonexclusive, worldwide,
paid-up license under these Inventions (including any patent applications filed
on or patents issued claiming Inventions). The license scope is to make, have
made, use, have used, sell, license or transfer items and to practice and have
practiced methods. Supplier assigns to Buyer all Inventions, and patents issuing
on them, relating to an Appearance Design.
8.4 JOINT INVENTION RIGHTS: The parties will jointly own all Joint Inventions
and resulting patents. Either party may license others under Joint Inventions
(including any patent applications filed on or patents issued claiming Joint
Inventions) without accounting to or consent from the other.
8.5 PERFECTION OF COPYRIGHTS: Upon request, Supplier will provide to Buyer a
"Certificate of Originality" or equivalent documentation to verify authorship of
Deliverables. Supplier will confirm assignment of copyright for Developed Works
using the "Confirmation of Assignment of Copyright" form and will assist Buyer
in perfecting such copyrights. Supplier will be responsible for registration,
maintenance and enforcement of copyrights for Deliverables, Licensed Works and
Preexisting Materials.
8.6 PERFECTION OF INVENTION RIGHTS: Supplier will identify all countries in
which it will seek patent protection for each Invention. Supplier authorizes
Buyer to act as its agent in obtaining patent protection for the Inventions in
countries where Supplier does not seek patent protection. Supplier will, at
Buyer's expense, assist in the filing of patent applications on Inventions and
have required documents signed.
9.0 INDEMNIFICATION
9.1 GENERAL INDEMNIFICATION: Each party will defend, hold harmless and
indemnify, including reasonable attorney's fees, the other party and the other
party's Personnel against claims that arise or are alleged to have arisen as a
result of negligent or intentional acts or omissions of the indemnifying party
or its Personnel or by a material breach by Supplier of the representations and
warranties of Section 6.0 of this Agreement.
9.2 INTELLECTUAL PROPERTY INDEMNIFICATION: Supplier will defend hold harmless
and indemnify, including reasonable attorney's fees, Buyer and Buyer Personnel
from claims that Supplier's Deliverables or Services infringe the intellectual
property rights of a third party. Buyer will provide reasonably prompt notice to
Supplier of any such claim received and will allow Supplier to control, and will
cooperate with Supplier in the defense of, the claim and settlement
negotiations, provided that Buyer may participate in the defense of such claim
at its expense. Buyer's failure to give reasonably prompt notice to the Supplier
of any claim Buyer receives which may give rise to a right of indemnification
hereunder shall relieve the Supplier of any liability which it may have to the
Buyer only to the extent the failure to give such notice prejudiced the
Supplier. If such a claim has a reasonable likelihood of success and is or is
reasonably likely to be made, Supplier will, at its own expense, exercise the
first of the following remedies that is reasonably practicable, in the following
order of preference: (i) obtain for Buyer the right to continue to use, sell and
license the Deliverables and Services consistent with this Agreement; (ii)
modify Deliverables and Services so they are non-infringing and in compliance
with this Agreement; (iii) replace the Deliverables and Services with
non-infringing ones that comply with this Agreement; or (iv) at Buyer's request
if the forgoing remedies will not cure the claim within six (6) months, accept
the cancellation of infringing Services and the return of
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infringing Deliverables and refund an amount equal to the amount of the claim
(the "Refund Amount") from the amounts paid to Supplier by Buyer. Buyer will
deliver to Supplier a certificate setting forth the Refund Amount, together with
a brief explanation of Buyer's basis for such Refund Amount. The Refund Amount
shall be final and binding on the parties hereto unless, no later than the
fifteenth (15th) business day after the delivery of the certificate setting
forth the Refund Amount to Supplier, Supplier shall notify Buyer in writing of
its objections to the Refund Amount, specifically listing its estimate of the
Refund Amount and the basis for its estimate. If Supplier provides such timely
notification, Supplier and Buyer shall use their reasonable, good faith efforts
to resolve by written agreement such objections. If Supplier and Buyer resolve
all such objections, the Refund Amount, as adjusted by Buyer and Supplier, shall
be final and binding as the Refund Amount. If Supplier and Buyer are unable to
resolve all such objections within thirty (30) days after the timely delivery of
Seller's notification of its objections, the remaining objections shall be
referred to an independent accounting firm. As promptly as possible and in any
event no later than the thirtieth (30th) day after the date of such referral,
the independent accounting firm shall resolve all such remaining objections in
accordance with this Agreement and accounting principles and deliver written
notice thereof to Buyer and Seller setting forth its resolution of the
objections and its estimate of the Refund Amount. The Refund Amount, after
giving effect to the adjustments by Buyer and Seller and the resolution of
disputed items by the independent accounting firm, shall be final and binding
upon the parties hereto as the Refund Amount. If the independent accounting firm
does not provide for an equitable allocation to Seller and Buyer of its fees and
expenses, if any, incurred in connection with its resolution of such disputed
items, then each of Buyer and Seller shall pay one-half of such fees and
expenses. Refund Amounts paid by Supplier to Buyer shall become Buyer's
property, free and clear of all encumbrances, provided that Supplier shall not
be liable to Buyer with respect to the claim for which Buyer was paid a Refund
Amount except to the extent damages actually incurred by Buyer (including
reasonable attorney's fees) with respect to such claim exceed the Refund Amount.
9.3 EXCEPTIONS TO INDEMNIFICATION: Supplier will have no obligation to
indemnify Buyer or Buyer Personnel for claims that Supplier's Deliverables or
Services infringe the intellectual property rights of a third party to the
extent such claims arise as a result of Supplier's implementation of a Buyer
originated design, Buyer's modification of the Deliverables, or combination of
the Deliverables with hardware and software not provided by Supplier.
10.0 LIMITATION OF LIABILITY: Neither Buyer nor Supplier shall be liable to each
other for any lost revenues, lost profits, incidental, indirect, consequential,
special or punitive damages. Notwithstanding any other provision of this
Agreement, (a) Supplier's total liability to Buyer under this Agreement shall be
limited to the greater of (i) [*] and (ii) [*], and (b) Buyer's total liability
to Supplier under this Agreement shall be limited to the greater of (i) [*] and
(ii) [*].
11.0 SUPPLIER AND SUPPLIER PERSONNEL: Supplier is an independent contractor and
this Agreement does not create an agency relationship between Buyer and Supplier
or Buyer and Supplier Personnel. Buyer assumes no liability or responsibility
for Supplier Personnel. Supplier will: (i) be responsible for compliance by it
and Supplier Personnel with all applicable laws, regulations, ordinances, and
licensing requirements; (ii) be responsible for the supervision, control,
compensation, withholdings, health and safety of Supplier Personnel; (iii)
ensure Supplier Personnel performing Services on Buyer's premises comply with
the On Premises Guidelines; and (iv) inform Buyer if, to the best knowledge of
Supplier, a former employee of Buyer will be assigned work under this Agreement,
such assignment subject to Buyer approval, which shall not be unreasonably
withheld.
