<PAGE>
[BROADVISION LOGO]
3,000,000 SHARES
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by
BroadVision, Inc. ("BroadVision" or the "Company"). Prior to this offering,
there has been no public market for the Common Stock of the Company. See
"Underwriting" for information relating to the method of determining the initial
public offering price. The Common Stock has been approved for quotation on the
Nasdaq National Market under the symbol "BVSN." Upon completion of this
offering, the current directors, officers, and principal stockholders of the
Company and their affiliates will exercise voting control over approximately 68%
of the outstanding Common Stock.
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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- ---------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY (1)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................... $7.00 $0.49 $6.51
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Total (2)..................... $21,000,000 $1,470,000 $19,530,000
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $950,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 450,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $24,150,000, $1,690,500 and $22,459,500,
respectively.
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The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California, on or about June 26, 1996.
ROBERTSON, STEPHENS & COMPANY
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
The date of this Prospectus is June 21, 1996
<PAGE>
BroadVision-TM-
ONE-TO-ONE-TM-
A Software Application System Enabling Businesses
to Manage the Full Marketing and Selling
Life Cycle on the World Wide Web.
<TABLE>
<S> <C>
1 Community 2 Profiling
Attracts and retains Web site visitors Collects, tracks, and manages informa-
with dynamic, targeted information tion about Web site visitors. Manages
tailored to the needs and interests privacy. Observes and records inter-
of individuals and online com- actions to improve service and
munities. Provides areas in encourage repeat business.
which Web site visitors Remembers transactions
can interact with one and preferences. Enables
another. Encourages business managers to
feedback and input. segment and target
Builds ongoing to the needs of
relationships. individual visitors.
[picture of the globe covered by individuals sitting a computer terminals all linked by
communication lines, surrounded by four colored and numbered spheres]
4 Transactions 3 Targeting
Manages Matches visitor
transaction pro- profiles to Web site
cessing essential content--product
for both business- information, editori-
to-consumer and als, pricing, advertising,
business-to-business coupons, incentives, and pro-
electronic commerce: motions. Generates custom
secure online ordering Web pages and interactions
and payment, order fulfill- in real time based on business
ment and billing, customer rules defined by marketing, adver-
service, EDI, reporting, and inte- tising, and merchandising managers.
gration with existing business systems.
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
APPLICATION
DEVELOPERS
Build powerful one-to-one
marketing and selling Web
applications rapidly with
object-oriented tools and
open APIs, reusable application
templates, and dynamic objects. Create
custom libraries of specialized objects.
Integrate existing business systems,
applications, and databases. Write Java
applets and extensions for one-to-one
interactions. Scale applications up to
millions of visitors using CORBA
architecture.
BUSINESS
MANAGERS
Design Web sites as places of business. Build customer relationships. Monitor
and control Web sites in real time through the BroadVision One-to-One Dynamic
Command Center. Personalize content and define business rules -- pricing,
promotions, targeting variables -- in real time, without programmers. Conduct
one-to-one promotions. Create point-cast advertising.
[graphic depiction of the globe covered by individuals sitting at computer
terminals, all linked by communication lines, surrounded by four colored spheres
labeled "Community," "Profiling," "Targeting," and "Transactions." Linked by
colored cables to the globe and the orbiting spheres is, in the upper left
corner, a picture of two individuals sitting at terminals entitled "Applications
Developer," in the lower left corner, a picture of three individuals sitting at
terminals entitled "Business Manager," and, to the right, a picture of three
individuals sitting at terminals entitled "Web Site Visitors."]
<PAGE>
Web Site Visitors
Register preferences, interests, and other relevant information
in profiles. Receive information tailored to profiles.
Read personalized online newspapers, magazines, and product
brochures. Shop with a virtual sales assistant. Fill out targeted
surveys and offer input and feedback on purchased products.
Participate in community chat groups and forums and watch Java
animations. Listen to one-to-one Web radio. Control privacy of personal data.
Veronika
- -- Berlin film maker.
- -- Vacations in Mediterranean.
- -- Frequently dines out.
- -- First time visit to site.
John
- -- NY-based purchasing manager.
- -- Qualifies for price discounts.
- -- Took delivery of medical instruments two months ago.
Mayumi
- -- Tokyo college student.
- -- Likes clothes from Paris.
- -- Visited Web site four times this week.
- -- Purchases with VISA.
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSONS IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
UNTIL JULY 16, 1996, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
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PAGE
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<S> <C>
Summary................................................................... 4
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Financial Data................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 25
Management................................................................ 45
Certain Transactions...................................................... 52
Principal Stockholders.................................................... 54
Description of Capital Stock.............................................. 56
Shares Eligible for Future Sale........................................... 58
Underwriting.............................................................. 60
Legal Matters............................................................. 62
Experts................................................................... 62
Change In Accountants..................................................... 62
Additional Information.................................................... 62
Index to Financial Statements............................................. F-1
</TABLE>
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The Company intends to furnish to its stockholders annual reports containing
financial statements audited by its independent auditors and quarterly reports
containing unaudited financial statements for each of the first three quarters
of each fiscal year.
BroadVision-TM- and BroadVision One-To-One-TM- are trademarks of the
Company. Trade names and trademarks of other companies appearing in this
Prospectus are the property of their respective holders.
3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND THE FINANCIAL STATEMENTS AND NOTES
THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. INVESTORS SHOULD CONSIDER
CAREFULLY THE INFORMATION DISCUSSED UNDER THE HEADING "RISK FACTORS."
THE COMPANY
BroadVision provides an integrated software application system, BroadVision
One-To-One-TM-, that enables businesses to create applications for interactive
marketing and selling services on the World Wide Web. These applications are
designed to allow non-technical business managers to tailor Web site content to
the needs and interests of individual Web site visitors, personalizing each
visit on a real-time basis. The BroadVision One-To-One application system and
related vertical application solutions and services are targeted at businesses
developing Web sites for marketing and selling to consumers and business
customers, and as internal resources for employees. The Company's customers use
BroadVision One-To-One to develop Web sites that engage visitors and encourage
return visits through personalized interactions, capture marketing information
from volunteered data and observed behavior, and generate revenues from
electronic commerce activities and point-cast advertising. BroadVision
One-To-One provides these software capabilities in an architecture that supports
the full one-to-one marketing and selling life cycle. The Company believes that
these capabilities are needed by business managers and Web site application
developers to take full advantage of the potential of the Internet as a
marketplace for conducting electronic commerce and for building long-term
relationships with customers.
To increase customer satisfaction, develop customer loyalty, and contain the
high costs associated with new customer acquisition, many marketing executives
in both business-to-consumer and business-to-business industries have turned
their attention from mass marketing to "one-to-one" marketing and selling -- a
systematic, interactive approach to developing long-term relationships with
individual customers. With the emergence of the Internet's World Wide Web as a
globally accessible, interactive, and individually addressable communications
and computing platform, businesses have the opportunity to implement one-to-one
marketing and selling on a mass basis. The Company believes that, to capitalize
on this opportunity, businesses require software application solutions that
exceed the capabilities of currently available Web software products, many of
which were designed for publishing static content, or "brochureware." To address
this need, the Company introduced the BroadVision One-To-One application system,
which allows businesses to develop and manage dynamic, interactive Web sites
that provide community, profiling, targeting, and transaction capabilities to
support the full one-to-one marketing and selling life cycle.
The Company's objective is to establish one-to-one marketing and selling as
a standard feature of Web sites worldwide. A key element of the Company's
strategy to achieve this objective is to provide complete application solutions
that leverage other software technologies and allow businesses to capitalize
more fully on the Internet as a business venue. In addition, the Company intends
to develop cooperative alliances with leading Internet technology vendors,
systems integrators, and Web site developers, and to leverage the BroadVision
One-To-One application system to derive additional Web application products and
services focused on vertical markets. The Company's sales strategy is to sell
initially to aggregators of online services that can introduce the Company's
products to their individual content providers, who may develop their own Web
site applications in the future.
BroadVision customers that have acquired licenses and professional services
to develop and deploy interactive marketing and selling services for use on the
Internet and other interactive venues are Dimension AB, Hongkong Telecom,
Internet Broadcasting System, Itochu Internet Corporation, Matsushita Electric
Industrial Co., Ltd., NetRadio Network, NTT Data Communications Systems
Corporation, Olivetti Telemedia Videostrada, Prodigy Services Co., Sema Group,
Ltd., Thomson-Sun Interactive, and Virgin.net Limited. The Company considers
eight of these 12 customers to be aggregators of online services. Key alliances
include Marketing 1:1 and Sun Microsystems, Inc. Types of applications being
developed by licensees using BroadVision One-To-One include cybermalls, online
services, and corporate Web sites.
The Company was incorporated in Delaware in May 1993. The Company's
principal executive offices are located at 333 Distel Circle, Los Altos, CA
94022, and its telephone number is (415) 943-3600. The Company's World Wide Web
site is located at http://www.broadvision.com. Information contained on the
Company's Web site shall not be deemed to be a part of this Prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company... 3,000,000 shares
Common Stock Outstanding after the 19,619,104 shares(1)
Offering.............................
Use of Proceeds....................... For working capital and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol......... BVSN
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 13, 1993 YEARS ENDED THREE MONTHS
(INCEPTION) TO DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, -------------------- --------------------
1993 1994 1995 1995 1996
--------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................................ $ -- $ -- $ 540 $ -- $ 1,398
Operating loss.................................................. (143) (1,771) (4,478) (871) (1,705)
Net loss........................................................ (136) (1,670) (4,318) (846) (1,698)
Pro forma net loss per share(2)................................. $ (0.23) $ (0.04) $ (0.09)
Shares used in computing pro forma
net loss per share(2).......................................... 18,543 18,888 18,576
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------
AS
ACTUAL PRO FORMA(3) ADJUSTED(4)
--------- ------------ -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 2,663 $ 7,718 $ 26,298
Working capital.............................................................. 2,073 7,128 25,708
Total assets................................................................. 6,106 11,161 29,741
Long-term obligations........................................................ 569 569 569
Deficit accumulated during the development stage............................. (7,822) (7,822) (7,822)
Total stockholders' equity................................................... 2,832 7,887 26,467
</TABLE>
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(1) Includes the issuance, upon the completion of this offering, of 653,995
shares of Common Stock upon conversion of 634,375 shares of Series E
Preferred Stock that were issued at $8.00 per share. Excludes, as of April
16, 1996, shares reserved for issuance upon the exercise of (i) outstanding
stock options to acquire 2,020,558 shares of Common Stock, (ii) an
outstanding warrant to acquire 33,750 shares of Series C Preferred Stock,
which warrant will convert into a warrant to purchase Common Stock upon the
completion of this offering, and (iii) an outstanding option to acquire
500,000 shares of Series D Preferred Stock, which option will convert into
an option to purchase shares of Common Stock upon the completion of this
offering. See "Management -- Employee Benefit Plans" and "Description of
Capital Stock."
(2) See Note 2 of Notes to Financial Statements for information concerning the
calculation of pro forma net loss per share.
(3) Reflects the sale of 634,375 shares of Series E Preferred Stock at a price
of $8.00 per share in April 1996 (the "Series E Financing") and the
conversion of all outstanding Preferred Stock into 9,257,595 shares of
Common Stock, which will occur automatically upon the completion of this
offering.
(4) As adjusted to reflect the sale of 3,000,000 shares of Common Stock offered
hereby at the initial public offering price of $7.00 per share and receipt
of the estimated net proceeds therefrom. See "Use of Proceeds."
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
EXCEPT AS SET FORTH IN THE FINANCIAL STATEMENTS OR AS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS (I) GIVES EFFECT TO THE AUTOMATIC CONVERSION UPON
COMPLETION OF THIS OFFERING OF EACH OUTSTANDING SHARE OF SERIES A, SERIES B,
SERIES C AND SERIES D PREFERRED STOCK INTO ONE SHARE OF COMMON STOCK AND OF EACH
SHARE OF SERIES E PREFERRED STOCK INTO APPROXIMATELY 1.0309 SHARES OF COMMON
STOCK AND (II) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION OF THE
PREFERRED STOCK HAS BEEN CALCULATED USING THE INITIAL PUBLIC OFFERING PRICE OF
$7.00 PER SHARE. SEE "DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITING."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
LIMITED OPERATING HISTORY
The Company was founded in May 1993 and commenced shipment of its initial
product, the BroadVision One-To-One application system, in December 1995. To
date, only 12 companies have licensed the BroadVision One-To-One application
system and no application has been commercially deployed using BroadVision
One-To-One. Accordingly, the Company has only a limited operating history, and
its prospects must be evaluated in light of the risks and uncertainties
frequently encountered by a company in an early stage of development. The new
and evolving markets in which the Company operates make these risks and
uncertainties particularly pronounced. To address these risks, the Company must,
among other things, successfully implement its marketing strategy, respond to
competitive developments, attract, retain, and motivate qualified personnel,
continue to develop and upgrade its products and technologies more rapidly than
its competitors, and commercialize its products and services incorporating these
enhanced technologies. There can be no assurance that the Company will succeed
in addressing any or all of these risks or that the Company will achieve or
sustain substantial revenues or profitability.
OPERATING LOSSES AND ACCUMULATED DEFICIT
Since its inception, the Company has incurred substantial costs to research,
develop, and enhance its technology and products, to recruit and train a
marketing and sales group, and to establish an administrative organization. As a
result, the Company has incurred net losses in each fiscal quarter since
inception and, as of March 31, 1996, had an accumulated deficit of $7.8 million.
To the extent such losses continue, the Company's accumulated deficit would
increase, and stockholders' equity would decrease. The Company anticipates that
its operating expenses will increase substantially in the foreseeable future as
it continues the development of its technology, increases its sales and
marketing activities, and creates and expands its distribution channels.
Accordingly, the Company expects to incur additional losses for at least the
next 18 months. In addition, the Company's limited operating history makes the
prediction of future results of operations difficult and, accordingly, there can
be no assurance that the Company will achieve or sustain revenue growth or
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
EARLY STAGE OF MARKET DEVELOPMENT; DEPENDENCE ON THE INTERNET
The Company's products and services facilitate online communication and
commerce over public and private networks. The market for the Company's products
and services is at a very early stage of development and is rapidly evolving. As
is typical for new and rapidly evolving industries, demand and market acceptance
for recently introduced products and services are subject to a high level of
uncertainty, especially where, as is true of the Company, acquisition of the
product requires a large capital commitment or other significant commitment of
resources. With respect to the Company, this uncertainty is compounded by the
risks that consumers and enterprises will not adopt online commerce and
communication and that an appropriate infrastructure necessary to support
increased commerce and communication on the Internet will fail to develop, in
each case, to a sufficient extent and within an adequate time frame to permit
the Company to succeed.
Adoption of online commerce and communication, particularly by those
individuals and enterprises that have historically relied upon traditional means
of commerce and communication, will require a broad acceptance of new and
substantially different methods of conducting business and exchanging
information. Moreover, the Company's products and services involve a new
approach to the conduct of online commerce and, as a result, intensive marketing
and sales efforts may be necessary to educate prospective customers regarding
the uses and benefits of the Company's products and services in order to
generate demand for the Company's systems. For example, enterprises that have
already invested substantial resources in other methods of conducting business
may be reluctant or slow to adopt a new approach that may replace, limit, or
compete with their existing systems.
6
<PAGE>
Similarly, individuals with established patterns of purchasing goods and
services may be reluctant to alter those patterns or may otherwise be resistant
to providing the personal data which is necessary to support the Company's
consumer profiling capability. Moreover, the security and privacy concerns of
existing and potential users of the Company's products and services may inhibit
the growth of online commerce generally and the market's acceptance of the
Company's products and services in particular. Accordingly, there can be no
assurance that a viable market for the Company's products will emerge or be
sustainable.
Sales of most of the Company's products and services will depend upon the
adoption of the Internet as a widely used medium for commerce and communication.
The Internet may not prove to be a viable commercial marketplace because of
inadequate development of the necessary infrastructure, such as a reliable
network backbone, or timely development of complementary products, such as high
speed modems. The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of traffic.
There can be no assurance that the Internet infrastructure will continue to be
able to support the demands placed on it by this continued growth. In addition,
the Internet could lose its viability due to delays in the development or
adoption of new standards and protocols to handle increased levels of Internet
activity or due to increased governmental regulation. Moreover, critical issues
concerning the commercial use of the Internet (including security, reliability,
cost, ease of use, accessibility, and quality of service) remain unresolved and
may negatively affect the growth of Internet use or the attractiveness of
commerce and communication on the Internet. Because global commerce and online
exchange of information on the Internet and other similar open wide area
networks are new and evolving, there can be no assurance that the Internet will
prove to be a viable commercial marketplace. If critical issues concerning the
commercial use of the Internet are not favorably resolved, if the necessary
infrastructure and complementary products are not developed, or if the Internet
does not become a viable commercial marketplace, the Company's business,
financial condition, and operating results will be materially adversely
affected. See "Business -- Background."
POTENTIAL IMPACT OF PRIVACY CONCERNS
One of the principal features of the BroadVision One-To-One application
system is the ability to develop and maintain profiles for use by business
managers in determining the nature of the content to be provided to that
customer. Typically, profiles are captured when consumers, business customers,
and employees visit a site on the World Wide Web (the "Web") and volunteer
information in response to survey questions concerning their backgrounds,
interests, and preferences. Profiles are augmented over time through the
collection of usage data. Although BroadVision One-To-One is designed to enable
the development of applications that permit Web site visitors to prevent the
distribution of any of their personal data beyond that specific Web site,
privacy concerns may nevertheless cause visitors to be resistant to providing
the personal data necessary to support this profiling capability. Moreover, even
the perception by the Company's customers or potential customers of substantial
security and privacy concerns on the part of consumers, whether or not valid,
may inhibit market acceptance of the Company's products. In addition, such
concerns may be heightened by legislative or regulatory requirements that
require notification to Web site users that the data captured as a result of
visitation of certain Web sites may be used by marketing entities to
unilaterally address product promotion and advertising to that user. While the
Company is not aware of any such legislation or regulatory requirements
currently in effect in the United States, certain other countries and political
entities, such as the European Community, have adopted such legislation or
regulatory requirements, and no assurance can be given that similar legislation
or regulatory requirements will not be adopted in the United States. If the
privacy concerns of consumers are not adequately addressed, the Company's
business, financial condition, and operating results could be materially
adversely affected. See "Business -- The BroadVision One-To-One User
Experience."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
As a result of the Company's limited operating history, the Company does not
have meaningful historical financial data for quarterly periods on which to base
planned operating expenses. The Company's expense levels are based in part on
its product development requirements as well as its expectations as to future
revenues. The Company anticipates that its operating expenses will increase
substantially for the foreseeable future as the Company continues to develop and
market its initial products, increases its sales and marketing activities,
creates and expands the distribution channels for its products, and broadens its
customer support capabilities.
7
<PAGE>
The inability of the Company to release its products in a timely manner or any
material shortfall in demand for the Company's products in relation to the
Company's expectations would have a material adverse effect on the Company's
business, financial condition, and operating results.
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors including, among
others, the timing of introductions or enhancements of products and services by
the Company or its competitors, the length of the Company's sales cycle, market
acceptance of new products, the pace of development of the market for online
commerce, the mix of the Company's products sold, the size and timing of
significant orders and the timing of customer production or deployment, demand
for the Company's products, changes in pricing policies by the Company or its
competitors, changes in the Company's sales incentive plans, budgeting cycles of
its customers, customer order deferrals in anticipation of new products or
enhancements by the Company or its competitors, cancellation of orders prior to
customer deployment or during the warranty period, nonrenewal of service
agreements, product life cycles, software defects and other product quality
problems, changes in strategy, changes in key personnel, the extent of
international expansion, seasonal trends, the mix of distribution channels
through which the Company's products are sold, the mix of international and
domestic sales, changes in the level of operating expenses to support projected
growth, and general economic conditions. The Company anticipates that a
significant portion of its revenues will be derived from a limited number of
orders, and the timing of receipt and fulfillment of any such orders is expected
to cause material fluctuations in the Company's operating results, particularly
on a quarterly basis. As with many software companies, the Company anticipates
that it will make the major portion of each quarter's deliveries near the end of
each quarter and, as a result, short delays in delivery of products at the end
of a quarter could adversely affect operating results for that quarter. In
addition, the Company intends, in the near term, to increase significantly its
personnel, including its domestic and international direct sales force. The
timing of such expansion and the rate at which new sales people become
productive could also cause material fluctuations in the Company's quarterly
operating results.
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast, and the Company believes that period-to-period
comparisons of its operating results will not necessarily be meaningful and
should not be relied upon as any indication of future performance. It is likely
that the Company's future quarterly operating results from time to time will not
meet the expectations of market analysts or investors, which may have an adverse
effect on the price of the Company's Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
COMPETITION
The market for online interactive marketing and selling applications is new,
rapidly evolving, and intensely competitive. The Company expects competition to
persist and intensify in the future. The Company's current and potential
competitors include other vendors of application software directed at
interactive commerce, Web content developers engaged to develop custom software
or to integrate other application software into custom solutions, and companies
developing their own end-to-end solutions in-house.