12.0 ELECTRONIC COMMERCE: Supplier will use reasonable efforts to participate in
Electronic Data Interchange ("EDI") or other electronic commerce approach, under
which the parties will electronically transmit and receive legally binding
purchase and sale obligations ("Documents"), including electronic credit entries
transmitted by Buyer to the Supplier account specified in the relevant SOW. Each
party, at its own expense, will provide and maintain the equipment, software,
services and testing necessary for it to effectively and reliably transmit and
receive such Documents. Either party may use a third party service provider for
network services, provided the other party is given sixty (60) days prior
written notice of any changes to such services. A Document will be deemed
received upon arrival at the receiving party's mailbox or Internet address and
the receiving party will promptly send an acknowledgment of such receipt. The
receiving party will promptly notify the originating party if a Document is
received in an unintelligible form, provided that the originating party can be
identified. In the absence of such notice, the originating party's record of the
contents of such Document will prevail. Each party will authenticate Documents
using a digital signature or User ID, as specified by Buyer, and will maintain
security procedures to prevent its unauthorized use.
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LICENSED & DEVELOPED WORKS AGREEMENT
[*] [*]
13.0 RECORDKEEPING AND AUDIT RIGHTS: Buyer and Supplier will maintain relevant
records to support invoices and other payments under this Agreement. The records
will be retained and made available for three years from the date of the related
payment. If Buyer or Supplier requests, then Buyer and Supplier will make these
records available to an independent certified public accountant chosen and
compensated (other than on a contingency basis) by the requesting party. The
request will be in writing, will provide [*] prior notice, and will not occur
more than once each year. The audit will be conducted during normal business
hours in such a manner as not to interfere with normal business activities. The
auditor will sign a confidentiality agreement and will only disclose any amounts
overpaid or underpaid for the period examined.
14.0 GENERAL
14.1 ENTIRE AGREEMENT; AMENDMENTS: This Agreement, and any SOWs executed by
the parties hereunder, represent the entire agreement of the parties hereto with
respect to their subject matter, and may only be amended by a writing
specifically referencing this Agreement which has been signed by authorized
representatives of the parties.
14.2 ASSIGNMENT: Neither party will assign their rights or delegate or
subcontract their duties under this Agreement to third parties or affiliates
without the prior written consent of the other party, such consent not to be
withheld unreasonably, except that Buyer may assign this Agreement in
conjunction with the sale of a substantial part of its business utilizing this
Agreement, and Supplier may assign this Agreement in conjunction with the sale
of all or substantially all of its assets. In addition, without limiting the
generality of the forgoing, the parties agree that a sale of all or
substantially all of the capital stock of Buyer or Supplier shall not constitute
an assignment, delegation or subcontracting within the meaning of this Section.
Any unauthorized assignment of this Agreement is void.
14.3 CHOICE OF LAW AND FORUM; WAIVER OF JURY TRIAL; LIMITATION OF ACTION:
This Agreement and the performance of transactions under this Agreement will be
governed by the laws of the country in which the transaction is performed,
except that the laws of the State of New York applicable to contracts executed
in and performed entirely within that State will apply if any part of the
transaction is performed within the United States. The parties expressly waive
any right to a jury trial regarding disputes related to this Agreement. Unless
otherwise provided by local law without the possibility of contractual waiver or
limitation, any legal or other action related to a breach of this Agreement must
be commenced no later than two (2) years from the date of the breach in a court
sited within the country in which the breach occurred, or in a court sited in
the State of New York if any part of the transaction is performed within the
United States.
14.4 COMMUNICATIONS: All communications between the parties regarding this
Agreement will be conducted through the parties' representatives as specified in
the relevant SOW.
14.5 COUNTERPARTS: This Agreement may be signed in one or more counterparts,
each of which will be deemed to be an original and all of which when taken
together will constitute the same agreement. Any copy of this Agreement made by
reliable means is considered an original.
14.6 EXCHANGE OF INFORMATION: Unless required otherwise by law, all
information exchanged by the parties will be considered non-confidential. If the
parties require the exchange of confidential information, such exchange will be
made under a written confidentiality agreement including, by way of example, the
terms and conditions of the Confidential Disclosure Agreement # [*] between
Buyer and Supplier. Neither party shall publicize the terms or conditions of
this Agreement in any advertising, marketing or promotional materials without
the prior written consent of the other party (which shall not unreasonably be
withheld) except as may be required by law, provided the party publicizing
obtains any confidentiality treatment available. Supplier will use information
regarding this Agreement only in the performance of this Agreement.
14.7 FREEDOM OF ACTION: This Agreement is nonexclusive and either party may
design, develop, manufacture, acquire or market competitive products or
services. Buyer will independently establish prices for resale of Deliverables
or Services and is not obligated to announce or market any Products or Services
and does not guarantee the success of its marketing efforts, if any.
14.8 FORCE MAJEURE: Neither party will be in default or liable for any delay
or failure to comply with this Agreement due to any act beyond the control of
the affected party, excluding labor disputes, provided such party immediately
notifies the other.
14.9 PRIOR COMMUNICATIONS AND ORDER OF PRECEDENCE: This Agreement replaces
any prior oral or written agreements or other communication between the parties
with respect to the subject matter of this Agreement, excluding any confidential
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LICENSED & DEVELOPED WORKS AGREEMENT
[*] [*]
disclosure agreements. In the event of any conflict in these documents, the
order of precedence will be: (i) the quantity, payment and delivery terms of the
relevant WA; (ii) the relevant SOW; (iii) this agreement; and (iv) the remaining
terms of the relevant WA.
14.10 COMPLIANCE WITH LAWS: Both parties agree to comply with all applicable
laws, rules and regulations, including all applicable United States and foreign
export laws and regulations, in connection with the performance of this
Agreement.
14.11 SEVERABILITY: If any term in this Agreement is found by competent
judicial authority to be unenforceable in any respect, the validity of the
remainder of this Agreement will be unaffected, provided that such
unenforceability does not materially affect the parties' rights under this
Agreement.
14.12 SURVIVAL: The provisions set forth in the following Sections and
Subsections of this Agreement will survive after termination of this Agreement
and will remain in effect until fulfilled: "Ongoing Warranties", "Intellectual
Property", "Indemnification", "Limitation of Liability", "Record Keeping and
Audit Rights", "Choice of Law and Forum; Waiver of Jury Trial; Limitation of
Action", "Exchange of Information", and "Prior Communications and Order of
Precedence".
14.13 WAIVER: An effective waiver under this Agreement must be in writing
signed by the party waiving its right. A waiver by either party of any instance
of the other party's noncompliance with any obligation or responsibility under
this Agreement will not be deemed a waiver of subsequent instances.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
By: By:
------------------------------ --------------------------------------
Buyer Signature Date Supplier Signature Date
Herman Graham, Jr. David D. Parker
- --------------------------------- -----------------------------------------
Printed Name Printed Name
Software Contract Account Manager President & CEO, Enlighten Software
- --------------------------------- -----------------------------------------
Title & Organization Title & Organization
3039 Cornwallis Rd., VRDA/002, 999 Baker Way, Fifth Floor,
RTP, NC 27709 San Mateo, CA 94404
- --------------------------------- -----------------------------------------
Buyer Address: Supplier Address:
[*]=Confidential Treatment Requested--Edited Copies
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Revision: 11/98
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LICENSED & DEVELOPED WORKS AGREEMENT AGREEMENT # [*]
STATEMENT OF WORK SOW # [*]
This Statement of Work ("SOW") # [*] adopts and incorporates by reference the
terms and conditions of Licensed and Developed Works Agreement # [*]
("Agreement") between International Business Machines ("Buyer") and Enlighten
Software Solutions, Inc. ("Supplier") and shall be effective as of December 31,
1998. Transactions performed under this SOW will be conducted in accordance with
and be subject to the terms and conditions of this SOW, the Agreement and any
applicable Work Authorizations. This SOW is a WA when executed by both parties.
1.0 SCOPE OF WORK
Under the terms and conditions of this SOW, Buyer licenses from Supplier a
computer software program known as EnlightenDSM which enables system management
servers, administration, and clients as described Section 3.0 of this SOW.
2.0 DEFINITIONS
Capitalized terms in this SOW have the following meanings:
2.1 "APAR" is the completed form entitled "Authorized Program Analysis Report"
that is used to report suspected code or documentation errors and to request
their correction.
2.2 "APAR CORRECTION TIMES" are the objectives that the Supplier shall use
reasonable efforts to achieve for resolution of Errors and distribution of
the Error Corrections to Buyer. These objectives apply to problems
reported by Buyer's external customers.
a. SEVERITY 1 requires diligent effort support until an
emergency fix or bypass is developed and available for
shipment to Buyer. The objective will be to provide
response to the customer within [*] and provide a final
solution or fix within [*];
b. SEVERITY 2 must be resolved within [*];
c. SEVERITY 3 must be resolved within [*]; and
d. SEVERITY 4 must be resolved as mutually determined by the
Technical Coordinators.
The calendar days begin when Supplier receives the APAR and
supporting documentation and end when the Error Correction or
other resolution is shipped to Buyer. The Buyer will consider
exceptions from these objectives when warranted by technical or
business considerations.
2.3 "APAR SEVERITY LEVELS" are designations assigned by Buyer and its customers
to Errors to indicate the seriousness of the Error based on the impact that the
Error has on the customer's operation:
a. SEVERITY 1 is a "critical problem." The program is
unusable and the error severely impacts the customer's
operation;
b. SEVERITY 2 is a "major problem." Important function is not
available. The error severely restricts operations;
c. SEVERITY 3 is a "minor problem." Inability to use a
function occurs but it does not seriously affect the
customer; and
d. SEVERITY 4 is a "minor problem" that is not significant to
the customer's operations. The customer may be able to
circumvent the problem.
2.4 "DESIGN CHANGE REQUEST" ("DCR") is the process defined in this SOW where
either party may submit technical change proposals for the Deliverables.
2.5 "TEST CORRECTION TIMES" are the objectives that the Supplier shall use
reasonable efforts to achieve for resolution of test Errors and distribution of
the test Error Corrections to Buyer.
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LICENSED & DEVELOPED WORKS AGREEMENT AGREEMENT # [*]
STATEMENT OF WORK SOW # [*]
a. Severity 1 test problems shall be addressed by Supplier
within [*] from the time of beta test through Golden
Master, and a fix shall be distributed by Supplier to
Buyer within [*] thereafter.
b. Severity 2 test problems shall be addressed by Supplier
within [*] from the time of beta test through Golden
Master, and a fix shall be distributed by Supplier to
Buyer within [*] thereafter.
c. Severity 3 and Severity 4 test problems shall be addressed
by Supplier within [*], and a fix shall be distributed by
Supplier to Buyer by the time agreed to by their Technical
Coordinators.
2.6 "TEST SEVERITY LEVELS" are designations assigned by Buyer to test Errors to
indicate the seriousness of the Error.
a. SEVERITY 1 test problems are any problems that block all
the remaining testing for a product/function.
b. SEVERITY 2 test problems are problems that block a large
percentage of the remaining testing for a
product/function.
c. SEVERITY 3 test problems are problems that block a small
percentage of the remaining testing for a
product/function.
d. SEVERITY 4 test problems are any problems that do not
block testing.
2.7 "TESTING LEVELS"
a. SYSTEM TEST. The primary focus of system test is to ensure
that the product under test operates properly in the
supported environment(s) in accordance with the stated
expectations of reliability, performance, availability and
serviceability under stress and multiple user conditions.
In addition, system test is to ensure that all Error
Corrections/enhancements, as well as base Object Code
functions from previous versions/releases, work properly
in customer-like environments created. Buyer shall be
given the opportunity to review and comment on any and all
system test plans produced by or for Supplier for the
Deliverables under this SOW.
b. FUNCTION TEST. The primary focus of function test is to
ensure that each function of the product under test
operates properly in a single user environment. Functions
to be tested include, but are not limited to:
installation, configuration, information presentations,
error path exercising, and general functional
characteristics.
c. UNIT TEST. The primary focus of unit test is to ensure
that each sub-function and module of the functions under
test operate properly in a development user environment.
Unit testing includes parameter checking, error return
codes, and general module flow.
2.8 "DISTRIBUTORS" are those authorized or licensed by Buyer, Buyer Subsidiaries
or Buyer Distributors to license or distribute Products.
2.9 A "PRODUCT" (for the purpose of this SOW) shall mean one of IBM's middleware
suite products, including, by way of example, its IBM Suite, IBM Business
Integration Suite and IBM Enterprise Suite products.
[*]=Confidential Treatment Requested--Edited Copies
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LICENSED & DEVELOPED WORKS AGREEMENT AGREEMENT # [*]
STATEMENT OF WORK SOW # [*]
3.0 LICENSED WORK AND RELATED DELIVERABLES AND SERVICES
3.1 DESCRIPTION OF LICENSED WORK
a. GENERAL DESCRIPTION OF DELIVERABLES:
The Deliverables provided by Supplier hereunder shall be deemed Licensed
Works, Preexisting Materials or Tools, as applicable, and shall not be
deemed to include any Developed Works. The FlexLM from Globetrotter
Software included in the Deliverables, and all Deliverables created
prior to the execution of the Agreement are Preexisting Materials. All
other Deliverables shall be deemed Licensed Works or Tools, as
applicable. The Deliverables to be provided by Supplier under this SOW
shall consist of:
i) Supplier's software product known as EnlightenDSM, release 2.7
or later; and shall be delivered in Object Code format only,
electronically or on CD-ROM suitable for installation by an
installation program. Supplier's EnlightenDSM is a multifunction
systems management system product covering essential functions
for the administration and management of heterogeneous, networked
UNIX, Windows NT, Windows 95, and Window 98 systems. The
functions of this product include system administration, file
distribution, performance measuring, security auditing, storage
management and event management.
ii) The following documentation for the product, provided
in HTML (preferred) or PDF format:
1) EnlightenDSM User Guide
2) EnlightenDSM Reference Manual
iii) Source files for the following additional
Documentation provided for inclusion in the Buyer's "Getting
Started" Manual:
3) EnlightenDSM Quick Install Guide
iv) Any Tools.
v) Deliverable shall contain easily accessible on-line
context-sensitive help information which must be available for
each user interaction program window.
vi) Error Corrections and Enhancements described in
Sections 3.3 through 3.5 below.
b. SPECIFIC DESCRIPTION OF DELIVERABLES:
The Deliverables provided by Supplier described in Section
3.1(a)(i) above:
i) shall consist of a customized recent release version of
EnlightenDSM based on at least the EnlightenDSM Version 2.7 or
later.
ii)shall be provided as [*] suitable for server installation on
[*], and client installation on Windows NT 4.0 with service
pack 3, Windows 95, and Windows 98.
iii) must support the functionality described in the then-current
EnlightenDSM product documentation, and, to the extent not
described in such documentation, the following functionality:
1) [*] utilizing the [*] product as a [*].