The Company has experienced and expects to continue to experience increased
competition. The Company currently encounters direct competition from CONNECT,
Inc. ("Connect"), Netscape Communications Corporation ("Netscape"), and Open
Market Incorporated ("OMI"), among others. In addition, Microsoft Corporation
("Microsoft") has also announced its intention to offer Internet-based
electronic commerce software. Many of these competitors have longer operating
histories, and significantly greater financial, technical, marketing, and other
resources than the Company and thus may be able to respond more quickly to new
or changing opportunities, technologies, and customer requirements. Also, many
current and potential competitors have greater name recognition and more
extensive customer bases that could be leveraged, thereby gaining market share
to the Company's detriment. Such competitors may be able to undertake more
extensive promotional activities, adopt more aggressive pricing policies and
offer more attractive terms to purchasers than the Company. Moreover, certain of
the Company's current and potential competitors, such as Netscape and Microsoft,
are likely to bundle their products in a manner that may discourage users from
purchasing products offered by the Company. The Company has also experienced
competition from third-party developers, such as Web content developers, as well
as from in-house development efforts by potential customers or partners, both
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of which represent significant competition for the Company's products. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to enhance
their products. Accordingly, it is possible that new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. There
can be no assurance that the Company will be able to compete effectively with
current or future competitors or that the competitive pressures faced by the
Company will not have a material adverse effect on the Company's business,
financial condition, and operating results. See "Business -- Competition."
PRODUCT CONCENTRATION
To date, substantially all of the Company's revenues have been attributable
to sales of licenses of the BroadVision One-To-One application system and
related services. The Company currently expects the BroadVision One-To-One
application system and related services to account for most of its future
revenues. Accordingly, if any of the Company's customers is not able to
successfully develop and deploy an online marketplace using the BroadVision
One-To-One application system, the Company's reputation could be damaged, which
could have a material adverse effect on the Company's business, financial
condition, and operating results. In addition, factors adversely affecting the
pricing of or demand for the BroadVision One-To-One application system, such as
competition or technological change, could have a material adverse effect on the
Company's business, financial condition, and operating results. The Company's
future financial performance will depend, in significant part, on the successful
development, introduction, and customer acceptance of new and enhanced versions
of the BroadVision One-To-One application system and of new products the Company
develops. There can be no assurance that the Company will be successful in
upgrading and continuing to market the BroadVision One-To-One application system
or that the Company will successfully develop new products or that any new
products will achieve market acceptance. See "Business -- Products and Services"
and "Business -- Product Development."
LENGTHY SALES AND IMPLEMENTATION CYCLES
The license of the Company's software products is often an enterprise-wide
decision by prospective customers and can be expected to require the Company to
engage in a lengthy sales cycle to provide a significant level of education to
prospective customers regarding the use and benefits of the Company's products.
In addition, the implementation of the Company's products involves a significant
commitment of resources by customers or by the Company's Interactive Services
Group ("ISG") consultants over an extended period of time. As a result, the
Company's sales and customer implementation cycles are subject to a number of
significant delays over which the Company has little or no control. In many
cases, the Company expects to recognize a substantial portion of the revenue
related to the sale of BroadVision One-To-One upon deployment or production by
the customer of the system. As a result, delays in license transactions due to
lengthy sales cycles or delays in customer production or deployment of a system
could have a material adverse effect on the Company's business, financial
condition, and operating results and can be expected to cause the Company's
operating results to vary significantly from quarter to quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Sales and Marketing."
RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT DELAYS
The information services, software, and communications industries are
characterized by rapid technological change, changes in customer requirements,
frequent new product and service introductions and enhancements, and emerging
industry standards. The introduction of products and services embodying new
technologies and the emergence of new industry standards and practices can
render existing products and services obsolete and unmarketable. The Company's
future success will depend, in part, on its ability to develop leading
technologies, enhance its existing products and services, develop new products
and services that address the increasingly sophisticated and varied needs of its
prospective customers, and respond to technological advances and emerging
industry standards and practices on a timely and cost-effective basis. The
Company's only commercially available product, the BroadVision One-To-One
application system, was introduced in December 1995, and the Company expects, in
the future, to introduce enhanced versions of this product as well as other
products and services. The development of new products and services (such as the
Company's next two products in development, a taxonomy modeling and matching
application product and a consumer online service) or enhanced versions of
existing products and services (such as Version 2.0 of the BroadVision One-To-
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One application system), entails significant technical risks. There can be no
assurance that the Company will be successful in effectively using new
technologies, adapting its products to emerging industry standards, developing,
introducing, and marketing product and service enhancements, or new products and
services, or that it will not experience difficulties that could delay or
prevent the successful development, introduction, or marketing of these products
and services, or that its new product and service enhancements will adequately
meet the requirements of the marketplace and achieve market acceptance. If the
Company is unable, for technical or other reasons, to develop and introduce new
products and services or enhancements of existing products and services in a
timely manner in response to changing market conditions or customer
requirements, or if new products and services do not achieve market acceptance,
the Company's business, financial condition, and operating results will be
materially adversely affected. See "Business -- Technology" and "Business --
Product Development."
RISKS OF PRODUCT DEFECTS
Sophisticated software products, such as those of the Company, may contain
undetected errors or failures that become apparent when the products are
introduced or when the volume of services provided increases. There can be no
assurance that, despite testing by the Company and potential customers, errors
will not be found in the Company's products, resulting in loss of revenues,
delay in market acceptance, diversion of development resources, damage to the
Company's reputation, or increased service and warranty costs, which would have
a material adverse effect on the Company's business, financial condition, and
operating results. See "Business -- Product Development."
RISKS ASSOCIATED WITH ENCRYPTION TECHNOLOGY
A significant barrier to online commerce and communication is the secure
exchange of value and confidential information over public networks. The Company
relies on encryption and authentication technology, including public key
cryptography technology licensed from RSA Data Security, Inc. ("RSA"), to
provide the security and authentication necessary to effect the secure exchange
of value and confidential information. There can be no assurance that advances
in computer capabilities, new discoveries in the field of cryptography or other
events or developments will not result in a compromise or breach of the RSA or
other algorithms used by the Company to protect customer transaction data. If
any such compromise of the Company's security were to occur, it could have a
material adverse effect on the Company's business, financial condition, and
operating results. See "Business -- Technology."
RISKS ASSOCIATED WITH EXPANDING DISTRIBUTION
To date, the Company has sold its products through its direct sales force.
The Company's ability to achieve significant revenue growth in the future will
depend in large part on its success in recruiting and training sufficient direct
sales personnel and establishing and maintaining relationships with
distributors, resellers, systems integrators, and other third parties. Although
the Company is currently investing, and plans to continue to invest, significant
resources to expand its sales force and to develop distribution relationships
with third-party distributors and resellers, the Company may at times experience
difficulty in recruiting qualified sales personnel and in establishing necessary
third-party alliances. There can be no assurance that the Company will be able
to successfully expand its direct sales force or other distribution channels or
that any such expansion will result in an increase in revenues. Any failure by
the Company to expand its direct sales force or other distribution channels
would materially adversely affect the Company's business, financial condition,
and operating results. See "-- Dependence on Key Personnel," "Business --
Strategy" and "Business -- Sales and Marketing."
DEPENDENCE ON SYSTEMS INTEGRATORS
The Company's potential customers may rely on third-party systems
integrators to develop, deploy, and manage online marketplaces. If the Company
were unable to adequately train a sufficient number of systems integrators or
if, for any reason, a large number of such integrators were to adopt a different
product or technology instead of the BroadVision One-To-One application system,
the Company's business, financial condition, and operating results could be
materially and adversely affected.
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DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS
The Company's success and ability to compete are dependent to a significant
degree on its proprietary technology. The Company relies primarily on copyright,
trade secret, and trademark law to protect its technology. The Company has no
patents. The Company has applied for a United States patent with respect to
certain aspects of the BroadVision One-To-One application system, but there can
be no assurance that a patent will be granted pursuant to the application or
that, if granted, such patent would survive a legal challenge to its validity or
provide significant protection. Likewise, effective trademark protection may not
be available for the Company's marks. For example, the Company has applied to
register "BroadVision One-To-One" as a trademark with respect to the BroadVision
One-To-One application system, but there can be no assurance that the Company
will be able to secure trademark registration or other significant protection
for this product name. It is possible that competitors of the Company or others
will adopt product names similar to "One-To-One," thereby impeding the Company's
ability to build brand identity and possibly leading to customer confusion. The
source code for the Company's proprietary software is protected both as a trade
secret and as a copyrighted work. The Company's policy is to enter into
confidentiality and assignment agreements with its employees, consultants, and
vendors and generally to control access to and distribution of its software,
documentation, and other proprietary information. Notwithstanding these
precautions, it may be possible for a third party to copy or otherwise obtain
and use the Company's software or other proprietary information without
authorization or to develop similar software independently. Policing
unauthorized use of the Company's products is difficult, particularly because
the global nature of the Internet makes it difficult to control the ultimate
destination or security of software or other data transmitted. The laws of other
countries may afford the Company little or no effective protection of its
intellectual property. There can be no assurance that the steps taken by the
Company will prevent misappropriation of its technology or that agreements
entered into for that purpose will be enforceable. In addition, litigation may
be necessary in the future to enforce the Company's intellectual property
rights, to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation, whether successful or unsuccessful,
could result in substantial costs and diversions of resources, either of which
could have a material adverse effect on the Company's business, financial
condition, and operating results. See "Business -- Intellectual Property and
Other Proprietary Rights."
DEFERRED TAX ASSETS
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company has provided a full valuation
allowance against its net deferred tax assets as it has determined that it is
more likely than not that the deferred tax assets will not be realized. The
Company's accounting for deferred taxes under Statement of Financial Accounting
Standards No. 109 involves the evaluation of a number of factors concerning the
realizability of the Company's deferred tax assets. To support the Company's
conclusion that a full valuation allowance was required, management primarily
considered such factors as the Company's history of operating losses and
expected near-term future losses, the nature of the Company's deferred tax
assets, and the lack of significant firm sales backlog. Although management's
operating plans assume taxable and operating income in future periods,
management's evaluation of all the available evidence in assessing the
realizability of the deferred tax assets indicates that such plans were not
considered sufficient to overcome the available negative evidence.
RISK OF INFRINGEMENT
The Company may, in the future, receive notices of claims of infringement of
other parties' trademark, copyright, and other proprietary rights. Although, to
date, the Company has not received any such notices, there can be no assurance
that claims for infringement or invalidity (or claims for indemnification
resulting from infringement claims) will not be asserted or prosecuted against
the Company. In particular, claims could be asserted against the Company for
violation of trademark, copyright, or other laws as a result of the use by the
Company, its customers, or other third parties of the Company's products to
transmit, disseminate, or display information over or on the Internet. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays, or require the Company to enter into royalty or licensing
agreements. There can be no assurance that such licenses
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would be available on reasonable terms, if at all, and the assertion or
prosecution of any such claims could have a material adverse effect on the
Company's business, financial condition, and operating results. See "Business --
Intellectual Property and Other Proprietary Rights."
DEPENDENCE ON CERTAIN LICENSES
The Company relies in part on certain technology which it licenses from
third parties, including relational database management systems ("RDBMSs") from
Oracle Corporation ("Oracle") and Sybase, Inc. ("Sybase"), object request broker
software from IONA, Ltd. ("IONA"), and other software which is integrated with
internally developed software and used in the Company's software to perform key
functions. In this regard, all of the Company's services incorporate data
encryption and authentication technology licensed from RSA. The Company is aware
of a dispute between Cylink Corporation ("Cylink") and RSA in which Cylink
alleges that license agreements between RSA and its customers, including the
Company, relating to certain RSA software conflict with rights held by Cylink.
RSA has advised its customers that the allegations of Cylink are unfounded. RSA
and Cylink have completed an arbitration proceeding of the dispute. RSA has
taken the position that it prevailed on all material issues, and that its
licenses, including the license to the Company, are valid and unaffected by the
arbitration decision. Cylink has taken the position that the arbitration
decision may require RSA licensees, including the Company, to obtain an
additional license of certain patents controlled by Cylink. RSA has maintained
that no such additional license is required and has instituted a lawsuit against
Cylink to bar Cylink from claiming otherwise. The Company is unable to ascertain
the validity of Cylink's allegations or whether or not the arbitration decision
may require the Company to obtain any additional license. In the Company's
license agreement with RSA, RSA has agreed to defend, indemnify, and hold the
Company harmless with respect to any claim by a third party that the licensed
software infringes any patent or other proprietary right. Although the Company's
license is fully paid, there can be no assurance that the outcome of the dispute
between RSA and Cylink will not lead to royalty obligations by the Company for
which RSA is unwilling or unable to indemnify the Company, or that the Company
would be able to obtain any additional license on commercially reasonable terms
or at all. There can also be no assurance that the Company's other third-party
technology licenses will continue to be available to the Company on commercially
reasonable terms, if at all. The loss or inability to maintain any of these
technology licenses could result in delays in introduction of the Company's
products and services until equivalent technology, if available, is identified,
licensed, and integrated, which could have a material adverse effect on the
Company's business, financial condition, and operating results. See "Business --
Intellectual Property and Other Proprietary Rights."
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the performance of
its executive officers and key employees, most of whom have worked together for
only a short period of time. The Company is dependent on its ability to retain
and motivate highly qualified personnel, especially its management and highly
skilled development teams. The Company does not have "key person" life insurance
policies on any of its employees. The loss of the services of any of its key
employees, particularly its founder and Chief Executive Officer, Pehong Chen,
could have a material adverse effect on the Company's business, financial
condition, and operating results. The Company's future success also depends on
its continuing ability to identify, hire, train, and retain other highly
qualified technical and managerial personnel. Competition for such personnel is
intense. There can be no assurance that the Company will be able to attract,
assimilate, or retain qualified technical and managerial personnel in the
future, and the failure of the Company to do so would have a material adverse
effect on the Company's business, financial condition, and operating results.
See "Business -- Employees" and "Management."
GOVERNMENT REGULATION
There can be no assurance that a federal, state, or foreign agency will not
attempt to regulate the Company's activities. The Company anticipates that it
may be required to comply with additional regulations, if enacted by federal or
state authorities, as the market for online commerce evolves. The Company also
may be subject to foreign laws and state and foreign sales and use tax laws. If
enacted or deemed applicable to the Company, such laws, rules, or regulations
could be imposed on the Company's activities or its business, thereby
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rendering the Company's business or operations more costly or burdensome, less
efficient, or impossible, any of which could have a material adverse effect on
the Company's business, financial condition, and operating results.
Due to the increasing popularity of the Internet, it is possible that laws
and regulations may be enacted with respect to the Internet, covering issues
such as user privacy, pricing, content, and quality of products and services.
For example, because the Company's products involve the solicitation of personal
data regarding individual consumers, the Company's business could be adversely
affected by laws regulating the solicitation, collection, or processing of such
data. The Telecommunications Act of 1996, which was enacted in January 1996,
prohibits the transmission over the Internet of certain types of information and
content. The scope of the prohibition and liability associated with any
violation of this Act are currently unsettled. The imposition upon the Company
and other software and service providers of potential liability for information
carried on or disseminated through its application systems could require the
Company to implement measures to reduce its exposure to such liability, which
may require the expenditure of substantial resources, or to discontinue certain
services. The increased attention focused upon these liability issues as a
result of the Telecommunications Act could adversely affect the growth of
Internet and private network use. Any costs incurred by the Company as a result
of such liability or asserted liability could have a material adverse effect on
the Company's business, financial condition, and operating results. In addition,
the adoption of other laws or regulations may reduce the rate of growth of the
Internet, which could in turn decrease the demand for the Company's services and
increase the Company's cost of doing business, or could otherwise have a
material adverse effect on the Company's business, financial condition, and
operating results.
The Company's software utilizes encryption technology, the export of which
is regulated by the United States government. There can be no assurance that
export regulations, either in their current form or as may be subsequently
enacted, will not limit the Company's ability to distribute its software outside
the United States. Moreover, federal or state legislation or regulation may
further limit levels of encryption or authentication technology that the Company
is able to utilize in its software. While the Company takes precautions against
unlawful exportation of its software, the global nature of the Internet makes it
difficult to effectively control the distribution of software. Any revocation or
modification of the Company's export authority, unlawful exportation of the
Company's software, or adoption of new legislation or regulation relating to
exportation of software and encryption technology could have a material adverse
effect on the Company's business, financial condition, and operating results.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that its available cash resources,
combined with the net proceeds of this offering, will be sufficient to meet its
presently anticipated working capital and capital expenditure requirements for
at least the next 12 months. However, the Company may need to raise additional
funds in order to support more rapid expansion, develop new or enhanced
services, respond to competitive pressures, acquire complementary businesses or
technologies, or respond to unanticipated requirements. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
the stockholders of the Company will be reduced, stockholders may experience
additional dilution, or such equity securities may have rights, preferences, or
privileges senior to those of the holders of the Company's Common Stock. There
can be no assurance that additional financing will be available when needed on
terms favorable to the Company, if at all. If adequate funds are not available
or are not available on acceptable terms, the Company may be unable to develop
or enhance its products, take advantage of future opportunities, or respond to
competitive pressures or unanticipated requirements, which could have a material
adverse effect on the Company's business, financial condition, and operating
results. See "Use of Proceeds," "Dilution" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
MANAGEMENT OF A CHANGING BUSINESS
The Company has experienced substantial change and expansion in its business
and operations since its inception in 1993 and expects to continue to experience
periods of rapid change. The Company's past expansion has placed, and any future
expansion would place, significant demands on the Company's administrative,
operational, financial, and other resources. The Company expects operating
expenses and staffing levels to
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increase substantially in the future. In particular, the Company intends to hire
a significant number of additional personnel in 1996 and later years.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to attract, assimilate, or retain additional highly
qualified personnel in the future. The Company also expects to expend resources
with respect to future expansion of its accounting and internal management
systems and the implementation of a variety of new systems and procedures. In
addition, the Company expects that future expansion will continue to challenge
the Company's ability to train, motivate, and manage its employees, and to
attract and retain qualified senior managers and technical persons, such as
programmers and software architects. If the Company's revenues do not increase
in proportion to its operating expenses, the Company's management systems do not
expand to meet increasing demands, the Company fails to attract, assimilate, and
retain qualified personnel, or the Company's management otherwise fails to
manage the Company's expansion effectively, there would be a material adverse
effect on the Company's business, financial condition, and operating results.
See "Business -- Employees" and "Management."
RISKS ASSOCIATED WITH INTERNATIONAL STRATEGY
A component of the Company's strategy is its planned expansion of its
international activities. To date, the Company has limited experience in
developing localized versions of its products and in marketing and distributing
its products internationally. There can be no assurance that the Company will be
able to successfully market, sell, and deliver its products in international
markets. In addition, there are certain risks inherent in doing business in
international markets, such as unexpected changes in regulatory requirements,
export controls relating to encryption technology and other export restrictions,
tariffs and other trade barriers, difficulties in staffing and managing foreign
operations, political instability, fluctuations in currency exchange rates,
reduced protection for intellectual property rights in some countries, seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world, and potentially adverse tax consequences, any of which
could adversely impact the success of the Company's international operations.
There can be no assurance that one or more of such factors will not have a
material adverse effect on the Company's future international operations, if
any, and, consequently, on the Company's business, financial condition, and
operating results. See "Business -- Sales and Marketing."
MANAGEMENT'S DISCRETION AS TO USE OF UNALLOCATED NET PROCEEDS
The Company has not designated any specific use for the net proceeds from
the sale of Common Stock described in this Prospectus. Rather, the Company
expects to use the net proceeds for general corporate purposes, including
working capital. Consequently, the Board of Directors and management of the
Company will have significant flexibility in applying the net proceeds of this
offering. See "Use of Proceeds."
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of this offering, the Company's present directors and
executive officers and their respective affiliates will beneficially own
approximately 62.1% of the outstanding Common Stock. As a result, these
stockholders, if they act together, will be able to exercise significant
influence over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. Such
concentration of ownership may also have the effect of delaying, preventing, or
deterring a change in control of the Company. See "Principal Stockholders" and
"Description of Capital Stock -- Antitakeover Effects of Provisions of Charter
Documents and Delaware Law."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after the offering. The initial
offering price has been determined by negotiation among the Company and the
Underwriters based upon several factors. For a discussion of the factors taken
into account in determining the initial public offering price, see
"Underwriting." The market price of the Company's Common Stock is likely to be
highly volatile and could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new software or services by the Company or its competitors,
changes in financial estimates by securities analysts, or other events or
factors, many of which are beyond the Company's control. In addition, the stock
market has experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of many high
technology companies and that often have been
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unrelated to the operating performance of such companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. In the past, following periods of volatility in the market price for a
company's securities, securities class action litigation has often been
instituted. Such litigation could result in substantial costs and a diversion of
management attention and resources, which could have a material adverse effect
on the Company's business, financial condition, and operating results.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial numbers of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon completion of this offering, the Company will have outstanding an
aggregate of 19,619,104 shares of Common Stock, based upon the number of shares
outstanding as of April 16, 1996. Of these shares, all of the shares sold in
this offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless such shares are purchased by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act ("Affiliates"). The
remaining 16,619,104 shares of Common Stock held by existing stockholders (the
"Restricted Shares") are "restricted securities" as that term is defined in Rule
144. Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701
promulgated under the Securities Act. As a result of contractual restrictions
and the provisions of Rule 144 and Rule 701, additional shares will be available
for sale in the public market as follows: (i) no Restricted Shares will be
eligible for immediate sale on the date of this Prospectus; (ii) 12,598,166
Restricted Shares will be eligible for sale upon expiration of the lock-up
agreements 180 days after the date of this Prospectus; and (iii) the remainder
of the Restricted Shares will be eligible for sale from time to time thereafter
upon expiration of their respective two-year holding periods. Pursuant to an
agreement between the Company and the holders (or their permitted transferees)
of approximately 14,948,345 shares of Common Stock, these holders are entitled
to certain rights with respect to the registration of such shares under the
Securities Act.