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LICENSED & DEVELOPED WORKS AGREEMENT AGREEMENT # [*]
STATEMENT OF WORK SOW # [*]
2) Centralized event configuration and management,
including:
a) Programmable events;
b) Operating system parameters;
c) Virtual memory metrics;
d) Network packet counts; and e) User defined
events.
3) Setup and management of [*] Domain Name Servers (DNS),
Network Information Servers (NIS), Network Information
Servers Plus (NIS+), NIS slave servers, and NIS+
replica servers.
4) [*] Network File System (NFS) management.
5) Network printer and print spooler management .
6) Hardware and software inventory reporting..
7) [*] security auditing..
8) [*] disk and file system management.
9) [*] Logical resource pooling.
10) [*] user account management.
11) [*] crontab management.
12) [*], Archive scheduler.
13) Remote file distribution.
14) Application log file monitoring.
15) A scaleable, customizable administration utility based
on [*].
16) Software program launch of [*] from the administration
utility.
17) Disk Space Analysis and Management.
18) Process Management.
19) Remote system shutdown and reboot.
20) Remote system virtual Memory usage.
21) Remote system clock Management.
22) Host configuration / network parameters.
23) User/Group Management [*]
24) Data Archiving [*]
iv) [*].
v) [*].
vi) must include server and agent components which are
installable [*]. Agent components must be installable [*].
The server component installation routine must meet the
following requirements:
1) Be enabled for [*] and [*];
2) Accommodate a single Buyer Product install with a
single reboot for a clean target server;
3) Check for previous installed versions of EnlightenDSM
and handle upgrades via a separate utility or within the
install process;
4) Accommodate [*] as mutually agreed to by the Buyer and
Supplier;
5) Eliminate any [*] except as required for [*] [*] and
[*];
6) Support locale specific installation [*]; and
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7) Support the database path [*]
vii) can be provided as English only, but must operate when
installed on locales based on the following national
languages:
1) English;
2) German;
3) French;
4) Italian;
5) Spanish;
6) Portuguese and Brazilian Portuguese;
7) Japanese;
8) Korean;
9) Simplified Chinese;
10) Traditional Chinese;
11) Dutch;
12) Norwegian;
13) Danish;
14) Finnish; and
15) Swedish.
viii) must be Year 2000 compliant as required by Section 6.0 of
the Agreement; and
3.2 CERTIFICATE OF ORIGINALITY: Supplier will deliver a completed Certificate of
Originality in the form attached hereto (i) with each Deliverable in accordance
with the schedule set forth in Section 9 below, (ii) with the Major Enhancements
described in Section 3.5 of this SOW in accordance with the schedule set forth
in Section 9 below, and (iii), for each subsequent Major Enhancement, [*] such
Major Enhancement. Buyer will provide Supplier the Exhibit: Certificate of
Originality for these purposes.
3.3 ERROR CORRECTION WARRANTY PERIOD
During the term of this SOW, Supplier will provide Buyer [*], Basic Enhancements
and Error Corrections for each Deliverable made generally available by Supplier
beginning when Buyer accepts such Deliverable. Supplier will offer to Buyer, as
soon as reasonably practical [*], all Basic Enhancements and Error Corrections
to any Deliverable that Supplier creates or authorizes others to create in
Object Code form.
3.4 MAJOR ENHANCEMENT WARRANTY PERIOD
During the term of this SOW, Supplier will provide Buyer, [*], Major
Enhancements to each Deliverable made generally available by Supplier beginning
when Buyer accepts such Deliverable. Supplier will offer to Buyer, as soon as
reasonably practical [*] all Major Enhancements to any Deliverable that Supplier
creates or authorizes others to create in Object Code form.
3.5 REQUIRED MAJOR ENHANCEMENTS
[*] the following Major Enhancements to the Deliverable described in Section
3.1(a)(i) [*]. Such Major Enhancements will be provided in Object Code form on
CD-ROM [*]. In addition, such Major Enhancements must be [*] is generally
available [*] delivery of such Major Enhancements to the Buyer. In any case,
Supplier must support the most current version of an operating system, as
defined [*], and [*]
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version of the operating system. The Major Enhancements [*] Deliverables for the
[*]:
a) [*] with [*];
b) [*] for [*], defined by [*], and the associated [*]
by the informational [*];
c) [*], [*], and [*], [*], and [*] must enable [*] of
[*], from a new [*] to complete [*] like a [*] or
[*]. It [*] also [*] types of [*] for [*]
(Workstation and Server), [*], as well as follow-on
[*], including [*], [*] and [*]. This feature [*]:
1) A reference machine [*] and the before [*].
A set of [*] are prepared that will [*],
with allowances for [*]. This set of [*]
onto a [*] on the [*], and [*] are [*] from
the [*]; and
2) Using the principle of [*] made to a [*] of
the [*] enables the user [*] from any [*]. A
[*] may be required for [*]
3.6 MAINTENANCE AND SUPPORT SERVICES
During the term of this SOW, [*] Supplier will provide maintenance and
support Services in accordance with the Testing, Maintenance and Support
Attachment attached hereto.
4.0 NON-RECURRING EXPENSE (NRE)
4.1 Supplier will [*], on a non-recurring expense ("NRE") basis, to provide [*]
Deliverable described in Section 3.1(a)(i):
i) to [*] ;
ii) to [*];
iii) to [*]; and
iv) to [*].
4.2 During the term of this Agreement, additional development on an NRE basis to
support Major Enhancements may be negotiated by the parties under a separate
agreement. Supplier and Buyer mutually agree to meet on a periodic basis, but in
no event less than quarterly, to share product directions/roadmaps for their
respective products (i.e., the Deliverables and the Product), to jointly assess
where there may exist differences in either customer requirements and/or roadmap
timelines, and to provide input to each other regarding development of each
Party's roadmaps/timelines to more effectively align the Product and the
Deliverables. For features and/or functionality which are required by Buyer for
its Product that contain the Deliverables and are not on Supplier's roadmap for
inclusion with the Deliverables, at Buyer's request, Buyer and Supplier shall
mutually work to develop an appropriate SOW for the development and inclusion of
such features and/or functionality in the Deliverables. During the term of this
SOW, [*] Except for the work performed on an NRE basis under Section 4.1 above
of this SOW, no work to be performed on an NRE basis is authorized
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unless specifically requested by the IBM Contract Coordinator in a signed
writing and Supplier receives a WA and/or a purchase order from Buyer to cover
cost for any additional work performed on an NRE basis.