Prior to this offering, there has been no public market for the Common Stock
of the Company, and the effect, if any, that the sale or availability for sale
of shares of additional Common Stock will have on the trading price of the
Common Stock cannot be predicted. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could adversely affect the trading price of the Common Stock and could impair
the Company's future ability to raise capital through an offering of its equity
securities. See "Shares Eligible for Future Sale" and "Description of Capital
Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors participating in this offering will incur immediate and
substantial dilution. To the extent outstanding options or warrants to purchase
the Common Stock are exercised, there will be further dilution. See "Dilution."
EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") authorizes the Board of Directors to issue up to
5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, and privileges, including voting rights, of those shares without
any further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
Restated Certificate and Amended and Restated Bylaws (the "Restated Bylaws"),
among other things, require that stockholder actions occur at duly called
meetings of the stockholders, do not permit cumulative voting in the election of
directors, and require advance notice of stockholder proposals and director
nominations. Certain provisions contained in the Company's charter documents and
certain applicable provisions of Delaware law could serve to depress the
Company's stock price or discourage a hostile bid in which stockholders could
receive a premium for their shares. In addition, these provisions could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company, or delay, prevent, or deter a
merger, acquisition, tender offer in which the Company's stockholders could
receive a premium for their shares, or a proxy contest for control of the
Company or other change in the Company's management. See "Management" and
"Description of Capital Stock."
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USE OF PROCEEDS
The net proceeds from the sale of 3,000,000 shares of Common Stock offered
hereby, at the initial public offering price of $7.00 per share, are estimated
to be $18,580,000 ($21,509,500 assuming the Underwriters' over-allotment option
is exercised in full), after deducting underwriting discounts and commissions
and estimated offering expenses payable by the Company.
The principal purposes of this offering are to obtain additional capital, to
create a public market for the Company's Common Stock, and to facilitate future
access by the Company to the public equity markets. The Company anticipates that
it will use the net proceeds for working capital and general corporate purposes.
Although the Company may use a portion of the net proceeds to license or acquire
new products or technologies or to acquire or invest in businesses complementary
to the Company's current business, the Company currently has no specific
agreements or commitments in this regard and no such agreements or commitments
are currently being negotiated. The Board of Directors and management of the
Company will have significant flexibility in applying the net proceeds of this
offering. The amounts and timing of the Company's actual expenditures will
depend upon numerous factors, including the status of the Company's product
development efforts, competition, and marketing and sales activities. Pending
such uses, the Company intends to invest the net proceeds of this offering in
short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends since its inception.
The Company currently intends to retain any future earnings to finance the
growth and development of its business and does not intend to pay any cash
dividends in the foreseeable future. Future dividends, if any, will be
determined by the Board of Directors.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 (i) on an actual basis, (ii) on a pro forma basis to reflect the sale
of 634,375 shares in the Series E Financing and the automatic conversion of all
outstanding shares of the Preferred Stock into 9,257,595 shares of Common Stock,
including 653,995 shares of Common Stock to be issued upon the conversion of the
Series E Preferred Stock, which will occur automatically upon the completion of
this offering, and (iii) as adjusted to reflect the effectiveness of the
Restated Certificate and to give effect to the sale of the 3,000,000 shares of
Common Stock offered hereby at the initial public offering price of $7.00 per
share and the receipt of the estimated net proceeds therefrom. This table should
be read in conjunction with the Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -------------
<S> <C> <C> <C>
Long-term debt and non-current portion of capital lease obligations......... $ 569 $ 569 $ 569
--------- ----------- -------------
Stockholders' equity:
Preferred Stock, issuable in series, $0.0001 par value; 10,000,000 shares
authorized, 8,603,600 shares outstanding, actual; 15,000,000 shares
authorized, no shares outstanding, pro forma; 5,000,000 shares
authorized, no shares outstanding, as adjusted (1)....................... 1 -- --
Common Stock, $0.0001 par value, 22,000,000 shares authorized, 7,344,042
shares outstanding, actual; 30,000,000 shares authorized, 16,601,637
shares outstanding, pro forma; and 50,000,000 shares authorized,
19,601,637 shares outstanding, as adjusted(1)(2)......................... 1 2 2
Additional paid-in capital................................................ 13,088 18,143 36,723
Deferred compensation related to grant of stock options................... (2,436) (2,436) (2,436)
Deficit accumulated during the development stage.......................... (7,822) (7,822) (7,822)
--------- ----------- -------------
Total stockholders' equity.............................................. 2,832 7,887 26,467
--------- ----------- -------------
Total capitalization.................................................. $ 3,401 $ 8,456 $ 27,036
--------- ----------- -------------
--------- ----------- -------------
</TABLE>
- ------------
(1) Excludes, as of April 16, 1996, shares of Common Stock reserved for issuance
upon exercise of (i) outstanding stock options to acquire 2,020,558 shares
of Common Stock with a weighted average exercise price of $0.86 per share,
(ii) an outstanding warrant to acquire 33,750 shares of Series C Preferred
Stock with an exercise price of $2.00 per share, which warrant will convert
into a warrant to purchase Common Stock upon the completion of this
offering, and (iii) an outstanding option to acquire 500,000 shares of
Series D Preferred Stock at an exercise price of $4.00 per share, which
option will convert into an option to purchase shares of Common Stock upon
the completion of this offering. See "Management -- Employee Benefit Plans"
and "Description of Capital Stock."
(2) Includes the issuance, upon the completion of this offering, of 653,995
shares of Common Stock upon conversion of 634,375 shares of Series E
Preferred Stock that were issued at $8.00 per share.
17
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996
was approximately $7,887,000, or $0.47 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of the Company's total
tangible assets less total liabilities, divided by the pro forma number of
shares of Common Stock outstanding, after giving effect to the Series E
Financing and the conversion of all outstanding shares of Preferred Stock into
Common Stock upon the completion of this offering. Pro forma net tangible book
value dilution per share represents the difference between the amount per share
paid by purchasers of shares of Common Stock in the offering made hereby and the
pro forma net tangible book value per share of Common Stock immediately after
the completion of this offering. After giving effect to the sale by the Company
of 3,000,000 shares of Common Stock offered hereby at the initial public
offering price of $7.00 per share, after deducting underwriting discounts and
commissions and estimated offering expenses, the pro forma net tangible book
value at March 31, 1996 would have been $26,467,000, or approximately $1.35 per
share. This represents an immediate increase in pro forma net tangible book
value of $.88 per share to existing stockholders and an immediate dilution of
$5.65 per share to new investors purchasing Common Stock in this offering, as
illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................. $ 7.00
Pro forma net tangible book value at March 31, 1996................. $ 0.47
Increase attributable to new investors.............................. .88
---------
Pro forma net tangible book value after this offering................. 1.35
---------
Dilution to new investors........................................... $ 5.65
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors, before deducting underwriting
discounts and commissions and estimated offering expenses, at the initial public
offering price of $7.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ---------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 16,601,637 84.7% $ 15,568,000 42.6% $ 0.94
New investors....................... 3,000,000 15.3 21,000,000 57.4 7.00
------------ ----- ------------- -----
Total............................. 19,601,637 100.0% $ 36,568,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
The calculation of pro forma net tangible book value and the other
computations above assume no exercise of outstanding stock options or warrants.
As of April 16, 1996, 2,020,558 shares of Common Stock were subject to
outstanding options with a weighted average exercise price of $0.86 per share,
and 33,750 shares of Series C Preferred Stock were subject to an outstanding
warrant with an exercise price of $2.00 per share. In addition, as of April 16,
1996, an option was outstanding to purchase a total of 500,000 shares of Series
D Preferred Stock with an exercise price of $4.00 per share. If all options and
warrants outstanding at April 16, 1996 were exercised for cash, the pro forma
net tangible book value per share immediately following the completion of this
offering would be $1.37 per share. This represents an immediate dilution in pro
forma net tangible book value of $5.63 per share to new investors. See
"Management -- Employee Benefit Plans" and Note 4 of Notes to Financial
Statements. See "Management -- Employee Benefit Plans" and Note 4 of Notes to
Financial Statements.
18
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1994 and
1995, and for the period from inception to December 31, 1993 and the years ended
December 31, 1994 and 1995, are derived from the Company's audited financial
statements which are included elsewhere in this Prospectus. Balance sheet data
as of December 31, 1993 are derived from the Company's audited financial
statements not included in this Prospectus. The financial data as of March 31,
1996 and for the three months ended March 31, 1995 and 1996 are derived from the
Company's unaudited financial statements included elsewhere in this Prospectus.
The unaudited financial statements have been prepared on a basis consistent with
the Company's audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, that management believes
necessary for a fair presentation of the Company's financial position and
results of operations for these periods. The selected financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the Financial Statements of
the Company and Notes thereto, and other financial information included
elsewhere in this Prospectus. Historical results are not necessarily indicative
of the results to be expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 13, 1993
(INCEPTION) YEARS ENDED THREE MONTHS CUMULATIVE
TO DECEMBER 31, ENDED MARCH 31, PERIOD FROM
DECEMBER 31, ---------------------- ---------------------- INCEPTION TO
1993 1994 1995 1995 1996 MARCH 31, 1996
------------- ---------- ---------- ---------- ---------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses............... $ -- $ -- $ -- $ -- $ 1,099 $ 1,099
Services........................ -- -- 540 -- 299 839
------------- ---------- ---------- ---------- ---------- -------
Total revenues................ -- -- 540 -- 1,398 1,938
Operating expenses:
Cost of software licenses....... -- -- -- -- 164 164
Cost of services................ -- -- 23 -- 33 56
Research and development........ 12 748 2,229 371 797 3,786
Selling, general, and
administrative................. 131 1,023 2,766 500 2,109 6,029
------------- ---------- ---------- ---------- ---------- -------
Total operating expenses...... 143 1,771 5,018 871 3,103 10,035
------------- ---------- ---------- ---------- ---------- -------
Operating loss.................... (143) (1,771) (4,478) (871) (1,705) (8,097)
Other income (expense), net....... 7 101 160 25 7 275
------------- ---------- ---------- ---------- ---------- -------
Net loss.......................... $ (136) $ (1,670) $ (4,318) $ (846) $ (1,698) $ (7,822)
------------- ---------- ---------- ---------- ---------- -------
------------- ---------- ---------- ---------- ---------- -------
Pro forma net loss per share(1)... $ (0.23) $ (0.04) $ (0.09)
---------- ---------- ----------
---------- ---------- ----------
Shares used in computing pro forma
net loss per share(1)............ 18,543 18,888 18,576
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- MARCH 31,
1993 1994 1995 1996
--------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 1,503 $ 808 $ 4,311 $ 2,663
Working capital......................................................... 2,358 2,208 3,916 2,073
Total assets............................................................ 2,634 2,640 5,857 6,106
Deficit accumulated during the development stage........................ (136) (1,806) (6,124) (7,822)
Total stockholders' equity.............................................. 2,478 2,526 4,254 2,832
</TABLE>
- ------------
(1) See Note 2 of Notes to Financial Statements for information concerning the
calculation of pro forma net loss per share.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the Notes thereto included elsewhere in this Prospectus. This
discussion contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including, but not limited to, those discussed in "Risk Factors" and elsewhere
in this Prospectus.
OVERVIEW
BroadVision provides an integrated software application system, BroadVision
One-To-One, that enables businesses to create applications for interactive
marketing and selling services on the Web. These applications are designed to
allow non-technical business managers to tailor Web site content to the needs
and interests of individual Web site visitors, personalizing each visit on a
real-time basis. From its inception in May 1993 to November 1995, the Company's
operating activities related primarily to designing and developing products, and
to building engineering, sales, marketing, and professional services
organizations. In late December 1995, the Company introduced its only
commercially available product, BroadVision One-To-One.
The Company's revenues are derived from software license fees and fees for
its services. The Company generally recognizes license fees when the software
has been delivered, the customer acknowledges an unconditional obligation to
pay, and the Company has no significant obligations remaining. Professional
service revenues generally are recognized as services are performed. Maintenance
revenues are recognized ratably over the term of the support period, which is
typically one year. See Note 2 of Notes to Financial Statements.
Since its inception, the Company has incurred substantial costs to research,
develop, and enhance its technology and products, to recruit and train a
marketing and sales group, and to establish an administrative organization. As a
result, the Company has incurred net losses in each fiscal quarter since
inception and, as of March 31, 1996, had an accumulated deficit of $7.8 million.
The Company anticipates that its operating expenses will increase substantially
in the foreseeable future as it continues the development of its technology,
increases its sales and marketing activities, and creates and expands its
distribution channels. Accordingly, the Company expects to incur additional
losses for the foreseeable future. In addition, the Company's limited operating
history makes the prediction of future results of operations difficult and,
accordingly, there can be no assurance that the Company will achieve or sustain
revenue growth or profitability.
To date, only 12 companies have licensed the BroadVision One-To-One
application system and no application has been commercially deployed using
BroadVision One-To-One. Accordingly, the Company has only a limited operating
history, and its prospects must be evaluated in light of the risks and
uncertainties frequently encountered by a company in its early stage of
development. The new and evolving markets in which the Company operates make
these risks and uncertainties particularly pronounced. To address these risks,
the Company must, among other things, successfully implement its marketing
strategy, respond to competitive developments, continue to develop and upgrade
its products and technologies more rapidly than its competitors, and
commercialize its products and services incorporating these enhanced
technologies. There can be no assurance that the Company will succeed in
addressing any or all of these risks.
The Company had 73 full-time employees at March 31, 1996, up from 46 and 14
at December 31, 1995 and 1994, respectively. The Company's ability to grow will
depend, in part, on its success in adding a substantial number of direct sales
and support personnel in 1996 and future periods. Competition for such personnel
is intense, and there can be no assurance that the Company can retain its
existing personnel or that it will be able to attract, assimilate, or retain
additional highly qualified personnel in the future. The Company also expects to
expend resources with respect to future expansion of its accounting and internal
management systems and the implementation of a variety of new systems and
procedures. In addition, the Company expects that future expansion will continue
to challenge the Company's ability to train, motivate, and manage its employees,
and to attract and retain qualified senior managers and technical persons, such
as programmers and software architects. If the Company's revenues do not
increase in proportion to its operating expenses, the Company's management
20
<PAGE>
systems do not expand to meet increasing demands, the Company fails to attract,
assimilate, and retain qualified personnel, or the Company's management
otherwise fails to manage the Company's expansion effectively, there would be a
material adverse effect on the Company's business, financial condition, and
operating results.
RESULTS OF OPERATIONS
Amounts from inception (May 13, 1993) to December 31, 1993 (the "1993
Period") are not comparable to those for the years ended December 31, 1994 and
1995 due to the different duration of the periods and the acceleration of the
Company's activities and related expenses throughout the periods.
REVENUES
SOFTWARE LICENSES. The Company's products were first commercially available
in late December 1995. The Company recognized its first license revenues,
totaling $1.1 million from six customers, during the three months ended March
31, 1996. Two customers, Prodigy Services Co. and Matsushita Electric Industrial
Co., Ltd., accounted for $514,000 and $175,000, respectively, of license
revenues. Export license revenues, primarily to Asia, were $535,000 or 49% of
total license revenues for the quarter. The Company derives license revenues
from the sale of three separate but related products: the BroadVision One-To-One
Development System, used by developers as a platform for developing interactive
marketing and selling applications; the BroadVision One-To-One Deployment
System, the engine for operating such applications; and the Dynamic Command
Center ("DCC"), a Windows 95-based product enabling business managers to
dynamically control business rules, such as pricing, and to obtain information
on the status of the application. The Development System and the DCC are
generally licensed on a per-seat basis, while the Deployment System is generally
licensed based on application size, consisting of two components: the number of
profiled users tracked by the application and the number of services, or content
providers, sharing the application.
SERVICES. Service revenues consist primarily of consulting and, to a lesser
extent, post-contract support and training service. The Company recognized a
total of $540,000 in consulting revenues in the year ended December 31, 1995,
with 92.6% of that total derived from a single contract development project. In
the three months ended March 31, 1996, service revenues were $299,000,
consisting primarily of $257,000 in professional service revenues related to the
design and implementation of applications based on the BroadVision One-To-One
application system, and $42,000 in maintenance revenues. To the extent that the
Company's strategy of developing strategic alliances with third parties such as
systems integrators is successful, professional service revenues as a percentage
of total revenues may decrease. However, as the size of the Company's installed
license base increases relative to new license revenues in any given period,
post-contract support revenues as a percentage of total revenues may increase.
Of the Company's total revenues for the three months ended March 31, 1996,
revenues from customers in North America accounted for 53.3% and revenues from
customers in the Asia/Pacific and European regions accounted for 46.7%. The
Company expects that international revenues will continue to account for a
significant portion of its total revenues and expects to commit significant
management time and financial resources to developing direct and indirect
international sales and support channels. There can be no assurance, however,
that the Company will be able to maintain or increase international market
demand for the BroadVision One-To-One application system. Furthermore, four
customers accounted for 83.6% of the Company's total revenues for the three
months ended March 31, 1996; thus, there can be no assurance that the Company's
revenue mix to date provides any indication of the Company's future revenue mix.
OPERATING EXPENSES
The Company's operating expenses have increased substantially since
inception. The Company believes that continued expansion of its operations is
essential to achieving its objectives and, therefore, intends to continue to
increase expenditures in all operating areas.
COST OF SOFTWARE LICENSES. Cost of software licenses includes the costs of
royalties payable to third parties for software that is embedded in, or bundled
together or sold with, the Company's products, product media and duplication,
and manuals. The amount of such royalties payable is generally related to the
volume of sales made
21
<PAGE>
by the Company to its customers. Cost of software licenses was $164,000 in the
three months ended March 31, 1996, or 14.9% of the related license revenues.
There was no cost of software licenses prior to December 31, 1995.
COST OF SERVICES. Cost of services consists primarily of employee-related
costs and fees for third-party consultants incurred in providing consulting,
post-contract support, and training services. Cost of services were $23,000, or
4.3% of the related service revenues, in the year ended December 31, 1995 and
$33,000, or 11.0% of the related service revenues, in the three months ended
March 31, 1996. Cost of services as a percentage of service revenues can be
expected to vary significantly from period to period due to the mix of services
provided by the Company and the resources used to provide these services. The
Company does not expect to sustain the high rate of margins earned to date on
service revenues.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and other employee-related costs and consulting fees
related to the development of the Company's products. Research and development
expenses increased from $12,000 in the 1993 Period to $748,000 in the year ended
December 31, 1994 and to $2.2 million in the year ended December 31, 1995. These
expenses increased from $371,000 in the three months ended March 31, 1995 to
$797,000 in three months ended March 31, 1996. These amounts reflect significant
headcount increases in each of the periods. The Company anticipates that
research and development expenses will continue to increase in absolute dollars
for the remainder of 1996 and for 1997 and are expected to exceed $1 million in
each of the next four quarters. All expenditures related to research and
development have been expensed as incurred and, therefore, the cost of license
revenues includes no amortization of capitalized software development costs. See
Note 2 of Notes to Financial Statements.
SELLING, GENERAL, AND ADMINISTRATIVE. Selling, general, and administrative
expenses consist primarily of salaries and other employee-related costs,
commissions and other incentive compensation, travel and entertainment,
expenditures for marketing programs, such as collateral materials, trade shows,
public relations, and creative services, and fees for professional services.
Selling, general, and administrative expenses increased from $131,000 in the
1993 Period to $1.0 million in the year ended December 31, 1994 and to $2.8
million in the year ended December 31, 1995. These expenses increased from
$500,000 in the three months ended March 31, 1995 to $2.1 million in the three
months ended March 31, 1996. The Company expects to continue to expand its
direct sales and marketing efforts, add administrative staff to support expanded
operations, relocate to new facilities, and incur additional costs related to
being a public company and, therefore, expects selling, general, and
administrative expenses to increase significantly in absolute dollars.
The Company has recorded deferred compensation and compensation expense for
the difference between the exercise price and the deemed fair value of the
Company's Common Stock with respect to 1,794,000 shares issuable upon exercise
of options granted in December 1995 and the first quarter of 1996. These amounts
are initially recorded as deferred compensation and will be amortized to
selling, general, and administrative expense over the vesting periods of the
options, generally 60 months. Deferred compensation amortized to expense was
$100,000 for the year ended December 31, 1995 and $110,000 for the three months
ended March 31, 1996. The amortization of deferred compensation will have an
adverse effect on the Company's reported results of operations through the
second quarter of 2001. See Note 4 of Notes to Financial Statements.
INCOME TAXES
At December 31, 1995, the Company had federal net operating loss
carryforwards of approximately $5.6 million. Utilization of the carryforwards
may be subject to annual limitation due to changes in the Company's ownership
resulting from the Company's Preferred Stock financings and this offering. A
valuation allowance has been recorded for the entire deferred tax asset as a
result of uncertainties regarding the realization of the asset due to the lack
of earnings history of the Company. See Note 7 of Notes to Financial Statements.
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company has provided a full valuation
allowance against its net deferred tax assets as it has determined that it is
more likely than not that the deferred tax assets will not be realized. The
Company's accounting for deferred taxes under Statement of Financial Accounting
Standards
22
<PAGE>
No. 109 involves the evaluation of a number of factors concerning the
realizability of the Company's deferred tax assets. To support the Company's
conclusion that a full valuation allowance was required, management primarily
considered such factors as the Company's history of operating losses and
expected near-term future losses, the nature of the Company's deferred tax
assets, and the lack of significant firm sales backlog. Although management's
operating plans assume taxable and operating income in future periods,
management's evaluation of all the available evidence in assessing the
realizability of the deferred tax assets indicates that such plans were not
considered sufficient to overcome the available negative evidence.
FACTORS AFFECTING OPERATING RESULTS
As a result of the Company's limited operating history, the Company does not
have meaningful historical financial data for quarterly periods on which to base
planned operating expenses. The Company's expense levels are based in part on
its product development requirements as well as its expectations as to future
revenues. The Company anticipates that its operating expenses will increase
substantially for the foreseeable future as the Company continues to develop and
market its initial products, increases its sales and marketing activities,
creates and expands the distribution channels for its products, and broadens its
customer support capabilities. The inability of the Company to release its
products in a timely manner or any material shortfall in demand for the
Company's products in relation to the Company's expectations would have a
material adverse effect on the Company's business, financial condition, and
operating results.
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors including, among
others, the timing of introductions or enhancements of products and services by
the Company or its competitors, the length of the Company's sales cycle, market
acceptance of new products, the pace of development of the market for online
commerce, the mix of the Company's products sold, the size and timing of
significant orders and the timing of customer production or deployment, demand
for the Company's products, changes in pricing policies by the Company or its
competitors, changes in the Company's sales incentive plans, budgeting cycles of
its customers, customer order deferrals in anticipation of new products or
enhancements by the Company or its competitors, cancellation of orders prior to
customer deployment or during the warranty period, nonrenewal of service
agreements, product life cycles, software defects and other product quality
problems, changes in strategy, changes in key personnel, the extent of
international expansion, seasonal trends, the mix of distribution channels
through which the Company's products are sold, the mix of international and
domestic sales, changes in the level of operating expenses to support projected
growth, and general economic conditions. The Company anticipates that a
significant portion of its revenues will be derived from a limited number of
orders, and the timing of receipt and fulfillment of any such orders is expected
to cause material fluctuations in the Company's operating results, particularly
on a quarterly basis. As with many software companies, the Company anticipates
that it will make the major portion of each quarter's deliveries near the end of
each quarter and, as a result, short delays in delivery of products at the end
of a quarter could adversely affect operating results for that quarter. In
addition, the Company intends, in the near term, to increase significantly its
personnel, including its domestic and international direct sales force. The
timing of such expansion and the rate at which new sales people become
productive could also cause material fluctuations in the Company's quarterly
operating results.
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast, and the Company believes that period-to-period
comparisons of its operating results will not necessarily be meaningful and
should not be relied upon as any indication of future performance. It is likely
that the Company's future quarterly operating results from time to time will not
meet the expectations of market analysts or investors, which may have an adverse
effect on the price of the Company's Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through private placements of Common and Preferred Stock, which have provided
net proceeds totaling $10.4 million through March 31, 1996 and an additional
$5.1 million in April 1996.
The Company's operating activities used cash of $1.6 million and $3.7
million in the years ended December 31, 1994 and 1995, respectively. Such
activities used cash of $767,000 in the three months ended March 31,
23
<PAGE>
1995 compared to $1.5 million in the three months ended March 31, 1996. The
increases in cash used by operations are primarily attributable to higher
operating expenses and an increase in accounts receivable at March 31, 1996
compared to prior periods.
Expenditures for property and equipment, including those subsequently
financed under capitalized equipment leases, were $113,000 in the 1993 Period,
$282,000 in year ended December 31, 1994, and $679,000 in year ended December
31, 1995, and $88,000 in the three months ended March 31, 1995 compared to
$499,000 in the three months ended March 31, 1996. The increases from period to
period are primarily due to the acquisition of property and equipment, primarily
computer hardware and software, for the Company's growing employee base, as well
as for the Company's management information and communications systems. The
Company anticipates significant additional capital expenditures for the balance
of 1996 and thereafter. The Company currently has no significant capital
commitments other than commitments under equipment and facilities leases.
The Company anticipates that its available cash resources, combined with the
net proceeds of this offering, will be sufficient to meet its presently
anticipated working capital and capital expenditure requirements for at least
the next 12 months. However, the Company may need to raise additional funds in
order to support more rapid expansion, develop new or enhanced services, respond
to competitive pressures, acquire complementary businesses or technologies, or
respond to unanticipated requirements. The Company may seek to raise additional
funds through private or public sales of securities, strategic relationships,
bank or lease financings, or otherwise. If additional funds are raised through
the issuance of equity securities, the percentage ownership of the stockholders
of the Company will be reduced, stockholders may experience additional dilution,
or such equity securities may have rights, preferences, or privileges senior to
those of the holders of the Company's Common Stock. There can be no assurance
that additional financing will be available when needed on terms favorable to
the Company, if at all. If adequate funds are not available or are not available
on acceptable terms, the Company may be unable to develop or enhance its
products, take advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements, which could have a material adverse
effect on the Company's business, financial condition, and operating results.
24
<PAGE>
BUSINESS
The following discussion of the Company's business contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
BroadVision provides an integrated software application system, BroadVision
One-To-One, that enables businesses to create applications for interactive
marketing and selling services on the Web. These applications are designed to
allow non-technical business managers to tailor Web site content to the needs
and interests of individual Web site visitors, personalizing each visit on a
real-time basis. The BroadVision One-To-One application system and related
vertical application solutions and services are targeted at businesses
developing Web sites for marketing and selling to consumers and business
customers, and as internal resources for employees. The Company's customers use
BroadVision One-To-One to develop Web sites that engage visitors and encourage
return visits through personalized interactions, capture marketing information
from volunteered data and observed behavior, and generate revenues from
electronic commerce activities and point-cast advertising. BroadVision
One-To-One provides these software capabilities in an architecture that supports
the full one-to-one marketing and selling life cycle. The Company believes that
these capabilities are needed by business managers and Web site application
developers to take full advantage of the potential of the Internet as a
marketplace for conducting electronic commerce and for building long-term
relationships with customers.
BACKGROUND
TRENDS IN MARKETING AND SELLING
To prevail in the intensely competitive global marketplace, business
managers must continually devise new strategies to market, sell, and distribute
their products and services. From the 1950s to the 1980s, leading businesses in
North America, Europe, and Asia advanced the sciences of mass production, mass
communication, and mass distribution to establish world markets for their
products and services. During the 1980s, these mass marketers began using new
technologies and analytical techniques to better segment and define targeted
markets in order to reach customer groups most likely to buy their products.
These new approaches helped marketers respond to increasing competition and
customer demands for improved quality, service, and product choice. The trend
toward greater specialization has continued to increase as many marketers have
used targeted marketing tools and new delivery media, such as direct mail and
telemarketing, to reach more precisely targeted market segments.
In the latter half of the 1990s, many marketing executives in both
business-to-consumer and business-to-business industries have turned their
attention to the ultimate target market segment: the market of one. In their
1993 book, THE ONE-TO-ONE FUTURE, marketing specialists Don Peppers and Martha
Rogers (members of the Company's BroadVision Advisory Council ("BVAC") and
strategic partners of the Company) describe this trend as "one-to-one marketing"
and advocate the following:
THE OLD PARADIGM, A SYSTEM OF MASS PRODUCTION, MASS MEDIA, AND MASS
MARKETING, IS BEING REPLACED BY A TOTALLY NEW PARADIGM, A ONE-TO-ONE
ECONOMIC SYSTEM. THE 1:1 FUTURE WILL BE CHARACTERIZED BY CUSTOMIZED
PRODUCTION, INDIVIDUALLY ADDRESSABLE MEDIA, AND 1:1 MARKETING, TOTALLY
CHANGING THE RULES OF BUSINESS COMPETITION AND GROWTH. INSTEAD OF MARKET
SHARE, THE GOAL OF MOST BUSINESS COMPETITION WILL BE SHARE OF CUSTOMER
-- ONE CUSTOMER AT A TIME.
One-to-one marketing and selling involves a systematic, interactive approach
to developing and managing a detailed knowledge base that integrates individual
customers' product and business requirements, personal preferences, and purchase
histories with traditional demographic statistics. This information provides the
foundation for businesses to serve customers in the form of individually
tailored products, services, information, incentives, and transactions. By
focusing on individual customers and one-to-one marketing, business managers can
develop productive relationships with their customers that maximize customer
satisfaction, develop customer loyalty, and contain the high costs associated
with new customer acquisition.
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MARKETING AND SELLING ON THE INTERNET
With the emergence of the Internet's World Wide Web as a globally
accessible, interactive, and individually addressable communications and
computing platform, businesses have the opportunity to implement one-to-one
marketing and selling on a mass basis. The proliferation of inexpensive,
easy-to-use Web browsers and affordable Internet access services has made the
Internet easy to navigate, accessible to millions of homes and businesses, and
readily adaptable to a broad range of business, entertainment, education,
commerce, and marketing applications. New technologies, such as Java from Sun
Microsystems, Inc. ("Sun") and ActiveX from Microsoft, are facilitating the
delivery of dynamic, interactive content for the Web and accelerating adaptation
of the Internet as a mainstream business and personal computing platform.
International Data Corporation has estimated that the number of individuals
worldwide with access to the Internet will reach approximately 200 million by
the end of 1999, of whom 125 million are expected to be accessing the Web. In
addition, businesses have recently begun to utilize the Internet to create
internal enterprise networking environments, called "intranets." These networks
are enabling businesses to create Web sites that serve as internal resources by
providing interactive services directly to employees. Forrester Research, Inc.
estimates that the combined Internet and intranet worldwide software market will
increase from $127 million in 1995 to $8.5 billion in 1999.
Increasingly, businesses are developing and maintaining Web sites --
Internet front offices and store fronts where visitors can learn, discover, and
purchase from the business interactively. As Internet use has grown, industry
experts have described Web sites as ideal places to develop individual customer
relationships. Whether a Web site is designed primarily for delivering content,
promoting a brand, or conducting transactions, it offers businesses an
opportunity to extend front office services directly into the homes and business
of customers and to initiate and maintain an ongoing relationship online. By
recognizing the relationship-building potential of the Web -- in particular, its
ability to interactively capture Web site visitor profiles, observations, and
feedback, and to dynamically micro-target useful information to visitors based
on this data -- business managers can utilize advanced Internet technologies to
engage in personalized dialogues with millions of customers on a one-to-one
basis.
THE BUSINESS CHALLENGE ON THE WEB
While the Internet is widely predicted to become a global platform for
providing and accessing information, there remain significant challenges to
doing business on the Web. The Internet is characterized by fluid and dynamic
content, where information is continually being updated and enhanced. Web site
visitors perceive the value of Web sites to be directly correlated to the
frequency of content updates and the dynamic behavior of the site. Creating the
best Web sites generally requires sophisticated creative and technical
expertise. Although the market has been flooded with numerous inexpensive tools
for building, updating, and downloading Web sites, many of the companies
producing and using these tools have failed to take full advantage of the
Internet's dynamic one-to-one relationship potential.
The majority of Web sites today simply present text and graphics
electronically in a static format, much like a product brochure. These
"brochureware" sites may use new Web publishing tools and multimedia techniques
to dress up their static content, but few have the interactive capability to
capture visitor profiles, target personalized interactions, remember information
from one visit to the next, or enable business managers to manage the site on a
real-time basis. Providing these additional services is a valuable next step for
companies that plan to maximize the potential of the Web for interactive
marketing and selling.
Even the small number of Web sites that have moved beyond brochureware to
provide electronic commerce and shopping have failed to capitalize fully on the
Internet's potential for building one-to-one relationships. Sites that do
support online ordering and payment often fail to satisfy customer expectations,
providing commercial experiences that are less enjoyable and cost-effective than
traditional alternatives. Most lack any form of real-time personalization and
cannot dynamically target information to Web site visitors' preferences and past
histories. Others lack integration with mainstream business systems for
supporting visitors interactively or exchanging information with corporate
databases. While some of these sites use advanced applications to support online
order and payment transactions, many still require buyers to place orders by
telephone, defeating a basic objective of electronic commerce.
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Moreover, these sites are generally cumbersome for business managers to
operate. Business rules and content, such as product and pricing data, financial
policies, promotions, and advertising campaigns, are "hard-coded" into programs
and virtually impossible for non-technical managers to change dynamically.
Applications are not scalable and require ongoing tuning and re-engineering to
keep up with visitor growth and changes in Internet technology. Development is
slow and defects are common due to the absence of productivity tools, reusable
objects, and templates.
THE TECHNOLOGY GAP ON THE WEB
In part, the limited capabilities of these Web sites are a result of the
inadequacies of the technologies available to develop Internet applications. Web
projects were initially limited to very basic tasks, such as publishing
information for online access and basic hyperlinking. As a result, most Web
developers still rely on general purpose publishing tools, such as HTML
(Hypertext Mark-up Language) editors, to develop Web pages and the links between
them. These tools were not designed to be used in the development of
sophisticated applications, which currently require a combination of
low-performance "scripting languages," such as PERL (Practical Extraction and
Report Language), high performance programming languages such as C and C++,
database platforms such as those offered by Oracle and Sybase, and Web platforms
from companies such as Netscape, OMI, and Microsoft. Using these disparate
technologies to develop and maintain sophisticated Internet applications, such
as managing customer relationships and defining dynamic business rules, is a
highly complex process requiring a breadth of expertise that is often beyond the
capabilities of in-house information technology organizations. In addition, the
cost, time, and effort of building and maintaining Internet applications in this
manner is often beyond the funding capacity of internal Internet application
development budgets. In a recent study, International Data Corporation concluded
that the cost of establishing an interactive commerce Web site is typically four
times greater than expected and that twice as much time is spent on customizing
sites as originally anticipated. While minimally functional Web sites can be
developed at a low cost, industry sources estimate that the 12-month costs for
the creation and maintenance of a more complex Web site can reach several
million dollars.
Most currently available Internet application servers, including commerce
and merchant servers, lack integrated development suites to create and maintain
interactive Web applications. Generally, they require the use of a combination
of general purpose tools, which are typically conducive only to the development
of static brochureware or applications that simply process order and payment
transactions. With these currently available application servers, business
managers do not have the capability to react to market conditions with real-time
control and management of Web sites, but instead are often constrained by slow
"change request" processes that take technical specialists days or even weeks to
implement. Moreover, most existing application servers do not permit business
managers to tailor communications, information, products, and services to the
needs of their individual Web site visitors in real time. As a result, these
existing products fall short of maximizing the potential of online one-to-one
marketing and selling.
INTERNET APPLICATION SYSTEMS FOR ONE-TO-ONE MARKETING AND SELLING
The recent trends toward personalized one-to-one marketing and selling,
together with the increasing adoption of the Internet as a platform for commerce
and communication, have fueled the need for more sophisticated application
software that enables business managers to create Web sites that build and
sustain personalized, long-term relationships with their customers. To realize
the potential of one-to-one marketing and selling, Web sites should support the
following activities:
- Attract and retain Web site visitors by providing dynamic content and
interactive communities of interest
- Develop and maintain visitor profiles, observe and remember interactions,
and engage in ongoing personalized dialogues while empowering individuals
to control the privacy of their personal data
- Provide business managers the ability to define and modify Web site
business rules and content in real time
- Dynamically target personalized products, editorials, advertising, and
marketing incentives to correspond to profile data in order to motivate
visitors to interact, follow links, and conduct transactions
- Fulfill financial and information transactions with secure electronic
commerce processes
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THE BROADVISION SOLUTION
BroadVision provides an integrated software application system, BroadVision
One-To-One, that enables businesses to create applications for interactive
marketing and selling services on the Web. These applications are designed to
allow non-technical business managers to tailor Web site content to the needs
and interests of individual Web site visitors, personalizing each visit on a
real-time basis. The BroadVision One-To-One application system and related
vertical application solutions and services are targeted at businesses
developing Web sites for marketing and selling to consumers and business
customers, and as internal resources for employees. The Company's customers use
BroadVision One-To-One to develop Web sites that engage visitors and encourage
return visits through personalized interactions, capture marketing information
from volunteered data and observed behavior, and generate revenues from
electronic commerce activities and point-cast advertising. BroadVision
One-To-One provides these software capabilities in an architecture that supports
the full one-to-one marketing and selling life cycle. The Company believes that
these capabilities are needed by business managers and Web site application
developers to take full advantage of the potential of the Internet as a
marketplace for conducting electronic commerce and for building long-term
relationships with customers.
BroadVision One-To-One supports the following steps in the one-to-one
marketing and selling life cycle:
COMMUNITY
BroadVision One-To-One facilitates the development of bulletin boards, chat
groups, and online forums to help businesses attract and retain Web site
visitors by connecting visitors with common profile characteristics and
interests into online communities. Development of these online communities is
intended to ultimately benefit the sponsoring business through word-of-mouth
referrals, user group dynamics, and increased feedback on products and services.
PROFILING
At the core of BroadVision One-To-One is the capability to develop and
maintain dynamic profiles of Web site visitors. Profile data is collected
initially when visitors volunteer information about their preferences and
interests, as well as basic background data, often in exchange for incentives,
such as discounts and coupons. This data is then augmented over time with usage
history and observation data and additional information volunteered by the Web
site visitors.
The Company believes that ensuring privacy of an individual's personal as
well as financial data will prove to be a fundamental requirement for
establishing the Web as a strategic business venue. As a result, BroadVision
One-To-One offers its customers a security model that, if employed, would enable
each visitor to control access to personal data, on an element-by-element basis.
TARGETING
BroadVision One-To-One enables business managers to deliver targeted content
to Web site visitors based on individual profiles. This feature allows Web sites
to generate, in real time, personalized product information, editorials,
pricing, advertising, coupons, incentives, and promotions for Web site visitors
who fit a certain profile or meet a set of criteria or conditions determined by
business managers.
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TRANSACTIONS
BroadVision One-To-One manages transaction processing essential for both
business-to-consumer and business-to-business electronic commerce, including
integration with existing business systems and third-party software applications
for secure online ordering and payment, order fulfillment and billing, customer
service, electronic data interchange ("EDI"), and reporting.
Picture captioned "Features of the BroadVision One-To-One Solution" with four
columns entitled "Community", "Profiling", "Targeting" and "Transactions". Under
each column heading is a list of features specific to that solution.
STRATEGY
The Company's objective is to establish one-to-one marketing and selling as
a standard feature of Web sites worldwide. To achieve this objective, the
Company has adopted the following strategies:
FOCUS ON INTERNET APPLICATIONS FOR ONE-TO-ONE MARKETING AND SELLING
Industry analysts have recently begun to divide the Internet software
marketplace into five segments: browsers, server software, tools, applets, and
packaged applications. The Company believes that the next major phase of
Internet growth will be driven by complete packaged application solutions that
leverage other software technologies and allow businesses to capitalize more
fully on the Internet as a business venue. Accordingly, the Company is focusing
exclusively on developing packaged application solutions for businesses
developing Web sites for one-to-one marketing and selling.
LEVERAGE INITIAL CUSTOMER RELATIONSHIPS WITH AGGREGATORS
To pursue market adoption of the BroadVision One-To-One application system
as an industry standard solution for one-to-one marketing and selling on the
Internet, the Company has initially focused its sales efforts on aggregators of
online services that can introduce the Company's products to their individual
content providers, who may develop their own Web site applications in the
future. BroadVision intends to pursue these companies as prospective customers
and believes the companies' experiences using BroadVision One-To-One through
aggregators will provide BroadVision an advantage in marketing its products
directly to them.
ACHIEVE TECHNOLOGY LEADERSHIP
The Company intends to continue to enhance its technology by investing
heavily in research and development activities, incorporating industry-leading
components into its products and employing its own technology and human
resources as a source of ongoing technological advantage. Through its BVAC
meetings, the Company seeks to attract industry leaders willing to share ideas
with, and provide insights into market requirements to, the Company's
executives, engineers, and marketing managers. Having employed the Common Object
Request Broker Architecture ("CORBA") standard as a cornerstone of its product
architecture, the Company intends to integrate other CORBA-compatible
technologies, such as the Java development language from Sun, into its products.