5.0 RIGHTS IN LICENSED WORKS
5.1 DELIVERABLES: During the term of this SOW, Supplier grants Buyer and Buyer
Personnel a nonexclusive, worldwide license (revocable only to the extent set
forth in Sections 3.2 through 3.4 of the Agreement): (i) to prepare and have
prepared Derivative Works of documentation included in the Deliverables in
source form, (ii) to prepare Derivative Works of the Deliverables solely by
bundling, incorporating and/or combining the Deliverables (including Derivative
Works of documentation included in the Deliverables in source form) into
Products, (iii) to use, have used, execute, reproduce, transmit, display,
perform, transfer, distribute, and sublicense the Deliverables and such
Derivative Works, in Object Code form only, and documentation, in any medium or
distribution technology, subject to the limitations of Section 8(j) of this SOW,
(iv) to grant its Affiliates and contractors all the rights granted herein for
the sole purpose of allowing such Affiliates and contractors to assist Buyer in
the exercise of its rights under the Agreement and this SOW, provided that Buyer
shall remain primarily obligated for the performance of the Agreement and this
SOW, and (v) to grant others the rights granted in subsection (iii) of this
sentence. Except for the rights set forth in the Agreement and this SOW to
create the Derivative Works permitted by the immediately preceding sentence,
Supplier does not grant to Buyer any license to create Derivative Works of the
Deliverables. Except as expressly set forth in the Agreement and this SOW,
Supplier does not grant to Buyer any right or license to any patent, copyright,
trade name, trade secret, trademark or other intellectual property right with
respect to the Deliverables; and Buyer acknowledges and agrees that no Developed
Works or Joint Inventions shall be created under this SOW. Except as may be
permitted under the Escrow Agreement (as defined below), Buyer agrees not to
reverse compile or otherwise attempt to discover the source code of Deliverables
to be provided under this SOW only in Object Code form. Buyer acknowledges and
agrees that Supplier retains ownership of all Deliverables bundled, incorporated
and/or combined into any Products and any Derivative Works of Deliverables which
Buyer creates, and that Buyer's ownership of such Products and Derivative Works
of Deliverables shall be subject to Supplier's exclusive ownership of the
Deliverables.
5.2 TOOLS: Supplier grants Buyer a nonexclusive, worldwide, perpetual,
irrevocable, paid-up, license to prepare and have prepared Derivative Works of
Tools, and to use, have used, execute, reproduce, transmit, display and perform
Tools or their Derivative Works solely to permit Buyer's exercise and enjoyment
of the rights and licenses in Section 5.1 of this SOW.
5.3 PATENTS: The grant of rights and licenses to the Deliverables and Tools
includes a nonexclusive, worldwide, perpetual, irrevocable, paid-up license
under any patents and patent applications that are owned or licensable by
Supplier now or in the future and are (1) required to make, have made, use and
have used the Deliverables or permitted Derivative Works thereof or (2) required
to license or transfer the Deliverables or permitted Derivative Works thereof.
This license applies to the Deliverables and permitted Derivative Works thereof
operating alone or in combination with equipment or Code. The license scope is
to make, have made, use, have used, sell, license or transfer items, and to
practice and have practiced methods, to the extent required to exercise the
rights granted hereunder to the Deliverables, Tools and permitted Derivative
Works thereof.
5.4 NAMES AND TRADEMARKS: Supplier grants Buyer an irrevocable, nonexclusive,
worldwide, paid-up license to use the names and trademarks Supplier uses to
identify any Deliverable solely for Buyer's marketing of Products including
Deliverables and permitted Derivative Works thereof. This license does not
permit Buyer to create a new trademark by combining Supplier's names or
trademarks with other marks, and Supplier retains any goodwill attaching to
Supplier's names and trademarks. If Supplier objects to Buyer's improper use of
Supplier's names or trademarks, Buyer will take reasonable steps necessary to
resolve Supplier's objections. Supplier may reasonably monitor the quality of
Product bearing its trademark under this license. Buyer agrees that Products
bearing Supplier's names and trademarks must be of a general level of quality
consistent with generally prevailing industry standards. Buyer agrees to provide
Supplier with specimens of materials using Supplier's names or trademarks upon
request. Any goodwill attaching to Buyer's trademarks, service marks, or trade
names belongs to Buyer and this Agreement does not grant Supplier any right to
use them. Buyer shall provide attribution to Supplier for the first use in text
of any name or trademark of Supplier in any materials using such name or
trademark.
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STATEMENT OF WORK SOW # [*]
5.5 EXTERNALS: Supplier grants Buyer and Buyer Personnel an irrevocable,
nonexclusive, worldwide, perpetual, irrevocable, paid-up license to prepare and
have prepared Derivative Works of the Externals of the Deliverables, and to use,
have used, execute, reproduce, transmit, display, perform, transfer, distribute,
and sublicense the Externals of the Deliverables and such Derivative Works, in
any medium or distribution technology, and to grant others the rights granted
herein.
6.0 SUPPLIER'S RESPONSIBILITIES
6.1 In addition to delivering the Deliverables as defined in Section 3.1, the
Major Enhancements listed in Section 3.5, and any other Error Corrections,
Enhancements and Services on schedule, Supplier will:
a. participate in progress reviews, as requested by Buyer, to
demonstrate Supplier's performance of its obligations;
b. maintain records to verify authorship of the Deliverables for
four (4) years after the termination or expiration of this SOW. On
request, Supplier will deliver or otherwise make available this
information in a form specified by Buyer; and
c. design and implement processes to prevent the introduction in
or existence of Harmful Code in the Deliverables, Major Enhancements,
Basic Enhancements, and Error Corrections.
d. provide Marketing Support for Product as outlined in the
Marketing Activities Attachment.
6.2 TESTING
a. Supplier will perform the following tests prior to each
delivery of a Deliverable:
i. component testing;
ii. functional verification testing;
iii. system testing; and
iv. compatibility testing.
Upon Buyer's request, the details of such testing will be
mutually agreed to by the parties.
b. Upon request of the Buyer, the Supplier will provide to Buyer
concurrent with each delivery of a Deliverable summary test reports
associated with the pre-delivery testing.
c. Upon receipt of a Deliverable by Buyer, [*]:
v. the Deliverables [*];
vi. the Deliverables [*] this SOW; and
vii. Buyer [*] [*] by Buyer.
Buyer's testing does not relieve Supplier of its obligations under this
SOW. Buyer has no obligation to identify errors.
6.3 Source Code Escrow.
Supplier will enter into an escrow agreement in the form
attached hereto as Attachment 04 (the "Escrow Agreement") with a
recognized third-party escrow agent [*], of the following escrowed
materials ("Escrowed Materials"): (i[*]; (ii) a [*] (including [*]
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[*] etc.); (iii) a [*]; (iv) the [*]; (v) [*]; and (vi) a [*] of [*].
Supplier will update the Escrowed Materials [*], and to [*] [*] to be
[*] Agreement or this SOW. [*].