Utilizing its own products, the Company intends to design and build advanced,
custom software tools and solutions for its engineering and consulting
operations.
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EXPAND AND LEVERAGE ALLIANCES WITH KEY BUSINESS PARTNERS
To accelerate the acceptance of the BroadVision One-To-One application
system and to promote the adoption of the Web as a commercial marketplace, the
Company plans to develop cooperative alliances with leading Internet technology
vendors, systems integrators, and Web site developers. The Company believes that
these alliances should also provide additional marketing and sales channels for
the Company's products, enable the Company to more rapidly incorporate
additional functions and platforms into the BroadVision One-To-One application
system, and facilitate the successful deployment of customer applications. To
develop domain expertise, the Company intends to form additional strategic
alliances with companies in the fields of marketing, advertising, and design,
such as its recent alliance with Marketing 1:1, Inc. ("Marketing 1:1"), a
company owned by marketing consultants, Don Peppers and Martha Rogers.
DEVELOP VERTICAL APPLICATION SOLUTIONS
The Company intends to leverage its BroadVision One-To-One application
system to develop additional Web application products and services focused on
vertical markets. Utilizing its expanding libraries of reusable application
objects and templates and working closely with customers and strategic partners,
the Company believes it can deliver vertical application solutions for
one-to-one marketing and selling faster, of a higher quality, and at a lower
cost than its competitors. The Company intends to deliver vertical Web solutions
for business-to-consumer and business-to-business services in the areas of
telecommunications and online services, retail, catalogue, and consumer
products, travel and leisure, media and publishing, financial services,
wholesale and manufacturing, health care services, and pharmaceuticals.
BUILD INTERNATIONAL PRESENCE
To capitalize on the emergence of the Internet as a global network, the
Company has established sales operations in Paris, London, Zurich, Tokyo, and
Singapore and is preparing to open additional sales operations in Munich and
Hong Kong before the end of 1996. In addition, the Company intends to distribute
its products internationally through licensed distributors, value-added
resellers, and systems integrators and to certify providers of professional
services for BroadVision consulting, training, and support. The Company's
product architecture is designed to support international languages, and the
Company is currently shipping a localized version of its BroadVision One-To-One
application system for the Japanese market.
The Company's strategy involves substantial risk. There can be no assurance
that the Company will be successful in implementing its strategy or that its
strategy, even if implemented, will lead to successful achievement of the
Company's objectives. If the Company is unable to implement its strategy
effectively, the Company's business, financial condition, and operating results
would be materially adversely affected.
PRODUCTS AND SERVICES
The BroadVision One-To-One application system provides businesses with an
end-to-end solution for developing, implementing, operating, and maintaining
one-to-one marketing and selling applications tailored to the needs and
interests of individual Web site visitors. The Company's customers use
BroadVision One-To-One to develop Web sites that engage visitors and encourage
return visits through personalized interactions, capture marketing information
from volunteered data and observed behavior, and generate revenues from
electronic commerce activities and point-cast advertising. A principal feature
of BroadVision One-To-One is a set of building blocks, called "dynamic objects"
and "application templates," that implement capabilities required to conduct
one-to-one marketing and selling on Web sites. These capabilities enable
business managers to deliver content and information, promote products and
brands, fulfill financial and information transactions, and nurture long-term
relationships with their customers on a real-time basis. The key elements of the
BroadVision One-To-One application system are described below:
DEVELOPMENT SYSTEM
The BroadVision One-To-One Development System consists of application
programming interfaces ("APIs") for programming BroadVision One-To-One
applications. Since many Web sites use custom software to provide unique
capabilities to their user communities, the BroadVision One-To-One Development
System also enables developers to create integration objects, called "object
adapters," that allow external software and data to be easily integrated into
the flow of an application. Also, scheduled for release in late 1996 is a
graphical point-
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and-click application builder, consisting of an HTML editor interface, dynamic
objects and application templates, and tools for object definition and preview.
When commercially available, this application builder will allow developers to
place dynamic objects into the flow of Web documents in order to generate HTML
and content dynamically on the basis of business rules and real-time dialogues
with Web site visitors. Furthermore, Java applets can serve as BroadVision
One-To-One application objects and can also be used to access BroadVision
One-To-One services directly from the product's application engine. This
capability allows BroadVision One-To-One applications to be developed entirely
in Java.
DEPLOYMENT SYSTEM
The BroadVision One-To-One Deployment System enables one-to-one applications
to be installed on application servers for large-scale production Web site
operations. The Deployment System consists of an application engine, a session
manager, object libraries, application templates, and object adapters. This
system actively manages Web site content and interactions by assembling and
organizing profile information from Web site visitors, interpreting visitor
interactions and profile information according to application business rules and
logic, dynamically targeting content, and processing online RDBMS transactions.
A key characteristic of the Deployment System is its ability to interact with
the BroadVision DCC application which, under the control of non-technical
business managers, defines business rules that the Deployment System interprets
to target information and content individually tailored to each Web site
visitor. The BroadVision One-To-One Deployment System utilizes the CORBA
standard to enhance performance and scalability for Web sites with high volume
traffic. It also contains embedded versions of Sybase or Oracle RDBMSs for high
performance transaction throughput.
DYNAMIC COMMAND CENTER
The DCC is a Windows 95 client application for editorial, advertising,
marketing, and merchandising business managers. The DCC offers managers the
ability to configure the operations of a Web site in real time using familiar,
non-technical concepts. For example, through the DCC, a business manager can
initiate a sale or promotion, send coupons to specifically targeted consumers,
or change prices dynamically. The DCC also provides a means for managers to
monitor the activity on Web sites, enabling them to evaluate the effectiveness
of content and services being offered on the site.
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The table below summarizes certain features of and price information for
each of the Company's products:
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION OPERATING PLATFORMS/ U.S. LIST PRICE FOR
RDBMSS PERPETUAL LICENSE
Development System Full object-oriented -Sun Solaris 2.5 -$50,000 per
environment for operating system developer
developing, testing, -Windows NT seat for aggregators
and tuning operating system -$25,000 per
applications (scheduled for developer
introduction in seat for single
late 1996) corporate Web sites
-Oracle RDBMS
-Sybase RDBMS
Deployment System Full environment for -Sun Solaris 2.5 -License fee based on
deploying production operating system number of profiled
applications -Windows NT users tracked by
operating system application and
(scheduled for number of services
introduction in accessing profiled
late 1996) user
-Oracle RDBMS base.
-Sybase RDBMS -Ranges from $30,000
for minimum
configuration to
more than $1 million
for large, complex
configurations
Dynamic Command PC-based application -Windows 95 operating -$5,000 per seat
Center enabling business system
managers to monitor
state of Web
applications,
interactively change
business rules in
real time, and
generate reports
</TABLE>
CONSULTING AND MAINTENANCE SERVICES
The Company also offers consulting services through its ISG consultants on a
contract basis to customers seeking assistance in implementing custom
applications of BroadVision One-To-One. Services provided by ISG include:
- Analysis and design of architecture and applications
- Application development, including custom objects and templates
- Project management
- System tuning, operation, and maintenance
- Education and training regarding the Company's products
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In addition, the Company offers software maintenance on all of the products
identified above for an annual fee of 18% of the perpetual license fee, payable
annually in advance. For this fee, customers receive technical support, update
rights to new releases, and patch releases as necessary. With each sale, the
Company typically provides a 90-day warranty that the product complies with the
Company's published documentation.
The statements made in this Prospectus regarding scheduled release dates for
the Company's products under development and proposed enhancements are
forward-looking statements, and the actual release dates for such products or
enhancements could differ materially from those projected as a result of a
variety of factors, including the ability of the Company's engineers to solve
technical problems and to test products, business priorities in light of the
availability of development and other resources, and other factors, including
factors that may be outside the control of the Company, as well as the factors
discussed in "Risk Factors." There can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction, and marketing of new products, or that new products and product
enhancements will satisfy the requirements of the marketplace or achieve market
acceptance.
THE BROADVISION ONE-TO-ONE USER EXPERIENCE
BroadVision One-To-One offers benefits to three distinct user groups
involved in the process of marketing and selling on the Internet: Internet
APPLICATION DEVELOPERS that build and maintain Web sites, BUSINESS MANAGERS that
operate and manage Web sites, and WEB SITE VISITORS that utilize and interact
with Web sites for information, entertainment, shopping, education, and other
online activities.
ONE-TO-ONE APPLICATION DEVELOPERS
BroadVision One-To-One offers Internet application developers an
object-oriented development environment consisting of robust, high-performance
APIs and tools. Application developers may include employees of the Company's
customers, third-party systems integrators and resellers, or the Company's own
ISG consultants made available on a contract basis. These developers typically
require powerful tools that enable innovation, ensure that applications can be
written easily and quickly, and create high-performance applications in terms of
throughput, scalability, and response time with a minimum of system defects.
Developing a BroadVision One-To-One application involves the following steps:
- Defining and structuring Web site visitor profiles
- Designing Web site pages and interactions
- Creating re-usable logic components, such as objects, templates, and Java
applets
- Determining and modeling the flow of data and content among Web site
visitors, information servers, and existing applications
- Programming application and business logic based on the desired
interaction between Web site providers and visitors
- Testing and debugging applications
- Tuning application performance
Developers are provided a structured, object-oriented development
environment for programming server logic, and CORBA-based APIs that provide a
standardized methodology for the integration of external applications and data
sources essential to one-to-one Internet marketing and selling applications.
BUSINESS MANAGERS
Business managers are responsible for the day-to-day operation of Web
applications. They need the ability to modify application content and business
rules with a minimum of dependence on technical personnel, as well as the
ability to observe activity on Web sites to obtain real-time information on the
nature of interactions between the Web sites and Web site visitors.
Business managers interact directly and in real time with BroadVision
One-To-One by using the product's DCC application. This application offers
business managers a point-and-click interface for defining and modifying
business rules that determine how content will be presented to Web site visitors
and how interactions between the
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visitor and the Web site provider will be managed over time. For example, an
advertising manager may target advertising to specific Web site pages based on
specific criteria, such as visitor demographics or advertiser rate cards. Based
on observation of Web site activity, a marketing manager may specify that
certain product content be targeted to visitors that meet certain profile
criteria, such as site visit frequency or registered preferences. A
merchandising manager may choose to conduct a special sale or cross-selling
promotion for visitors whose profiles meet criteria that the manager determines
to be appropriate for a particular promotional program.
WEB SITE VISITORS
The Web enables anyone with Internet access to obtain information and
conduct transactions online, offering fundamentally new opportunities to
interact with businesses and engage in commercial activities. When fully
implemented, marketing and selling applications based on BroadVision One-To-One
will enable consumers, business customers, and employees to provide profile
information about preferences, interests, and habits, and to experience
distinctive Web site visits that are created specifically to appeal to visitors
based on profiles. To date, no application has been commercially deployed using
BroadVision One-To-One.
A first-time visitor entering a Web site based on BroadVision One-To-One may
be offered an incentive to provide profile information to establish the context
for personalized interaction between the Web site and the visitor. In some
cases, profiles may be provided in advance through external processes such as
product registration forms or direct mail surveys. Information from past
interactions and transactions can be added to enhance profiles, and visitors can
take advantage of a range of privacy features that may be provided by the
business to restrict third-party access to profile information.
As visitors browse and interact with a Web site, their profiles are
interpreted by application business rules, which have been previously defined by
business managers. Targeted Web content, such as product information, editorial
material, advertising, promotions, and entertainment, is then dynamically
generated and delivered to the visitor on personalized Web pages. Visitors may
pursue a wide range of activities on a Web site created with BroadVision
One-To-One, such as reading personalized online newspapers, magazines, or
product brochures, shopping with a virtual sales assistant, placing online
orders, completing customer satisfaction surveys or feedback forms on purchased
products, reviewing stock quotes, participating in community chat groups and
other forums, watching Java animations, listening to personalized Web audio, and
watching personalized Web video. All of these activities can be tailored
specifically to visitors' profiles by the business manager responsible for the
site.
Visits may result in financial transactions, information exchanges,
downloads, or electronic correspondence. Regardless of the outcome of a Web site
visit, information volunteered by a visitor during the visit or captured by the
Web site through observations of the visitor's interactions can be incorporated
into the visitor's profile for subsequent visits. Each Web site visit is likely
to be different from the previous visit, either as a result of changing content,
changing business rules or changing profile characteristics. Because of the
variety of possible profiles, business rules, and content, it is unlikely that
any two visitors would have exactly the same experience on a Web site created
with BroadVision One-To-One.
TECHNOLOGY
The Company believes its advanced technology enables the delivery of robust,
scalable, and innovative Internet marketing and selling solutions into the
market faster and at a lower cost than alternatives. The Company's technology
consists of the following key elements:
ARCHITECTURAL DESIGN
The Company believes that the technical demands of interactive one-to-one
marketing and selling on the Internet require an architectural design that
stresses standards, openness, interoperability, and flexibility. The Company has
designed its current application system as an architectural solution for
building dynamic, scalable, and extensible Internet applications. By emphasizing
reusable methods, separation of application logic, business rules, and data, and
adherence to open standards, the BroadVision One-To-One application system
provides an efficient architecture for customers and partners to build, modify,
and control applications, as well as to integrate them with external business
systems. The Company believes this architecture also provides a robust
foundation on which the Company can rapidly develop new products.
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CORBA
The Company has invested substantially in developing its architecture to
comply with CORBA, which the Company believes will become a standard widely
adopted by Internet technology providers. CORBA, defined by the Object
Management Group, a consortium of approximately 600 companies, documents an
approach to developing distributed object-oriented systems. The Company
implements CORBA in its application system architecture by embedding into the
Company's own code the Orbix software from IONA, a leading supplier of software
for CORBA compliance.
Applications that are CORBA-compliant can run on either single computers
with one or more processors or across large networks, allow replication and
relocation of object servers to improve system performance, are platform
independent, and have strongly defined APIs through the use of the Interface
Definition Language ("IDL") specified by CORBA.
Through CORBA compliance, the Company's products are fully compatible with
other CORBA-based technologies, such as Java from Sun, an increasingly widely
used language for developing Internet applications and interactive Web content,
and the recently announced Web server product line from Oracle.
THREE-TIER ARCHITECTURE
The BroadVision One-To-One application system utilizes a three-tier
architecture that logically separates application presentation, business rules,
and data. Between each of these three tiers are session manager and project
adapter interface technologies, described below, that establish seamless
interoperability between application components. As illustrated in the figure
below, this three-tier architecture partitions applications across:
- A FRONT-END tier that manages the application presentation and interface
to Web site visitors
- An APPLICATION ENGINE tier that manages the one-to-one life cycle
activities -- community, profiling, targeting, and transactions -- and the
business rules that define the interactive characteristics and behavior of
one-to-one marketing and selling applications
- A BACK-END tier that integrates underlying database management systems for
storing BroadVision One-To-One system data with external business systems
that perform specialized marketing and selling functions, such as online
credit card authorization and payment handling, sales tax and shipping
computation, online and offline order fulfillment, inventory management,
visitor demographic analysis, and data mining
Graphic depiction of rectangular shapes representing the three-tier
architecture of BroadVision's Dynamic Command Center captioned "Dynamic
Command Center" with three columns entitled "Application Presentation,"
"Busines Rules," and "Data" and connected by two-way arrows. Beneath each
title is a list of the features of that application.
The Company believes this three-tier architecture offers significant
advantages over alternative approaches, including:
- Bandwidth, database, and platform independence
- Modularity, to enable changes to be made to one area of an application
with minimal impact on other areas
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- The ability for business managers to define and control business rules in
real time without requiring programming changes to application logic
- The ability to support specialized "object adapters" that reduce time and
cost to integrate BroadVision One-To-One applications with existing
business systems, the ability to perform such integration with a minimum
of programming, and the ability to localize applications to different
language and currency requirements
SESSION MANAGER
The Company has developed proprietary "session manager" technology designed
to manage the high volume of dynamic interactions that occur in online sessions
between many concurrent Web site visitors and a marketing and selling
application. The session manager, illustrated in the figure below, enables three
key activities:
- Maintaining context, or "state," between visitors and sites so that each
current and future interaction can trigger a response appropriate to the
objectives of both visitor and site provider
- Interpreting application objects and templates at runtime, and retrieving
profile data and business rules to dynamically generate HTML that creates
content, Web pages, and interactions tailored to the needs and interests
of individual Web site visitors
- Enabling application scalability by allowing Web site providers to add
additional software processes or hardware processors to their Web systems
to support more concurrent Web site visitors without incurring performance
degradation or additional overhead in application maintenance
DYNAMIC OBJECTS AND APPLICATION TEMPLATES
The Company believes that the costs and time associated with Internet
application development and maintenance can be substantially reduced with its
technology for object-oriented application development. This technology consists
of two primary components, dynamic objects and application templates, shown in
the figure below. Utilized in combination with the Company's structured
development methodology, these technologies are designed to help customers and
partners create libraries of reusable program components that increase
application quality and reduce cost and time-to-market of new and maintained
applications. In addition, the dynamic object technology enables business
managers to define and implement business rules through the BroadVision
One-To-One DCC on a real-time basis. The Company's ISG consultants currently use
these technologies to develop application solutions for customers, and the
Company's Education Services Group offers training classes to customers and
partners on the use of dynamic objects and application templates.
Graphic depiction of the BroadVision One-to-One Application System, entitled the
same. To the left is a person seated at a computer, with the caption "Business
Manager," who is connected to a diagram of rectangular shapes representing the
One-to-One Application System, which includes the Dynamic Command Center, the
Application Templates, and the Session Manager. Underneath are rectangular
shapes representing an application engine and CORBA. Connected to the right of
the diagram is a person seated at a computer, with the caption "Visitor."
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TAXONOMY MODELING AND MATCHING
For its taxonomy modeling and matching product, currently in beta testing
for availability in late 1996, the Company is developing proprietary software
algorithms and methods that enable Web site providers to dynamically match the
profile characteristics of site visitors with Web content. These technologies
are being developed into tools designed to enable companies to define their own
taxonomy and rule bases, and classify, edit, and index Web content that can then
be dynamically matched to the demographic and psychographic profiles of Web site
visitors and their communities of interest. See "-- Product Development."
ADHERENCE TO INDUSTRY STANDARDS
In addition to CORBA, the Company uses other widely accepted standards in
developing its products, including SQL (Structured Query Language) for accessing
RDBMSs, CGI (Common Gateway Interface), and HTTP (Hypertext Transfer Protocol)
for Internet access, NSAPI (Netscape Application Programming Interface) for
access to Netscape's Internet servers, and the RC2 and MD5 encryption algorithms
supplied by RSA. BroadVision One-To-One can be operated in conjunction with
RDBMSs provided by both Oracle and Sybase. Most of the Company's programs are
written in C++, a widely accepted standard programming language for developing
object-oriented applications. Adherence to industry standards provides
compatibility with existing applications, enables ease of modification, and
reduces the need for software to be rewritten, thus protecting the customer's
investment.
CUSTOMERS AND MARKETS
The Company has licensed its BroadVision One-To-One software to 12 customers
and provided related professional services to an additional seven customers
worldwide. Types of applications being developed by licensees using BroadVision
One-To-One include cybermalls, online services, and corporate Web sites. To
date, no application has been commercially deployed using BroadVision
One-To-One. The Company's target customers include organizations that are at the
forefront of Internet marketing and selling. Customers that have acquired
licenses and professional services, to date, are Dimension AB, Hongkong Telecom,
Internet Broadcasting System, Itochu Internet Corporation, Matsushita Electric
Industrial Co., Ltd., NetRadio Network, NTT Data Communications Systems
Corporation ("NTT Data"), Olivetti Telemedia Videostrada, Prodigy Services Co.,
Sema Group, Ltd., and Virgin.net Limited. The Company considers eight of these
12 customers to be aggregators of online services. Companies to which the
Company has, to date, provided only professional services are Advanta
Corporation, Europe Online, Fujitsu, Ltd., Liberty Financial Companies, Inc.,
Retesa S.A., Siemens-Nixdorf, and Telefonica I&D.
In addition, the Company believes that the three-tier architecture of
BroadVision One-To-One and its compliance with the CORBA standard enable it to
support online marketing and selling applications on interactive venues other
than the Internet, such as broadband channels, direct broadcast satellite, and
private networks. For example, Thomson-Sun Interactive has licensed BroadVision
One-To-One for development of a prototype application on OpenTV. To date, this
application has not been commercially deployed, and no assurances can be given
that such venues will prove to be viable markets for the Company's products.
Initial customers for the BroadVision One-To-One application system have
been content aggregators, which provide online marketing and selling
capabilities for multiple content providers. These customers have acquired
between one and five Development System licenses, up to ten DCC licenses, and
Deployment System licenses for up to one million Web site visitors. If and when
the systems are deployed and the customers develop applications that attract
additional content providers and Web site visitors, additional licenses may be
required. The Company anticipates that an increasing proportion of its future
revenues may be derived from sales to businesses that participate in aggregated
online services and then intend to develop individual branded Web sites.
Per-customer revenues from such customers would typically be less than revenues
from aggregators, largely because of the Company's price structure and because
the Company expects a greater proportion of such sales to be made through
value-added resellers and systems integrators.
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The Company has targeted a number of markets that it believes to be
especially conducive to interactive marketing and selling. These markets,
identified in the table below, have historically been characterized by early
adoption of online technology or could otherwise benefit from providing
significant interactive service to their end-user customers.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
TARGET INDUSTRY SAMPLE APPLICATIONS BENEFITS OF BROADVISION ONE-TO-ONE
<S> <C> <C>
Telecommunications - Cybermalls - Selective sharing of Web visitor profiles between
and online - Online services aggregators and content providers
services
- Highly targeted, highly customized advertising and
personalized feedback for advertisers
- Online, real-time control of business rules, such as
pricing and promotions, by both cybermall operators and
individual content providers
Retail, catalogue, - Online shopping - Creation of branded communities based on profiles of
and consumer - Interactive Web site visitors
products catalogues - Online, real-time control of business rules, such as
pricing and promotions, by content providers
- Reduced transaction costs of direct purchases
Travel and leisure - Reservations - Provide travel planning advice and transaction services
- Travel planning without agents or other intermediaries
- Opportunity to cross-sell or up-sell services in
addition to basic travel reservations based on user
profiles
Media and - Purchasing digital - Ability to price digital products and services in real
publishing media time
- Match employment opportunities with job seekers
- Employment search
Financial services - Obtaining - Investment content targeted based on profiles of Web
information on and site visitors
selecting: - Nationwide service can be locally targeted
- Loans - Low-cost distribution channel
- Mutual funds
- Insurance
Wholesaling and - Business-to-business - Ability to collect large amounts of information, then
manufacturing purchasing excerpt that information based on purchaser's profile
- Maintain and make available up-to-date information
related to complex purchasing decisions
Health care - Health care provider - Practical health information and advice tailored to
services networks individual consumers
- Identify and schedule appropriate local health care
provider
Pharmaceuticals - Advertising - Target specific pharmaceutical products at physicians
with specific clinical interests
</TABLE>
To date, the Company has not licensed its products or provided related
consulting services to customers in all of these markets, and there can be no
assurance that the Company's products can be adapted to suit the needs of any
customers in these markets or that such products would achieve market
acceptance.
The market for the Company's products and services is at a very early stage
of development and is rapidly evolving. As is typical for new and rapidly
evolving industries, demand and market acceptance for recently introduced
products and services are subject to a high level of uncertainty, especially
where, as is true of the Company, acquisition of the product requires a large
capital commitment or other significant commitment of resources. With respect to
the Company, this uncertainty is compounded by the risks that consumers and
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enterprises will not adopt online commerce and communication and that an
appropriate infrastructure necessary to support increased commerce and
communication on the Internet will fail to develop, in each case, to a
sufficient extent and within an adequate time frame to permit the Company to
succeed.
Adoption of online commerce and communication, particularly by those
individuals and enterprises that have historically relied upon traditional means
of commerce and communication, will require a broad acceptance of new and
substantially different methods of conducting business and exchanging
information. Moreover, the Company's products and services involve a new
approach to the conduct of online commerce and, as a result, intensive marketing
and sales efforts may be necessary to educate prospective customers regarding
the uses and benefits of the Company's products and services in order to
generate demand for the Company's systems. For example, enterprises that have
already invested substantial resources in other methods of conducting business
may be reluctant or slow to adopt a new approach that may replace, limit, or
compete with their existing systems. Similarly, individuals with established
patterns of purchasing goods and services may be reluctant to alter those
patterns or may otherwise be resistant to providing the personal data which is
necessary to support the Company's consumer profiling capability. Moreover, the
security and privacy concerns of existing and potential users of the Company's
products and services may inhibit the growth of online commerce generally and
the market's acceptance of the Company's products and services in particular.
Accordingly, there can be no assurance that a viable market for the Company's
products will emerge or be sustainable.
SALES AND MARKETING
The Company markets its products primarily through a direct sales
organization with operations in North America, Europe, and the Pacific Rim. At
April 16, 1996, the Company's direct sales force included 15 sales
representatives and managers supported by 23 persons responsible for pre-sales
support, post-sales support, and applications consulting. The Company also
contracts with commissioned agents in the Republic of Korea and Spain and in
selected portions of the Japanese market.
Although the Company generates leads from many sources, the majority of the
Company's early leads have come from businesses seeking partners to develop
interactive marketing and selling applications. Initial sales activities
typically include a demonstration of BroadVision One-To-One's capabilities at
the prospect's site, followed by one or more detailed technical reviews, usually
presented at the Company's headquarters. Because the Company's market is at an
early stage of development, the sales process usually involves a collaboration
with the prospective customer in order to specify the scope of the application.
The Company's ISG consulting staff typically plays a key role in helping
customers to design, and then develop, their applications.
The Company's marketing efforts are targeted at building market awareness
and at highlighting the value of the Company's application system as both a
marketing tool and an engine for processing sales transactions online. At April
16, 1996, 11 employees were engaged in a variety of marketing activities,
including preparing marketing research, product planning, and collateral
marketing materials, managing press coverage and other public relations,
identifying potential customers, attending trade shows, seminars, and
conferences, establishing and maintaining close relationships with recognized
industry analysts, coordinating the activities of the BVAC, and maintaining the
Company's Web site.
The license of the Company's software products is often an enterprise-wide
decision by prospective customers and can be expected to require the Company to
engage in a lengthy sales cycle to provide a significant level of education to
prospective customers regarding the use and benefits of the Company's products.
In addition, the implementation of the Company's products involves a significant
commitment of resources by customers or by the Company's ISG consultants over an
extended period of time. As a result, the Company's sales and customer
implementation cycles are subject to a number of significant delays over which
the Company has little or no control. Delays in license transactions as a result
of the lengthy sales cycle or delays in customer production or deployment of a
system could have a material adverse effect on the Company's business, financial
condition, and operating results, and can be expected to cause the Company's
operating results to vary significantly from quarter to quarter.
To date, the Company has sold its products through its direct sales force.
The Company's ability to achieve significant revenue growth in the future will
depend in large part on its success in recruiting and training
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<PAGE>
sufficient direct sales personnel and establishing and maintaining relationships
with distributors, resellers, systems integrators, and other third parties.
Although the Company is currently investing, and plans to continue to invest,
significant resources to expand its direct sales force and to develop
distribution relationships with third-party distributors and resellers, the
Company may at times experience difficulty in recruiting qualified sales
personnel and in establishing necessary third-party relationships. There can be
no assurance that the Company will be able to successfully expand its direct
sales force or other distribution channels or that any such expansion will
result in an increase in revenues. Any failure by the Company to expand its
direct sales force or other distribution channels would materially adversely
affect the Company's business, financial condition, and operating results.
A component of the Company's strategy is its planned expansion of its
international activities. To date, the Company has limited experience in
developing localized versions of its products and marketing and distributing its
products internationally. There can be no assurance that the Company will be
able to successfully market, sell, and deliver its products in international
markets. In addition, there are certain risks inherent in doing business in
international markets, such as unexpected changes in regulatory requirements,
export controls relating to encryption technology and other export restrictions,
difficulties in staffing and managing foreign operations, political instability,
fluctuations in currency exchange rates, reduced protection for intellectual
property rights in some countries, seasonal reductions in business activity
during the summer months in Europe and certain other parts of the world, and
potentially adverse tax consequences, any of which could adversely impact the
success of the Company's international operations. There can be no assurance
that one or more of such factors will not have a material adverse effect on the
Company's future international operations, if any, and, consequently, on the
Company's business, financial condition, and operating results.
STRATEGIC BUSINESS ALLIANCES
A critical element of the Company's sales strategy is to engage in strategic
business alliances to assist the Company in marketing, selling, and developing
customer applications. This approach is intended to increase the number of
personnel available to perform application design and development services for
the Company's customers; enhance the Company's market credibility, potential for
lead generation, and access to large accounts; and provide additional marketing
expertise in certain vertical industry segments and technical expertise in the
development of reusable objects and templates. Strategic business alliances
include Sema Group (systems integrator and subcontractor to the Company for a
prospective application) and Sun's Interactive Services Group (integration of
BroadVision One-To-One with Java). To encourage the adoption of one-to-one
marketing on the Web, the Company is forming a strategic alliance with Marketing
1:1, whose principals, Don Peppers and Martha Rogers, co-authored the 1993 book
about marketing strategy, THE ONE-TO-ONE FUTURE.
STRATEGIC TECHNOLOGY ALLIANCES
In order to ensure that the Company's products are based on industry
standards and take advantage of current and emerging technologies, the Company
emphasizes strategic technology alliances. The benefits of this approach include
enabling the Company to focus on its core competencies, reducing time to market,
and simplifying the task of designing and developing applications by both the
Company and its customers. Key strategic technology alliances to date have
included alliances with IONA, a provider of a CORBA-compliant development
platform; Oracle and Sybase, providers of standard RDBMSs; Sun, developer of the
Java language; RSA, a provider of encryption technology; and VeriFone, Inc., a
provider of payment systems. The Company's strategy is to establish additional
such alliances as new technologies and standards emerge, although no assurance
can be given that the Company will be successful in establishing such alliances.
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BROADVISION ADVISORY COUNCIL
From inception, the Company has emphasized market research to identify
trends in online marketing and selling. To that end, the Company has established
BVAC, composed of senior executives from the Company's customers and other
companies with a significant interest in Internet marketing and selling. The
Company expects to host BVAC meetings between two and four times annually. BVAC
meets with BroadVision executive, marketing, and engineering management to
present business and technical requirements for Internet marketing and selling
applications and to discuss the strategic, product, and marketing directions of
the Company. BVAC participants are also available for consultation with the
Company executives on a regular basis.
BVAC participants include the following persons: Jay Chai, Chairman and
Chief Executive Officer of Itochu International, Inc.; Norman Dawley, Principal,
Multimedia Resources, Robert Devereux, Chief Executive Officer, Virgin
Communications, Inc.; Michael Harris, Partner, Products Group, Andersen
Consulting; Dan Lynch, Chairman, CyberCash, Inc.; Clement Mok, Chairman and
Creative Director, Studio Archetypes; Oliver Novick, Chief Executive Officer,
Olivetti Telemedia Videostrada; Michael Ribero, Executive Vice President and
General Manager Consumer Division, Sega of America; Don Peppers, Chairman and
Founder, Marketing 1:1; Martha Rogers, President and Founder, Marketing 1:1; Dr.
Eric Schmidt, Vice President and Chief Technology Officer, Sun Microsystems,
Inc.; and Martin Sorrell, Chief Executive Officer, WWP Group, PLC.
Attendees receive no compensation from the Company for their participation.
Attendees participate in BVAC on an individual basis, and the identification of
any person as a BVAC participant should not create an implication that the
company identified as affiliated with such participant endorses BroadVision
products, has licensed or intends to license BroadVision products, or otherwise
conducts or intends to conduct business with the Company.
PRODUCT DEVELOPMENT
The Company believes that its future success will depend in large part on
its ability to enhance BroadVision One-To-One, develop new products, maintain
technological leadership, and satisfy an evolving range of customer requirements
for large-scale interactive online marketing and selling applications. The
Company's product development organization is responsible for product
architecture, core technology, product testing and quality assurance, writing
product user documentation, and expanding the ability of BroadVision One-To-One
to operate with the leading hardware platforms, operating systems, database
management systems, and key electronic commerce transaction processing
standards.
The Company is currently developing the following three products, all of
which are currently scheduled to be commercially available in late 1996:
- BroadVision One-To-One application system, version 2.0. Key features of
version 2.0 are expected to include point-and-click application building
capabilities, improved content targeting, and enhanced system performance.
This product is currently in development.
- A taxonomy modeling and matching product that will enable online services
and Internet publishers to dynamically match Web content with profile
data. This product is currently in beta testing.
- A consumer online service that will deliver proactive, personalized Web
information directly to consumers who register at a specified BroadVision
Web site address. This product is currently in beta testing.
Since inception, the Company has made substantial investments in product
development and related activities. Certain technologies have been acquired and
integrated into BroadVision One-To-One through licensing arrangements. As of
April 16, 1996, there were 32 employees in the Company's product development
organization. The Company's research and development expenses in 1994 and 1995
were $748,000 and $2.2 million, respectively. To date, the Company has not
capitalized any software development costs. The Company expects to continue to
devote substantial resources to its product development activities.
The information services, software, and communications industries are
characterized by rapid technological change, changes in customer requirements,
frequent new product and service introductions and enhancements, and emerging
industry standards. The introduction of products and services embodying new
technologies and the emergence of new industry standards and practices can
render existing products and
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<PAGE>
services obsolete and unmarketable. The Company's future success will depend, in
part, on its ability to develop leading technologies, enhance its existing
products and services, develop new products and services that address the
increasingly sophisticated and varied needs of its prospective customers, and
respond to technological advances and emerging industry standards and practices
on a timely and cost-effective basis. There can be no assurance that the Company
will be successful in effectively using new technologies, adapting its products
to emerging industry standards, developing, introducing, and marketing product
and service enhancements, or new products and services, or that it will not
experience difficulties that could delay or prevent the successful development,
introduction, or marketing of these products and services, or that its new
product and service enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. If the Company is unable, for
technical or other reasons, to develop and introduce new products and services
or enhancements of existing products and services in a timely manner in response
to changing market conditions or customer requirements, or if new products and
services do not achieve market acceptance, the Company's business, financial
condition, and operating results will be materially adversely affected.
The statements made herein regarding scheduled release dates for the
Company's products under development and proposed enhancements are
forward-looking statements, and the actual release dates for such products or
enhancements could differ materially from those projected as a result of a
variety of factors, including the ability of the Company's engineers to solve
technical problems and to test products, business priorities in light of the
availability of development and other resources, and other factors, including
some factors which may be outside the control of the Company, as well as the
factors discussed in "Risk Factors."
COMPETITION
The market for online interactive marketing and selling applications is new,
rapidly evolving, and intensely competitive. The Company expects competition to
persist and intensify in the future. The Company's current and potential
competitors are expected to include other vendors of application software
directed at interactive commerce, Web content developers engaged to develop
custom software or to integrate other application software into custom
solutions, and companies developing their own end-to-end solutions in-house.
The Company has experienced and expects to continue to experience increased
competition. The Company currently encounters direct competition from Connect,
Netscape, and OMI, among others. In addition, Microsoft has also announced its
intention to offer Internet-based electronic commerce software. Many of these
competitors have longer operating histories, and significantly greater
financial, technical, marketing, and other resources than the Company and thus
may be able to respond more quickly to new or changing opportunities,
technologies, and customer requirements. Also, many current and potential
competitors have greater name recognition and more extensive customer bases that
could be leveraged, thereby gaining market share to the Company's detriment.
Such competitors may be able to undertake more extensive promotional activities,
adopt more aggressive pricing policies and offer more attractive terms to
purchasers than the Company. Moreover, certain of the Company's current and
potential competitors, such as Netscape and Microsoft, are likely to bundle
their products in a manner that may discourage users from purchasing products
offered by the Company.
The Company has also experienced competition from third-party developers,
such as Web content developers, as well as from in-house development efforts by
potential customers or partners, both of which represent significant competition
for the Company's products. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to enhance their products. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share.
The principal competitive factors affecting the market for BroadVision
One-To-One are depth and breadth of functionality offered, ease of application
development, time required for application development, reliance on industry
standards, reliability, scalability, product quality, price, and customer
support. The Company believes it presently competes favorably with respect to
each of these factors. However, the Company's market is still evolving, and
there can be no assurance that the Company will be able to compete successfully
with current or future competitors, or that competitive pressures faced by the
Company will not have a material adverse effect on the Company's business,
financial condition, and operating results.
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INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company's success and ability to compete are dependent to a significant
degree on its proprietary technology. The Company relies primarily on copyright,
trade secret, and trademark law to protect its technology. The Company has no
patents. The Company has applied for a United States patent with respect to
certain aspects of the BroadVision One-To-One application system, but there can
be no assurance that a patent will be granted pursuant to the application or
that, if granted, such patent would survive a legal challenge to its validity or
provide significant protection. Likewise, effective trademark protection may not
be available for the Company's marks. For example, the Company has applied to
register "BroadVision One-To-One" as a trademark with respect to the BroadVision
One-To-One application system, but there can be no assurance that the Company
will be able to secure trademark registration or other significant protection
for this product name. It is possible that competitors of the Company or others
will adopt product names similar to "One-To-One," thereby impeding the Company's
ability to build brand identity and possibly leading to customer confusion. The
source code for the Company's proprietary software is protected both as a trade
secret and as a copyrighted work. The Company's policy is to enter into
confidentiality and assignment agreements with its employees, consultants, and
vendors and generally to control access to and distribution of its software,
documentation, and other proprietary information. Notwithstanding these
precautions, it may be possible for a third party to copy or otherwise obtain
and use the Company's software or other proprietary information without
authorization or to develop similar software independently. Policing
unauthorized use of the Company's products is difficult, particularly because
the global nature of the Internet makes it difficult to control the ultimate
destination or security of software or other data transmitted. The laws of other
countries may afford the Company little or no effective protection of its
intellectual property. There can be no assurance that the steps taken by the
Company will prevent misappropriation of its technology or that agreements
entered into for that purpose will be enforceable. In addition, litigation may
be necessary in the future to enforce the Company's intellectual property
rights, to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation, whether successful or unsuccessful,
could result in substantial costs and diversions of resources, either of which
could have a material adverse effect on the Company's business, financial
condition, and operating results.
The Company may, in the future, receive notices of claims of infringement of
other parties' trademark, copyright, and other proprietary rights. Although, to
date, the Company has not received any such notices, there can be no assurance
that claims for infringement or invalidity (or claims for indemnification
resulting from infringement claims) will not be asserted or prosecuted against
the Company. In particular, claims could be asserted against the Company for
violation of trademark, copyright, or other laws as a result of the use by the
Company, its customers, or other third parties of the Company's products to
transmit, disseminate, or display information over or on the Internet. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays, or require the Company to enter into royalty or licensing
agreements. There can be no assurance that such licenses would be available on
reasonable terms, if at all, and the assertion or prosecution of any such claims
could have a material adverse effect on the Company's business, financial
condition, and operating results.
Some of the Company's agreements with its customers contain provisions
requiring release of source code for limited, non-exclusive use by the customer
in the event that there is a bankruptcy proceeding by or against the Company, if
the Company ceases to do business or if the Company fails to meet its
contractual obligations. The provision of source code may increase the
likelihood of misappropriation by third parties.
The Company relies upon certain software that it licenses from third
parties, including RDBMSs from Oracle and Sybase, object request broker software
from IONA, and other software which is integrated with internally developed
software and used in the Company's software to perform key functions. In this
regard, all of the Company's services incorporate data encryption and
authentication technology licensed from RSA. The Company is aware of a dispute
between Cylink and RSA in which Cylink alleges that license agreements between
RSA and its customers, including the Company, relating to certain RSA software
conflict with rights held by Cylink. RSA has advised its customers that the
allegations of Cylink are unfounded. RSA and Cylink have completed an
arbitration proceeding of the dispute. RSA has taken the position that it
prevailed on all material issues, and that its licenses, including the license
to the Company, are valid and unaffected by the
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arbitration decision. Cylink has taken the position that the arbitration
decision may require RSA licensees, including the Company, to obtain an
additional license of certain patents controlled by Cylink. RSA has maintained
that no such additional license is required and has instituted a lawsuit against
Cylink to bar Cylink from claiming otherwise. The Company is unable to ascertain
the validity of Cylink's allegations or whether or not the arbitration decision
may require the Company to obtain any additional license. In the Company's
license agreement with RSA, RSA has agreed to defend, indemnify, and hold the
Company harmless with respect to any claim by a third party that the licensed
software infringes any patent or other proprietary right. Although the Company's
license is fully paid, there can be no assurance that the outcome of the dispute
between RSA and Cylink will not lead to royalty obligations by the Company for
which RSA is unwilling or unable to indemnify the Company, or that the Company
would be able to obtain any additional license on commercially reasonable terms
or at all. There can also be no assurance that the Company's other third-party
technology licenses will continue to be available to the Company on commercially
reasonable terms, if at all. The loss or inability to maintain any of these
technology licenses could result in delays in introduction of the Company's
products and services until equivalent technology, if available, is identified,
licensed, and integrated, which could have a material adverse effect on the
Company's business, financial condition, and operating results.
EMPLOYEES
As of April 16, 1996, the Company had 79 employees and nine full-time or
nearly full-time contractors, including 32 in product development, 49 in sales
and marketing and related customer support services, and seven in
administration. Of these employees, 76 were located in the United States, six in
Europe, and six in the Pacific Rim countries. The Company believes that its
future success is dependent on attracting and retaining highly skilled
engineering, sales and marketing, and senior management personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will continue to be able to attract and retain high-caliber employees. The
Company's employees are not represented by any collective bargaining unit. The
Company has never experienced a work stoppage and considers its relations with
its employees to be good.
FACILITIES
The Company's principal administrative, sales, marketing, and product
development facility occupies approximately 16,000 square feet in Los Altos,
California pursuant to a lease that expires in June 2000. The Company maintains
additional operations in Switzerland, France, the United Kingdom, Japan, and
Singapore. Although the Company believes that its existing principal facility is
adequate for its current requirements, the Company intends to relocate to a
larger facility in the near future. While a new facility has not yet been
identified by the Company, the Company believes that additional space can be
obtained to meet its future requirements.