7.0 ACCEPTANCE
a. In order to qualify for acceptance, Supplier must
provide Deliverables which conform to the specifications described in
this SOW and to the following criteria:
1. [*];
2. [*]; and
3. [*].
4. Demo criteria: [*].
b. Initial acceptance criteria for the documentation
included in the Deliverable:
1. The documentation [*];
2. [*]; and
3. A [*].
c. Buyer will accept or reject a Deliverable or error
correction for a Deliverable [*] of the Deliverable or error
correction. Buyer may notify Supplier of its acceptance or rejection
of a Deliverable by electronic means (including by electronic mail)
delivered to Supplier's Technical Coordinator. If Buyer does not
notify Supplier during this time period, such Deliverable will be
deemed accepted.
d. [*] acceptance testing of the Deliverables [*] Supplier
with the [*] [*]:
1. A [*];
2. [*];
3. A [*]; and
4. The [*].
e. Supplier [*] of the [*] Deliverable to Buyer according
[*].
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STATEMENT OF WORK SOW # [*]
8.0 BUYER'S RESPONSIBILITIES
The Buyer will:
a) identify a primary technical contact for Supplier.
b) [*] to Supplier to assist Supplier with it's development efforts
hereunder:
I. Buyer's [*] Guide
II. Other material as necessary (Code design
guidelines, etc.)
c) [*] and, from time to time, [*] products to Supplier to [*]
efforts hereunder.
d) Ensure that the Buyer [*].
e) Ensure that the Buyer [*] by the Deliverables.
f) [*] in Deliverables [*] end users.
g) Provide Marketing Support for Product as outlined in the
Marketing Activities Attachment.
h) Accept or reject a Deliverable upon the conclusion of the review
period in accordance with the acceptance procedures outlined in
this SOW.
i) Place appropriate copyright and government restricted rights
notices on Products.
j) [*] except (i) [*], (ii) for the [*], and (iii) to [*] under this
SOW.
9.0 SCHEDULE
Supplier shall provide the Deliverables to Buyer according to the following
schedule of milestones, completion dates, and terms:
<TABLE>
<CAPTION>
MILESTONES DATE
<S> <C>
1. [*] [*]
2. [*] [*]
3. [*] [*]
4. [*] [*]
5. [*] [*]
6. [*] [*]
7. [*] [*]
8. [*] [*]
</TABLE>
10.0 TERM AND FINANCIALS
10.1 TERM: The initial term of this SOW [*] may renew this SOW [*] by giving
written notice to Supplier [*] of this SOW. This SOW is not terminable by
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STATEMENT OF WORK SOW # [*]
either party without Cause, provided that nothing in the Agreement or this SOW
shall be construed as obligating Buyer to include any Deliverable in any
Product.
10.2 ROYALTY PAYMENTS:
(a) [*]
(b) [*].
(c) [*]
10.3 NON-RECURRING ENGINEERING EXPENSE: [*]
10.4 Supplier will submit an invoice for the expenses described in Section 10.3
[*] Deliverables described in Section 3.1(a)(i) through (v). Buyer will
pay [*] the Supplier. All dollar amounts referenced are in United States
dollars.
10.5 All invoices from Supplier under this SOW will include the following
information:
a. this Agreement number;
b. Supplier's company and remit to address;
c. a short description for which payment is due; and
d. Buyer's Purchase Order number, Supplier's invoice number and its
date.
10.6 All invoices from Supplier under this SOW will be addressed to Buyer and
sent to the following address:
IBM Corporation
National Accounts Payable Center
P.O. Box 9005
1701 North Street
Endicott, NY 13761-9005
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STATEMENT OF WORK SOW # [*]
11.0 COMMUNICATIONS COORDINATORS
All communications between the parties will be carried out through the following
designated coordinators:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
BUSINESS COORDINATORS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR SUPPLIER FOR BUYER
- --------------------------------------------------------------------------------------------------
Name Bill Bradley Name Herman Graham, Jr.
- --------------------------------------------------------------------------------------------------
Title Vice President, Business Title Software Contract Account
Development Manager
- --------------------------------------------------------------------------------------------------
Address 1873 South Bellaire, Suite 900 Address 3039 Cornwallis Rd
Denver, CO 80222 VRDA/002 RTP,NC 27709
- --------------------------------------------------------------------------------------------------
Phone (303) 691-0975 Phone (919) 543-7065
- --------------------------------------------------------------------------------------------------
Fax (303) 756-4441 Fax (919) 543-1119
- --------------------------------------------------------------------------------------------------
Email [email protected]@internet Email [email protected]
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
LEGAL COORDINATORS
- --------------------------------------------------------------------------------------------------
FOR SUPPLIER FOR BUYER
- --------------------------------------------------------------------------------------------------
Name Michael Morgan Name Andrew W. Wright
- --------------------------------------------------------------------------------------------------
Title CFO Title Attorney, General Legal
- --------------------------------------------------------------------------------------------------
Address 999 baker Way, Fifth Floor Address 3039 Cornwallis Rd.,
San mateo, CA 94404 TL3B/062
RTP, NC 27709
- --------------------------------------------------------------------------------------------------
Phone (650) 578-0700 Phone (919) 254-1276
- --------------------------------------------------------------------------------------------------
Fax (650) 524-5952 Fax (919) 254-4330
- --------------------------------------------------------------------------------------------------
Email [email protected]@internet Email [email protected]
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
TECHNICAL COORDINATORS
- --------------------------------------------------------------------------------------------------
FOR SUPPLIER FOR BUYER
- --------------------------------------------------------------------------------------------------
Name Robert Goosey Name William W. Waskom
- --------------------------------------------------------------------------------------------------
Title Director of Engineering Title Senior Software Engineer
- --------------------------------------------------------------------------------------------------
Address 999 Baker Way, Fifth Floor Address 3039 Cornwallis Rd.,
San mateo, CA 94404 PE9A/500
RTP, NC 27709
- --------------------------------------------------------------------------------------------------
Phone (650) 578-0700 Phone (919) 254-0342
- --------------------------------------------------------------------------------------------------
Fax (650) 578-0118 Fax (919) 543-5519
- --------------------------------------------------------------------------------------------------
Email [email protected]@internet Email [email protected]
- --------------------------------------------------------------------------------------------------
</TABLE>
12.0 ELECTRONIC COMMERCE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SUPPLIER ACCOUNT INFORMATION FOR ELECTRONIC CREDIT TRANSACTIONS
- --------------------------------------------------------------------------------------------------
<S> <C>
Name on Account Enlighten Software Solutions, Inc.