44
<PAGE>
MANAGEMENT
DIRECTORS, OFFICERS, AND KEY PERSONNEL
The directors, officers, and key personnel of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------
<S> <C> <C>
Pehong Chen................... 38 Chief Executive Officer, Chairman,
President, and Director
Randall C. Bolten............. 43 Chief Financial Officer and Vice
President, Operations
Clark W. Catelain............. 48 Vice President, Engineering
Mark D. Goros................. 45 Vice President, Business Development and
General Manager of American Operations
Rani M. Hublou................ 31 General Manager of Consumer Services
Giuseppe Kobayashi............ 40 Vice President and General Manager of
Japan/Asia-Pacific Operations
Robert A. Runge............... 41 Vice President, Marketing
Francois Stieger.............. 47 Vice President and General Manager of
European Operations
Kenneth L. Guernsey........... 44 Secretary
David L. Anderson(1)(2)....... 52 Director
Yogen K. Dalal(2)............. 46 Director
Gregory Smitherman(1)......... 32 Director
Koh Boon Hwee(2).............. 45 Director
</TABLE>
- ------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
PEHONG CHEN has served as President, Chairman, Chief Executive Officer, and
a director of the Company since its incorporation in May 1993. From 1992 to
1993, Dr. Chen served as the Vice President of Multimedia Technology at Sybase,
a supplier of client-server software products. From 1989 to 1992, Dr. Chen
served as President of Gain Technology, a provider of multimedia applications
development systems ("Gain"), which was acquired by Sybase. He received a B.S.
in Computer Science from National Taiwan University, an M.S. in Computer Science
from Indiana University, and a Ph.D. in Computer Science from the University of
California at Berkeley.
RANDALL C. BOLTEN has served as Chief Financial Officer and Vice President,
Operations, of the Company since September 1995. From 1994 to 1995, Mr. Bolten
served as a financial consultant to various entrepreneurial enterprises. From
1992 to 1994, Mr. Bolten served as the Chief Financial Officer of BioCAD
Corporation, a supplier of drug discovery software products. From 1990 to 1992,
Mr. Bolten served as Chief Financial Officer, Business Development Unit, and
then Vice President, Finance, of Teknekron Corporation, a company engaged in the
management of various high technology companies. He received an A.B. in
Economics from Princeton University and an M.B.A. from Stanford University.
CLARK W. CATELAIN has served as Vice President, Engineering, of the Company
since June 1995. From 1989 to May 1995, Mr. Catelain served as the Senior Vice
President, Engineering of Gupta Corporation, a supplier of client/server
database products. Mr. Catelain received a B.S. in Mathematics and Computer
Science from Purdue University.
MARK D. GOROS has served as Vice President, Business Development, and
General Manager of American Operations of the Company since September 1994. From
April 1992 to September 1994, Mr. Goros served as East Coast Manager of Sybase.
From September 1990 to April 1992, Mr. Goros served as Vice President,
45
<PAGE>
Business Development and Marketing, of Techgnosis Incorporated USA, a provider
of cross-platform data access technology for client/server environments. He
received a B.S. in Computer Science from Bowling Green State University.
RANI M. HUBLOU has served as General Manager, Consumer Services, of the
Company since September 1995. From June 1994 to August 1995, Ms. Hublou served
as Director, Online Product Development and Director, Technical Operations, at
Interactive Video Enterprises, a developer of multimedia products. From 1993 to
1994, Ms. Hublou served as Strategy Consultant at Rebuild LA, a nonprofit
organization focused on economic development in Los Angeles. From 1990 to 1993,
Ms. Hublou was an Associate at McKinsey & Company, a strategy consulting firm.
She received a B.A. and an M.A. in Industrial Engineering from Stanford
University.
GIUSEPPE P. KOBAYASHI has served as Vice President and General Manager of
Japan/Asia-Pacific of the Company since January 1995. From 1994 to the present,
Mr. Kobayashi has also served as consultant to Wind River Systems, Inc., a
supplier of software development systems. During 1993, Mr. Kobayashi was General
Manager, Japan Operations, Gain Group at Sybase. During 1992, Mr. Kobayashi was
General Manager of Operations at Gain. From 1990 to 1992, Mr. Kobayashi served
as Managing Director of Asia Pacific Operations at Teradata Corporation, a
supplier of database software. Mr. Kobayashi holds a B.S. in Computer Science
from the University of San Francisco.
ROBERT A. RUNGE has served as Vice President, Marketing, of the Company
since September 1995. From September 1992 to September 1995, Mr. Runge was
employed at Sybase as Director of Product Marketing. From November 1990 to
September 1992, Mr. Runge served as Director of Product Marketing at Gain. From
1989 to 1990, Mr. Runge served as Director of Education Services at Oracle. He
received a B.A. in Germanic Languages and Literature, a B.F.A. in Graphic Design
and an M.B.A. from the University of Illinois.
FRANCOIS STIEGER has served as Vice President and General Manager of
European Operations of the Company since January 1996. From July 1994 to
December 1995, Mr. Stieger was employed as Senior Vice President, Europe and
Middle East, for OpenVision Technologies, a supplier of distributed systems
management products and services. From 1993 to 1994, Mr. Stieger served as Vice
President, Europe of the Gain Division of Sybase. From 1987 to 1992, Mr. Stieger
served as Vice President, Europe, Central and Southern Region of Oracle, a
supplier of relational database software. Mr. Stieger holds a Diplome
Universitaire De Technologie in Mathematics and Mechanics from the University of
Strasbourg.
KENNETH L. GUERNSEY has served as Secretary of the Company since May 1995.
From May 1988 to the present, Mr. Guernsey has been a partner in the law firm of
Cooley Godward Castro Huddleson & Tatum, where he is currently the Managing
Partner. Mr. Guernsey received a B.S. in Mathematics, an M.B.A., and a J.D. from
the University of California at Los Angeles.
DAVID L. ANDERSON has served as a director of the Company since November
1993. Since 1974, Mr. Anderson has been a general partner of Sutter Hill
Ventures, a California Limited Partnership, a venture capital firm. Mr. Anderson
currently serves on the Board of Directors of Cytel Corporation, Dionex
Corporation, Molecular Devices Corporation, and Neurex Corporation. He holds a
B.S. in Electrical Engineering from the Massachusetts Institute of Technology
and an M.B.A. from Harvard University.
YOGEN K. DALAL has served as a director of the Company since November 1993.
He joined Mayfield Fund ("Mayfield"), a venture capital firm, in September 1991
and has been a general partner of several venture capital funds affiliated with
Mayfield since November 1992. Dr. Dalal currently serves on the Board of
Directors of The Vantive Corporation. He holds a B.S. in Electrical Engineering
from the India Institute of Technology, Bombay, and an M.S. and a Ph.D. in
Electrical Engineering and Computer Science from Stanford University.
GREGORY SMITHERMAN has served as a director of the Company since August
1995. Mr. Smitherman has been Director of Venture Capital at Ameritech
Development Corp., a venture capital subsidiary of Ameritech Corp., since 1990.
Mr. Smitherman holds a B.S. in Areospace Engineering from the University of
Michigan and an M.B.A. from the University of Chicago.
46
<PAGE>
KOH BOON HWEE has served as a director of the Company since February 1996.
Since 1991, Mr. Koh has been Executive Chairman of the Wuthelam Group of
Companies, a diversified Singapore company with subsidiaries engaged in, among
other things, real estate development, hotel management, and high technology.
Since 1992, he has also served as Chairman of the Board of Singapore
Telecommunications, Ltd. Mr. Koh holds a B.S. in Mechanical Engineering from the
University of London and an M.B.A. from Harvard University.
All directors currently hold office until the next annual meeting of
stockholders and until their successors have been elected and duly qualified.
Mr. Smitherman is serving as a director pursuant to an agreement with the
Company entered into in connection with the Company's Series C Preferred Stock
financing. Such agreement will expire upon the completion of this offering. Each
officer serves at the discretion of the Board of Directors. There are no family
relationships among any of the directors or officers of the Company.
BOARD COMMITTEES
The Audit Committee of the Board of Directors was formed in April 1996 to
review the internal accounting procedures of the Company and consult with and
review the services provided by the Company's independent public accountants.
The Audit Committee is composed of David L. Anderson and Gregory Smitherman. The
Compensation Committee of the Board of Directors was formed in April 1996 to
review and recommend to the Board the compensation and benefits of all officers
of the Company and review general policy relating to compensation and benefits
of employees of the Company. The Compensation Committee also administers the
issuance of stock options and other awards under the Company's Equity Incentive
Plan. The Compensation Committee is composed of David L. Anderson, Yogen K.
Dalal and Koh Boon Hwee.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from the Company
for their services as members of the Board of Directors, although they are
reimbursed for certain expenses in connection with attendance at Board and
Committee meetings.
In February 1996, Dr. Chen was granted an option to purchase up to 500,000
shares of Series D Preferred Stock of the Company at an exercise price of $4.00
per share. Upon the completion of this offering, this option will convert into
an option to purchase Common Stock. The shares subject to Dr. Chen's option vest
ratably on a monthly basis over a 60-month period commencing April 1, 1995. In
February 1996, Mr. Koh was granted an option to purchase 50,000 shares of the
Company's Common Stock at an exercise price of $0.80 per share. The shares
subject to Mr. Koh's option vest over a 60-month period, commencing on February
1, 1996, with 20% of such shares vesting after one year, and 1/60 of the shares
vesting each month thereafter for the next 48 months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Company did not have a Compensation Committee of the Board
of Directors, and the entire Board participated in all compensation decisions,
except that Dr. Chen, a director and the President and Chief Executive Officer
of the Company, did not participate in decisions relating to his own
compensation. In April 1996, the Board of Directors appointed the Compensation
Committee. No member of the Compensation Committee was, at any time during the
fiscal year ended December 31, 1995, or at any other time, an officer or
employee of the Company. Each of the Company's directors, or an affiliated
entity, has purchased securities of the Company. See "Certain Transactions" and
"Principal Stockholders."
47
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to or earned by the
Company's Chief Executive Officer and the other executive officers, including
one former executive officer, whose combined salary and bonus for 1995 were in
excess of $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
ANNUAL COMPENSATION (2) -------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($)(3) OPTIONS (#)
- ------------------------------------------------------- ---------- ----------- ------------------ -------------
<S> <C> <C> <C> <C>
Pehong Chen (4) ....................................... $ 106,664 -- -- --
President and Chief Executive Officer
Mark D. Goros (5) ..................................... 139,156 $ 9,400 $ 19,000 100,000
Vice President, Business Development
and General Manager of American Operations
Carl N. Dellar (6) .................................... 106,375 -- -- --
Former Vice President, Engineering
</TABLE>
- ------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance, or other benefits received by the Named
Executive Officers which are available generally to all salaried employees
of the Company, and certain perquisites and other personal benefits received
by the Named Executive Officers which do not exceed the lesser of $50,000 or
10% of any such officer's salary and bonus disclosed in this table.
(2) Includes amounts earned but deferred at the election of the Named Executive
Officer under the Company's 401(k) plan.
(3) Consists of relocation payments.
(4) Amount shown represents salary earned, but deferred at the election of Dr.
Chen, from May 1995 through December 1995. Prior to May 1995, Dr. Chen was
not paid a salary for his services to the Company.
(5) Commencing in fiscal 1996, Mr. Goros was no longer deemed an executive
officer of the Company.
(6) Mr. Dellar, who is no longer with the Company, served as Vice President of
Engineering through March 1995. Amount shown represents payment for services
rendered as Vice President of Engineering and as a consultant during 1995,
as well as other amounts paid in connection with his termination of
employment with the Company.
STOCK OPTION INFORMATION
The following table shows, for 1995, certain information regarding options
granted to, exercised by and held at year end by the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS
------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE OR APPRECIATION FOR
UNDERLYING GRANTED TO BASE PRICE OPTION TERMS ($)(4)
OPTIONS EMPLOYEES IN PER SHARE EXPIRATION --------------------
NAME GRANTED (#)(1) FISCAL YEAR (%)(2) ($/SH)(3) DATE 5% ($) 10% ($)
- ------------------------------------ ------------- ------------------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mark D. Goros....................... 100,000 5.2% $ 0.06 3/23/05 $ 3,774 $ 9,562
</TABLE>
- ------------
(1) The option, which was granted under the Company's Stock Option Plan (which
was later amended and restated as the Equity Incentive Plan), has a term of
10 years, subject to earlier termination in certain
48
<PAGE>
events related to termination of employment. The option is immediately
exercisable and vests over a 60-month period, with 20% of the shares vesting
after one year, and 1/60 of the shares vesting each month for the next 48
months.
(2) Based on options to purchase 1,936,000 shares granted to employees of the
Company in 1995.
(3) The option was granted at an exercise price equal to the fair market value
as determined by the Board of Directors of the Company on the date of grant.
(4) The potential realizable value is calculated based on the term of the option
at the date of grant (10 years) and is calculated by assuming that the stock
price on the date of grant as determined by the Board of Directors
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last day
of its term for the appreciated price. The 5% and 10% assumed rates of
appreciation are derived from the rules of the Commission and do not
represent the Company's estimate or projection of the future Common Stock
price.
The following table sets forth certain information concerning the number and
value of unexercised stock options held as of December 31, 1995 for each of the
Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995 (#)(2) DECEMBER 31, 1995($)(2)(3)
-------------------------- --------------------------
NAME (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark D. Goros..................................... 75,000(3) 225,000 $ 520,500 $ 1,561,500
</TABLE>
- ------------
(1) Neither Dr. Chen nor Mr. Dellar held options to purchase shares of the
Company's stock as of December 31, 1995, and none of the Named Executive
Officers exercised stock options in 1995.
(2) Reflects vested and unvested shares at December 31, 1995. Options granted
under the Company's Equity Incentive Plan are immediately exercisable, but
are subject to the Company's right to repurchase unvested shares on
termination of employment.
(3) There was no public trading market for the Common Stock as of December 31,
1995. Accordingly, these values have been calculated, in accordance with the
rules of the Commission, on the basis of the initial public offering price
of $7.00 per share minus the applicable exercise price per share.
EMPLOYEE BENEFIT PLANS
EQUITY INCENTIVE PLAN. The Company's Equity Incentive Plan (the "Incentive
Plan") was adopted by the Board of Directors in April 1996, subject to
stockholder approval, as an amendment and restatement of the Company's Stock
Option Plan. There are currently 5,000,000 shares of Common Stock authorized for
issuance under the Incentive Plan.
The Incentive Plan provides for the grant of stock options under the
Internal Revenue Code of 1986, as amended (the "Code"), to employees (including
officers and employee-directors) and nonstatutory stock options, restricted
stock purchase awards, and stock bonuses to employees (including officers and
employee-directors) and consultants of the Company. Prior to this offering,
non-employee directors were also eligible to receive awards under the Incentive
Plan. The Incentive Plan is presently being administered by the Board of
Directors, which determines recipients and types of awards to be granted,
including the exercise price, number of shares subject to the award and the
exercisability thereof. After the completion of this offering, the Incentive
Plan may be administered by the Compensation Committee of the Board of
Directors, and references herein to the Board of Directors will be deemed
references to the Compensation Committee.
The terms of stock options granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, but, in the case of a nonstatutory
stock option, cannot be less than 85% of the fair market value of the Common
Stock on the
49
<PAGE>
date of the option grant. In the case of an incentive stock option, the exercise
price cannot be less than 100% of the fair market value of the Common Stock on
the date of grant. Options granted under the Incentive Plan to employees have
generally provided for vesting of 20% of the shares subject to the option on the
first anniversary of the date of hire and 1/60th of such shares monthly
thereafter. No stock option may be transferred by the optionee other than by
will or the laws of descent or distribution or, in certain limited instances,
pursuant to a qualified domestic relations order. An optionee whose relationship
with the Company or any related corporation ceases for any reason (other than by
death or permanent and total disability) may exercise options in the three-month
period following such cessation (unless such options terminate or expire sooner
by their terms) or in such longer period as may be determined by the Board of
Directors.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant, and the term of the option
does not exceed five years from the date of grant. The aggregate fair market
value, determined at the time of grant, of the shares of Common Stock with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year (under all such plans of the Company and
its affiliates) may not exceed $100,000.
When the Company becomes subject to Section 162(m) of the Code (which denies
a deduction to publicly held corporations for certain compensation paid to
specified employees in a taxable year to the extent that the compensation
exceeds $1,000,000 for any covered employee), no person may be granted options
under the Incentive Plan covering more than 700,000 shares of Common Stock in
any calendar year.
Shares subject to options that have lapsed or terminated again become
available for the grant of options under the Incentive Plan. Furthermore, the
Board of Directors may offer to exchange new options for existing options, with
the shares subject to the existing options again becoming available for grant
under the Incentive Plan. In the event of a decline in the value of the
Company's Common Stock, the Board of Directors has the authority to offer
optionees the opportunity to replace outstanding higher priced options with new
lower priced options.
Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a service vesting schedule and at a price determined by the Board of
Directors. Stock bonuses may be awarded in consideration of past services
without a purchase payment. Rights under a stock bonus or restricted stock bonus
agreement may not be transferred other than by will, the laws of descent and
distribution, or a qualified domestic relations order, while the stock awarded
pursuant to such an agreement remains subject to the agreement.
Upon certain changes in control of the Company, all outstanding awards under
the Incentive Plan shall either be assumed or substituted by the surviving
entity. If the surviving entity determines not to assume or substitute such
awards, and with respect to persons then performing services as employees,
directors, or consultants, the time during which such awards may be exercised
will be accelerated and the awards terminated if not exercised prior to such
change in control.
As of April 16, 1996, 1,373,109 shares of Common Stock had been issued upon
the exercise of options granted under the Incentive Plan, options to purchase
1,827,558 shares of Common Stock at a weighted average exercise price of $0.80
were outstanding and 1,799,333 shares remained available for future grant. The
Incentive Plan will terminate on April 16, 2006 unless sooner terminated by the
Board of Directors. As of April 16, 1996, no stock bonuses or restricted stock
had been granted under the Incentive Plan.
STOCK OPTIONS GRANTED OUTSIDE OF THE INCENTIVE PLAN. The Company has from
time to time granted nonstatutory options outside of the Incentive Plan
("Non-plan Options") to purchase shares of Common Stock to certain directors,
officers, and key employees of and consultants to the Company. As of April 16,
1996, Non-plan Options had been granted to a total of 10 persons and entities,
eight of whom received options containing performance-based vesting provisions.
The performance-based stock options vest in their entirety on the ninth
anniversary of the date of grant; however, if the optionees achieve certain
performance objectives, the vesting of the options may be accelerated by the
President of the Company acting in his discretion. As of April 16, 1996,
50
<PAGE>
20,000 shares of Common Stock had been issued upon the exercise of Non-plan
Options, and Non-plan Options to purchase 693,000 shares at a weighted average
exercise price of $3.29 per share were outstanding, including the shares subject
to stock options held by Dr. Chen and Mr. Koh. See "Management -- Director
Compensation" and "Legal Matters."
EMPLOYEE STOCK PURCHASE PLAN. In April 1996, the Company's Board of
Directors approved the 1996 Employee Stock Purchase Plan (the "Purchase Plan")
covering an aggregate of 600,000 shares of Common Stock. The Purchase Plan will
become effective upon the completion of this offering and is intended to qualify
as an employee stock purchase plan within the meaning of Section 423 of the
Code. Under the Purchase Plan, the Board of Directors may authorize
participation by eligible employees, including officers, in periodic offerings
following the adoption of the Purchase Plan. The offering period for any
offering, with the exception of the initial offering period, will typically be
no more than 12 months.
Employees are eligible to participate if they are employed by the Company or
an affiliate of the Company designated by the Board of Directors. Employees who
participate in an offering can have up to 15% of their earnings withheld
pursuant to the Purchase Plan and applied, on specified dates determined by the
Board of Directors, to the purchase of shares of Common Stock. The price of
Common Stock purchased under the Purchase Plan will be equal to 85% of the fair
market value of the Common Stock on (i) the commencement date of each offering
period or (ii) the relevant purchase date, whichever is lower. Employees may end
their participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
In addition to the ongoing purchases of Common Stock under the Purchase
Plan, the Board of Directors has authorized the grant to eligible employees of
rights to purchase an aggregate of approximately 30,000 shares of Common Stock,
at a price equal to 85% of (i) the price per share at which shares of the Common
Stock are first sold to the public in this offering, as specified on the cover
page of this Prospectus, or (ii) the fair market value of the Common Stock on
the applicable purchase date, whichever is lower. These rights will be first
exercisable by each participating employee approximately one year after the
effective date of the grant, and will terminate if not exercised on the earlier
of termination of employment or approximately two years after the effective date
of the grant.