- --------------------------------------------------------------------------------------------------
Financial Institution Silicon Valley Bank
- --------------------------------------------------------------------------------------------------
City, State Zip 3000 Lakeside Dr. Santa Clara, CA 95054
- --------------------------------------------------------------------------------------------------
Contact Name/Title [*]
- --------------------------------------------------------------------------------------------------
Contact Phone Number [*]
- --------------------------------------------------------------------------------------------------
City, State/Zip 3000 Lakeside Dr. Santa Clara, CA 95054
- --------------------------------------------------------------------------------------------------
Account Number (max 17) [*]
- --------------------------------------------------------------------------------------------------
Bank Routing/Transit
Code [*] (max 9)
- --------------------------------------------------------------------------------------------------
</TABLE>
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STATEMENT OF WORK SOW # [*]
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
By: By:
------------------------------- --------------------------------------
Buyer Signature Date Supplier Signature Date
Herman Graham, Jr. David D. Parker
- ----------------------------------- -----------------------------------------
Printed Name Printed Name
Software Contract Account Manager President & CEO, Enlighten Software
- ----------------------------------- -----------------------------------------
Title & Organization Title & Organization
3039 Cornwallis Rd., VRDA/002, 999 Baker Way, Fifth Fl,
RTP, NC 27709 San Mateo, CA 94404
- ----------------------------------- -----------------------------------------
Buyer Address: Supplier Address:
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STATEMENT OF WORK SOW # [*]
ATTACHMENT 01
PAGE 1 OF 5
TESTING, MAINTENANCE AND SUPPORT
1.0 DEFINITIONS
Capitalized terms in this Attachment have the following meanings.
1.1 APAR is the completed form entitled "Authorized Program Analysis Report"
that is used to report suspected Code or documentation errors, and to
request their correction.
1.2 APAR CLOSING CODES are the established set of codes used to denote the
final resolution of an APAR. Buyer will identify APAR Closing Codes prior
to the start of the maintenance obligations.
1.3 DEVELOPER TEST SYSTEMS are an appropriate configuration of installed
hardware and software that Supplier maintains which is representative of
typical customer installations for the Product. These Developer Test
Systems will contain, at a minimum, the following:
a. the [*];
b. the [*] to Supplier; and
c. specific [*]
1.4 THE DEVELOPER TEST SYSTEMS will consist of the appropriate configured
workstations only unless Buyer specifies and provides [*].
1.5 BUYER TEST SYSTEMS are an appropriate configuration of installed hardware
and software that Buyer maintains which is representative of typical Buyer
customer installations using the Product. [*]
1.6 MAINTENANCE LEVEL SERVICE is the service provided when a customer
identifies an error.
a. LEVEL 1 is the service [*].
b. LEVEL 2 is the service [*].
c. LEVEL 3 is the service [*]
1.7 PROBLEM DETERMINATION is the process of determining whether a problem is
being caused by hardware, software or documentation.
1.8 PROBLEM MANAGEMENT RECORD ("PMR") is a record created when a customer
makes the initial support request. This record becomes a part of the
Problem Management System database and records the essential information
about the customer question or problem.
1.9 PROBLEM MANAGEMENT SYSTEM ("PMS") is an internal Buyer developed software
system used to record customer demographic information and encode data
about the reported question or problem. The PMS will handle the
dispatching of the call record. The PMS will provide management reports of
the call activity, and the recording and tracking of all questions and
problems to final resolution. The PMS will verify that each customer is
"entitled" to program support.
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STATEMENT OF WORK SOW # [*]
1.10 PROBLEM SOURCE IDENTIFICATION is the process of determining which software
or documentation component is failing or attributing the failure to some
external cause such as a customer error or no trouble found.
1.11 READER COMMENT FORM ("RCF") is the form which is used to record errors and
comments on the documentation. The RCF is generally the last page of a
manual or brochure. The customer completes it and mails it to the address
specified.
2.0 MAINTENANCE AND SUPPORT RESPONSIBILITIES
2.1 The parties will agree to the specific details of the process flow each
will follow to resolve customer calls [*]
2.2 Supplier will provide Buyer [*] [*] of such Deliverable.
2.3 Product customers will initiate requests for support by contacting Buyer.
[*]
LEVEL 1. Buyer will:
(a) [*].
Buyer will [*].
LEVEL 2. Buyer will:
(1) [*].
Buyer will be the primary customer contact point for questions, problems
and assistance concerning the Product. [*].
2.4 [*], Supplier will [*]
2.5 LEVEL 3. Supplier will [*]:
(1) [*]
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STATEMENT OF WORK SOW # [*]
[*]
2.6 [*], Supplier will provide a corrected version of each Deliverable that
includes all available Error Corrections to the Deliverable. Additional
corrected versions of the Deliverables will be provided as determined and
mutually agreed to by Buyer and Supplier in the event they become
necessary due to the frequency or severity of newly discovered defects. In
order to provide Error Corrections, Supplier will maintain a current copy
of the Product.
2.7 Supplier will maintain procedures to ensure that new Error Corrections are
compatible with previous Error Corrections using Supplier's normal
policies for such compatibility. In any event, Supplier will ensure that
Error Corrections are compatible with the current version of Products and
with the immediate previous version of the Products.
2.8 Packaging of Error Corrections and migration Code will be done as mutually
agreed to by Buyer and Supplier .
3.0 APAR ORIGINATION AND CORRECTION
3.1 Generally, APARs will originate from Buyer and customers reporting
problems or sending in Reader Comment Forms. Supplier will also report to
Buyer as APARs all valid errors discovered by Supplier or its customers
contained within a Deliverable. After receiving an APAR, Buyer will assign
an APAR number and Severity Level, and forward the APAR to Supplier for
action.
3.2 For verified APARs for the Deliverables, [*]
a. [*].
3.3 Reader Comment Forms received by Buyer that do not form the basis of an
APAR will be forwarded to Supplier for proper and prompt handling as
appropriate.
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4.0 TRAINING
a. [*]. This training will be provided [*] Level 1 and 2 defect
support education. Such training [*]. At a time to be mutually
agreed to by the Parties, [*], Supplier will provide product
training materials to Buyer and training to Buyer personnel and
third parties identified by Buyer and agreed to by Supplier on the
following topics related to the Deliverables:
- Overall functionality
- Typical customer environments and utilization
- Overall installation
- Configuration
- Operation
- Frequently asked questions and support issues
[*]
b. Supplier [*]. At a time to be mutually agreed to by the Parties,
[*] Supplier will provide marketing and sales training materials to
Buyer and training to Buyer personnel and third parties identified
by Buyer and agreed to by Supplier on the following topics related
to the Deliverables. This training will include, but not be limited
to:
- Deliverable overview
- Value proposition
- Deliverable positioning
- Key messages
- Sales Kit for Buyer sales force and Buyer authorized
Business Partners attending the training session
- Overall functionality
- Typical customer environments and utilization
- Competitive comparison with industry leading
System Management offerings
[*]
c. Supplier Training
Buyer [*] The training will consist [*] Product including
the Deliverables. [*].
5.0 GENERAL
5.1 [*]. Supplier's normal working hours are defined as 8:00 AM to 5:00 PM,
Monday through Friday, Pacific Time.
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LICENSED & DEVELOPED WORKS AGREEMENT AGREEMENT # [*]
STATEMENT OF WORK SOW # [*]
5.2 [*].
5.3 It is desirable that Buyer report APARs and status requests to Supplier
via an electronic interface and that Supplier send APAR Error Corrections,
status updates and requests for additional documentation to Buyer via the
same interface. Buyer and Supplier will jointly plan the electronic
system. [*]
5.4 Critical situations may require the parties to use the telephone for
immediate communications. The parties will follow such communications via
the electronic interface for tracking and recording purposes[*]
5.5 In circumstances where materials have to be exchanged using facsimile or
courier services, each party [*]
5.6 Supplier will participate in monthly telephone conference calls with Buyer
to review the status and performance of the parties' obligations. These
calls may be scheduled more or less frequently as agreed to by the
Technical Coordinators. [*]
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LICENSED & DEVELOPED WORKS AGREEMENT AGREEMENT # [*]
STATEMENT OF WORK SOW # [*]
ATTACHMENT 02
PAGE 1 OF 2
MARKETING ACTIVITIES
Buyer and Supplier understand the benefits of working together to maximize
Buyer's ability to successfully market the Buyer Products that contain the
Deliverables. As marketing opportunities arise, Buyer and Supplier agree to
collaborate in a manner that promotes the Buyer Products that contain the
Deliverables and supports the market image of Supplier.
Some of the activities on which Buyer and Supplier intend to cooperate are:
1. Marketing Activities
(i) Announcements, tradeshows, and forums as agreed to by the Marketing
Coordinators.
(ii) At Buyer's sole discretion, Buyer may invite Supplier marketing
personnel to participate in marketing activities for the Buyer Products
that contain the Deliverables. At Supplier's sole discretion, Supplier
may invite marketing personnel for the Buyer Products that contain the
Deliverables to participate in Supplier marketing activities.
2. Marketing and Sales Training
Marketing and sales training will be as specified in Section 4.0 of the
Testing, Maintenance, and Support Attachment.
3. Collateral
"Collateral" refers to marketing materials for EnlightenDSM which will
support the EnlightenDSM presence and value add to the Buyer Products that
contain the Deliverables. In general, Collateral will cover topics that
emphasize to the customer the strengths of Buyer's and Supplier's joint
solution; i.e., the Buyer Product(s) that contain the Deliverables.
References may extend beyond EnlightenDSM as a part of the Buyer Product(s)
to include the strength of the combination of the Buyer Product(s) that
contain the Deliverables.
Supplier may provide Buyer with appropriate Collateral as agreed to by the
Marketing Coordinators. The specific Collateral requirements may vary based
on the marketing activity and/or audience. The Marketing Coordinators will
agree on the specific items required, whether Buyer or Supplier will
reproduce the materials, and delivery dates associated with such items and
marketing activities.
4. Attribution
If Buyer specifically identifies other components of a Buyer Product which
includes the Deliverables by origin (name of the licensed components, if
applicable) in any marketing materials, Buyer shall include appropriate text
and/or logo acknowledging, at a minimum, (i) that Supplier is the source for
such Deliverables, and (ii), if the functions of other components of such
Product are described, that the Deliverables provide system management
functionality for such Product. Not withstanding the above, if Buyer does
not specifically identify other components of the Buyer Product by origin,
or if in a focus campaign, Buyer is focusing on a function or functions
other than System Management, Buyer will not be required to include the
Enlighten text and / or logo attribution.
4.1 Buyer shall refer to the Deliverables only as "EnlightenDSM" as appropriate.
4.2 Examples of an acceptable way to use text attribution:
"Buyer Product includes the EnlightenDSM software."
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LICENSED & DEVELOPED WORKS AGREEMENT AGREEMENT # [*]
STATEMENT OF WORK SOW # [*]
4.3 Buyer shall identify the EnlightenDSM logo as Enlighten's trademarks as
follows:
"The EnlightenDSM logo is a trademark of Enlighten Software
Technologies, Inc."
[*]
The Marketing Coordinators responsible for administration of all sales and
marketing activities related to this Agreement are:
FOR BUYER: FOR SUPPLIER:
Name: Scott Handy Name: Bill Bradley
Title: Marketing Manager Title: Vice President, Business
Development
Address: Address: 1873 South Bellaire, Suite 900
Rt. 100 Denver, CO 80222
4th Floor, Office 4J15
Somers, NY 10589
Phone: 914-766-1716 Phone: (303) 691-0975
Fax: 914-766-9147 Fax: (303) 756-4441
E-mail: [email protected] E-mail: [email protected]@internet
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LICENSED & DEVELOPED WORKS AGREEMENT AGREEMENT # [*]
STATEMENT OF WORK SOW # [*]
ATTACHMENT 03
The Certificate of Originality questionnaire may be used to cover one complete
Licensed Work or Developed Works, even if that Licensed Work or Developed Works
includes multiple modules. Write "not applicable" or "N/A" if a question is not
relevant to the furnished software material.
1. The following Certificate of Originality applies to all Licensed Work or
Developed Works described in this Statement of Work.
2. Was any portion of the software material written by anyone other than you or
your employees within the scope of their employment? YES _____ NO _____ If
YES, identify the author and the circumstances:
A) Indicate if the whole software material or only a portion thereof
was written by such party, and identify such portion:
i. Specify for each involved party the name, address, and
citizenship:
ii. If the party is a company, how did it acquire title to the
software material (e.g., software material was written by
company's employees within the scope of their employment)?
iii. If the party is an individual, did he/she create the software
material while employed by or under contractual relationship
with another party? YES _____ NO ______ If YES, provide name
and address of the other party and explain the nature of the
contractual relationship:
B) How did you acquire title to the software material written by the other
party?
3. Are any copyright, confidentiality, or proprietary notice(s) present on
the software material(s)? YES _____ NO ______ If YES, please describe such
notice(s).
4. Was any portion of the software material (e.g., Code, associated
documentation or Externals) derived from preexisting works (either yours
or a third party's), including any code from freeware, shareware,
electronic bulletin boards, or the Internet? YES _____ NO ______ If YES,
please identify the material, author, owner and copyright notice, if any,
for each of the preexisting materials.
5. Does any of the software materials (e.g., Code, associated documentation
or Externals) include recognizable voices, pictures or other likenesses?
YES ____ NO ______ If YES, how did you acquire rights to use such
recognizable voices, pictures or other likenesses?
6. Provide an explanation of any other circumstance which might affect
Buyer's ability to reproduce, distribute and market this software
material, including whether your software material was prepared from any
preexisting materials which have any: a) confidentiality or trade secret
restrictions to others; b) known or possible royalty obligations to
others; and c) used other preexisting materials developed for another
party or customer (including government) where you may not have retained
full rights to such other preexisting materials.
Authorized Signature:
Name: ______________________________
Title: ______________________________
Date: _______________________________
_______________________________
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Enlighten Software Solutions, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-73588) on Form S-8 of Enlighten Software Solutions, Inc. of our report dated
February 5, 1999, relating to the consolidated balance sheets of Enlighten
Software Solutions, Inc. and subsidiary as of December 31, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the two-year period ended December 31, 1998,
which report appears in the December 31, 1998, annual report on Form 10-KSB of
Enlighten Software Solutions, Inc.
KPMG LLP
Mountain View, California
March 30, 1999
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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7,591,538
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<TOTAL-LIABILITY-AND-EQUITY> 4,929,422
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