In the event of a merger, consolidation, dissolution, or liquidation
involving the Company in which the Company is not a surviving corporation, or
the acquisition of beneficial ownership of at least 50% of the combined voting
power of the Company by any person, entity, or group (excluding Company employee
benefit plan ownership), the Board of Directors has discretion to provide that
each right to purchase Common Stock will be assumed or an equivalent right
substituted by the successor corporation, or the Board may shorten the offering
period and provide for all sums collected by payroll deductions to be applied to
purchase stock immediately prior to such merger or other transaction. The
Purchase Plan will terminate at the Board's direction. The Board has the
authority to amend or terminate the Purchase Plan, subject to the limitation
that no such action may adversely affect any outstanding rights to purchase
Common Stock.
401(K) PLAN. In 1994, the Company adopted a tax qualified employee savings
and retirement plan (the "401(k) Plan") under which eligible employees may elect
to defer their current compensation by up to certain statutorily prescribed
annual limits ($9,500 in 1996) and to contribute such amount to the 401(k) Plan.
The 401(k) Plan permits, but does not require, additional matching contributions
to the 401(k) Plan by the Company on behalf of all participants in the 401(k)
Plan. To date, the Company has not made any such contributions. The 401(k) Plan
is intended to qualify under Section 401 of the Code, so that contributions by
employees or by the Company to the 401(k) Plan, and income earned on the 401(k)
Plan contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by the Company, if any, will be deductible by
the Company when made. The trustee under the 401(k) Plan, at the direction of
each participant, invests the 401(k) Plan employee salary deferrals in selected
investment options.
51
<PAGE>
CERTAIN TRANSACTIONS
From the Company's inception in May 1993 through March 1996, the Company
sold 4,266,667 shares of its Series A Preferred Stock at a price of $0.60 per
share, 1,333,333 shares of its Series B Preferred Stock at a price of $1.25 per
share and 3,003,600 shares of its Series C Preferred Stock at a price of $2.00
per share, in a series of private financings. In April 1996, the Company sold
634,375 shares of its Series E Preferred Stock at a price of $8.00 per share, in
a private financing. The Company sold these securities pursuant to preferred
stock purchase agreements and an investors' rights agreement on substantially
similar terms (except for terms relating to date and price), under which the
Company made standard representations, warranties, and covenants, and which
provided the purchasers thereunder with registration rights, information rights,
and rights of first refusal, among other provisions standard in venture capital
financings. In addition, holders of the Series C Preferred Stock and Series E
Preferred Stock received certain co-sale rights with respect to shares of Common
Stock held by Dr. Chen. Each share of Preferred Stock will convert into one
share of Common Stock upon the completion of this offering, except for shares of
Series E Preferred Stock, which will each convert into approximately 1.0309
shares of Common Stock. The purchasers of the Preferred Stock included, among
others, the following holders of 5% or more of the Company's Common Stock,
directors, and entities associated with directors:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK PURCHASED
-------------------------------------------------
INVESTOR SERIES A SERIES B SERIES C SERIES E
- ------------------------------------------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mayfield VII, a California Limited Partnership (1)................ 1,910,000 237,500 237,500 --
Mayfield Associates Fund II, a California Limited
Partnership (1).................................................. 90,000 12,500 12,500 --
Sutter Hill Ventures, a California Limited Partnership (2)........ 1,941,974 242,747 242,747 --
Itochu Corporation................................................ -- 800,000 750,000(4) --
Ameritech Development Corporation (3)............................. -- -- 750,000 --
Koh Boon Hwee..................................................... 52,900 6,608 19,600 62,500(5)
</TABLE>
- ------------
(1) Yogen K. Dalal, a director of the Company, is a general partner of Mayfield
Associates Fund II and a general partner of the general partner of Mayfield
VII.
(2) Includes shares of Common Stock held of record by the general partners of
the general partner of Sutter Hill Ventures, a California Limited
Partnership ("Sutter Hill") and their related family entities. David L.
Anderson, a director of the Company, is a general partner of the general
partner of Sutter Hill.
(3) Gregory Smitherman, a director of the Company, is Director of Venture
Capital at Ameritech Development Corp.
(4) Includes 500,000 shares held by Itochu International, Inc. and 125,000
shares held by Itochu Techno-Science Corporation.
(5) Represents shares held by Seven Seas Group Ltd., in which Mr. Koh holds a
controlling interest, which shares will convert into 64,433 shares of Common
Stock upon completion of this offering.
In July 1993, the Company sold 4,000,000 shares of Common Stock to Dr. Chen
at a price of $0.005 per share. In October 1993, the Company sold 1,700,000
shares of Common Stock to Dr. Chen at a price of $0.02 per share. In November
1993, Dr. Chen entered into an agreement with the Company subjecting 3,700,000
of Dr. Chen's shares of Common Stock to vesting and granting the Company a right
to repurchase any unvested shares in the event that Dr. Chen ceased to be
employed by the Company at any time prior to November 1997. In November 1993,
Dr. Chen also became a party to the Investors' Rights Agreement among the
Company and certain of its stockholders whereby the Company granted such
stockholders certain registration, information, and other rights.
In February 1996, Dr. Chen was granted an option to purchase 500,000 shares
of Series D Preferred Stock of the Company at an exercise price of $4.00 per
share. The shares subject to Dr. Chen's option vest ratably on a monthly basis
over a 60-month period commencing April 1, 1995. Upon the completion of this
offering, this option will convert into an option to purchase Common Stock.
52
<PAGE>
LIMITATION OF DIRECTOR AND OFFICER LIABILITY
The Restated Certificate and Restated Bylaws contain certain provisions
relating to the limitation of liability and indemnification of directors and
officers. The Restated Certificate provides that directors of the Company shall
not be personally liable to the Company or its stockholders for monetary damages
for any breach of fiduciary duty as a director, except for liability (i) for any
breach of the directors' duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derives any improper personal benefit. The
Restated Certificate also provides that if the Delaware General Corporation Law
is amended after the approval by the Company's stockholders of the Restated
Certificate to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of the Company's directors
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. In addition, the Company's Restated Bylaws
provide that the Company shall indemnify its directors to the fullest extent
permitted by Delaware law, subject to certain limitations, and may also secure
insurance, again to the fullest extent permitted by Delaware law, on behalf of
any person required or permitted to be indemnified pursuant to the Restated
Bylaws.
The Company has entered into indemnity agreements with each of the Company's
directors. The form of indemnity agreement provides that the Company will
indemnify against expenses and losses incurred for claims brought against them
by reason of their status as a director, to the fullest extent permitted by the
Company's Restated Bylaws and Delaware law.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 16, 1996, after giving
effect to the conversion of all shares of Preferred Stock into shares of Common
Stock, which will occur automatically upon the completion of this offering, and
as adjusted to reflect the sale of Common Stock offered hereby for (i) each
stockholder who is known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each Named Executive Officer, (iii) each director of the
Company, and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED (1)
SHARES ------------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED (1) OFFERING OFFERING (2)
- ----------------------------------------------------------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
Pehong Chen (3) ............................................................. 6,160,000 36.0% 30.6%
c/o BroadVision, Inc.
333 Distel Circle
Los Altos, CA 94022
Mayfield VII (4) ............................................................ 2,500,000 15.1 12.7
2800 Sand Hill Road
Menlo Park, CA 94025
Sutter Hill Ventures, a California Limited Partnership (5) .................. 2,427,468 14.6 12.4
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
Itochu Corporation (6) ...................................................... 1,550,000 9.3 7.9
5-1, Kita-Aoyama, 2-Chome
Minao-ku, Tokyo 107-77
Japan
David L. Anderson (5) ....................................................... 2,427,468 14.6 12.4
Yogen K. Dalal (4) .......................................................... 2,500,000 15.1 12.7
Koh Boon Hwee (7) ........................................................... 191,608 1.2 *
Gregory Smitherman (8) ...................................................... 750,000 4.5 3.8
Mark D. Goros (9) ........................................................... 300,100 1.8 1.5
Carl N. Dellar (10) ......................................................... 204,800 1.2 1.0
All Directors and Executive Officers as a group (8 persons) (11) ............ 12,606,009 73.0 62.1
</TABLE>
- ------------
* Less than 1%
(1)Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Except as indicated by footnote, and subject to community
property laws where applicable, the Company believes, based on information
furnished by such persons, that the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Percentage of beneficial ownership is
based on 16,599,484 shares of Common Stock outstanding as of April 16, 1996,
prior to any antidilution adjustments, and 19,619,104 shares of Common Stock
outstanding after the completion of this offering. In computing the number
of shares beneficially owned by a person and the percentage ownership of
that person, shares of Common Stock subject to options held by that person
that are exercisable within 60 days are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person.
(2)Assumes no exercise of the Underwriters' over-allotment option.
54
<PAGE>
(3)Includes 300,000 shares of Common Stock held in trust by independent
trustees for the benefit of Dr. Chen's children. Dr. Chen disclaims
beneficial ownership of such shares. Also includes 500,000 shares of Common
Stock issuable upon the exercise of stock options exercisable within 60 days
of April 16, 1996, subject to repurchase of unvested shares.
(4)Includes 2,385,000 shares held by Mayfield VII and 115,000 shares held by
Mayfield Associates Fund II. Mr. Dalal, a director of the Company, is a
general partner of the general partner of Mayfield VII, and Mayfield
Associates Fund II, and therefore may be deemed to beneficially own the
shares currently owned by such entities. Mr. Dalal disclaims beneficial
ownership of the shares held by such entities, except to the extent of his
pecuniary interest therein.
(5)Includes 1,547,722 shares of Common Stock owned by Sutter Hill Ventures, a
California Limited Partnership ("Sutter Hill"), over which Mr. Anderson, a
director of the Company, shares voting and investing power with four other
general partners of Sutter Hill Management Company, L.P., the general
partner of Sutter Hill. Includes 879,746 shares of Common Stock held of
record by the five general partners of Sutter Hill Management Company, L.P.
and their related family entities. Mr. Anderson disclaims beneficial
ownership of the shares of Common Stock held by the other persons and
entities associated with Sutter Hill, except to the extent of his pecuniary
interest therein.
(6)Includes 925,000 shares of Common Stock held by Itochu Corporation, 500,000
shares of Common Stock held by Itochu International, Inc. and 125,000 shares
of Common Stock held by Itochu Techno-Science Corporation.
(7) Includes 62,500 shares of Series E Preferred Stock held by Seven Seas Group
Ltd., in which Mr. Koh holds a controlling interest, which shares of
Preferred Stock will automatically convert into 64,433 shares of Common
Stock upon completion of this offering, and 50,000 shares of Common Stock
issuable upon exercise of stock options that are exercisable within 60 days
of April 16, 1996, subject to repurchase of unvested shares.
(8) Includes 750,000 shares of Common Stock held by Ameritech Development
Corporation. Mr. Smitherman, a director of the Company, is Director of
Venture Capital at Ameritech Development Corporation and may be deemed to
share voting and investment power with respect to the shares held by such
corporation. Mr. Smitherman disclaims beneficial ownership of such shares.
(9) Includes 300,000 shares of Common Stock issuable upon the exercise of stock
options that are exercisable within 60 days of April 16, 1996, subject to
repurchase of unvested shares.
(10) No longer associated with the Company.
(11) Includes the information contained in the notes above, as applicable. In
addition, includes 115,000 shares of Common Stock issuable upon exercise of
stock options that are exercisable within 60 days, subject to repurchase of
unvested shares, which options are held by an executive officer of the
Company who is not identified in the above table.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, par value $0.0001 per
share, and 5,000,000 shares of Preferred Stock, par value $0.0001 per share
("Preferred Stock").
COMMON STOCK
As of April 16, 1996, there were 16,619,104 shares of Common Stock
(including shares of Preferred Stock that will be converted into Common Stock
upon completion of this offering) outstanding held of record by 97 stockholders.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of the Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution, or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights and no right to convert their
Common Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon the completion
of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Pursuant to the Restated Certificate, the Board of Directors has the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of Preferred Stock in one or more series and to fix the designations,
powers, preferences, privileges, and relative participating, optional, or
special rights and the qualifications, limitations, or restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of redemption
and liquidation preferences, any or all of which may be greater than the rights
of the Common Stock. The Board of Directors, without stockholder approval, can
issue Preferred Stock with voting, conversion, or other rights that could
adversely affect the voting power and other rights of the holders of Common
Stock. Preferred Stock could thus be issued quickly with terms calculated to
delay or prevent a change in control of the Company or make removal of
management more difficult. Additionally, the issuance of Preferred Stock may
have the effect of decreasing the market price of the Common Stock, and may
adversely affect the voting and other rights of the holders of Common Stock.
Upon the completion of this offering, there will be no shares of Preferred Stock
outstanding and the Company has no current plans to issue any of the Preferred
Stock.
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and the holders (or their
permitted transferees) of approximately 14,948,345 shares of Common Stock and
Preferred Stock ("Holders") (which Preferred Stock will automatically be
converted into Common Stock upon the completion of this offering), the Holders
are entitled to certain rights with respect to the registration of such shares
under the Securities Act. If the Company proposes to register its Common Stock,
subject to certain exceptions, under the Securities Act, the Holders are
entitled to notice of the registration and are entitled at the Company's expense
to include such shares therein, provided that the managing underwriters have the
right to limit the number of such shares included in the registration. The
registration rights with respect to this offering have been waived. In addition,
certain of the Holders may require the Company, at its expense, on no more than
one occasion, to file a registration statement under the Securities Act with
respect to their shares of Common Stock. Such rights may not be exercised until
six months after the completion of this offering. Further, certain Holders may
require the Company, once every 12 months and at the expense of the Holders, to
register the shares on Form S-3 when such form becomes available to the Company,
subject to certain conditions and limitations. Such right expires on the tenth
anniversary of completion of this offering.
56
<PAGE>
ANTITAKEOVER EFFECTS OF PROVISIONS OF CHARTER DOCUMENTS AND DELAWARE LAW
CHARTER DOCUMENTS
The Restated Certificate and Restated Bylaws include a number of provisions
that may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of the Company. First, the Restated
Certificate provides that all stockholder action must be effected at a duly
called meeting of stockholders and not by a consent in writing. Second, the
Restated Bylaws provide that special meetings of the stockholders may be called
only by (i) the Chairman of the Board of Directors, (ii) the Chief Executive
Officer, (iii) the Board of Directors pursuant to a resolution adopted by the
Board of Directors, or (iv) by the holders of not less than 10% of the
outstanding voting stock. Third, the Company's Restated Certificate does not
include a provision for cumulative voting for directors. Under cumulative
voting, a minority stockholder holding a sufficient percentage of a class of
shares may be able to ensure the election of one or more directors. Commencing
at the first annual meeting following the annual meeting record date at which
the Company has at least 800 stockholders, stockholders will no longer be able
to cumulate votes for directors. Fourth, the Restated Bylaws establish
procedures, including advance notice procedures with regard to the nomination of
candidates for election as directors and stockholder proposals. These provisions
of the Restated Certificate and Restated Bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control or
management of the Company. Such provisions also may have the effect of
preventing changes. in the management of the Company. See "Risk Factors --
Effects of Certain Charter and Bylaw Provisions."
DELAWARE TAKEOVER STATUTE
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale, or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
American Securities Transfer Incorporated has been appointed as the transfer
agent and registrar for the Company's Common Stock. Its telephone number is
(800) 962-4284.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the this offering, the Company will have outstanding
19,619,104 shares of Common Stock, based on the number of shares of Preferred
Stock and Common Stock outstanding as of April 16, 1996. Of these shares,
3,000,000 shares sold in this offering will be freely tradeable without
restrictions or further registration under the Securities Act. The remaining
16,619,104 shares of Common Stock held by existing stockholders are Restricted
Shares. Restricted Shares may be sold in the public market only if they are
registered or qualify for an exemption from registration under Rules 144 or 701
promulgated under the Securities Act. As a result of certain contractual
restrictions and the provisions of Rules 144 and 701, additional shares will be
available for sale in the public market as follows: (i) no Restricted Shares
will be eligible for immediate sale on the date of this Prospectus, and (ii)
12,598,166 Restricted Shares (of which 800,167 would be subject to repurchase by
the Company at the original purchase price), 2,520,558 shares of Common Stock
issuable upon exercise of options outstanding as of April 16, 1996 (of which
2,095,480 shares would be subject to repurchase by the Company) and 33,750
shares of Common Stock issuable upon exercise of a currently outstanding warrant
will be eligible for sale 180 days after the date of this Prospectus upon
expiration of lock-up agreements. The Restricted Shares will be eligible for
sale from time to time after the completion of this offering.
Each officer and director who is a stockholder of the Company and holders
(including such officers and directors) of 16,580,587 shares of the Company's
Common Stock have agreed with the representatives of the Underwriters for a
period of 180 days after the effective date of this Prospectus (the "Lock-Up
Period"), subject to certain exceptions, not to offer to sell, contract to sell,
or otherwise sell, dispose of, loan, pledge, or grant any rights with respect to
any shares of Common Stock, any options or warrants to purchase any shares of
Common Stock, or any securities convertible into or exchangeable for shares of
Common Stock owned as of the date of this Prospectus or thereafter acquired
directly by such holders or with respect to which they have or hereafter acquire
the power of disposition, without the prior written consent of Robertson,
Stephens & Company. The Company has agreed with the representatives of the
Underwriters for the Lock-Up Period, subject to certain exceptions, not to
issue, sell, contract to sell, or otherwise dispose of, any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock or any
securities convertible into, exercisable for or exchangeable for shares of
Common Stock other than the Company's sale of shares in this offering, the
issuance of Common Stock upon the exercise of outstanding options and the
Company's issuance of options and shares under existing employee stock option
and stock purchase plans.
As of April 16, 1996, there were 2,554,308 shares of Common Stock (on an
as-converted basis) subject to outstanding options or warrants. The Company
intends to file registration statements under the Securities Act to register
shares of Common Stock reserved for issuance under the Incentive Plan and the
Purchase Plan, thus permitting the sale of such shares by non-affiliates in the
public market without restriction under the Securities Act. Such registration
statements will become effective immediately upon filing. Upon effectiveness of
such registration statements, holders of vested options to purchase
approximately 49,862 shares, as of April 16, 1996, will be entitled to exercise
such options and immediately sell such shares.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an Affiliate of the Company, or person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, will be entitled to sell, in any three-month period, a number
of shares that does not exceed the greater of (i) 1% of the then outstanding
shares of the Company's Common Stock (approximately 196,191 shares immediately
after this offering) or (ii) the average weekly trading volume of the Company's
Common Stock in the Nasdaq National Market during the four calendar weeks
immediately preceding the date on which the notice of sale is filed with the
Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to manner of sale, notice, and availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed to have been an Affiliate of the Company at any time during
the 90 days immediately preceding the sale and who has beneficially owned
Restricted Shares for at least three years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
An employee, officer, or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
58
<PAGE>
provisions of Rule 701 under the Securities Act, which permits Affiliates and
non-Affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares
without complying with the public information, volume, and notice provisions of
Rule 144.
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or will continue after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to time.
As described herein, only a limited number of shares will be available for sale
shortly after this offering because of certain contractual and legal
restrictions on resale. Sales of substantial amounts of Common Stock of the
Company in the public market after the restrictions lapse could adversely affect
the prevailing market price and the ability of the Company to raise equity
capital in the future.
59
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, Hambrecht & Quist LLC and Wessels, Arnold &
Henderson, L.L.C. (the "Representatives"), have severally agreed with the
Company, subject to the terms and conditions of the Underwriting Agreement, to
purchase the number of shares of Common Stock set forth opposite their
respective names below. The Underwriters are committed to purchase and pay for
all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------- ----------
<S> <C>
Robertson, Stephens & Company LLC................................ 1,040,000
Hambrecht & Quist LLC............................................ 1,040,000
Wessels, Arnold & Henderson, L.L.C............................... 520,000
Cowen & Company.................................................. 100,000
Dakin Securities Corporation..................................... 100,000
Laidlaw Equities, Inc............................................ 100,000
Punk, Ziegel & Knoell............................................ 100,000
----------
Total............................................................ 3,000,000
----------
----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not in excess of $0.28 per share, of which $0.10
may be reallowed to other dealers. After the initial public offering, the public
offering price, concession, and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the same price per share as will be paid
for the 3,000,000 shares that the Underwriters have agreed to purchase. To the
extent that the Underwriters exercise such option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage of such
additional shares that the number of shares of Common Stock to be purchased by
it shown in the above table represents as a percentage of the 3,000,000 shares
offered hereby. If purchased, such additional shares will be sold by the
Underwriters on the same terms as those on which the 3,000,000 shares are being
sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each officer and director who holds shares of the Company and holders
(including such officers and directors) of 16,580,587 shares of Common Stock
have agreed with the Representatives, for the Lock-Up Period, subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge, or grant any rights with respect to any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock owned as
of the date of this Prospectus or thereafter acquired directly by such holders
or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of Robertson, Stephens & Company
LLC. However, Robertson, Stephens & Company LLC may, in its sole discretion and
at any time without notice, release all or any portion of the securities subject
to lock-up agreements. There are no agreements between the Representatives and
any of the Company's stockholders providing consent by the Representatives to
the sale of shares prior to the expiration of the Lock-Up Period. In addition,
the Company has agreed that during the Lock-Up Period, the Company will not,
without the prior written consent of Robertson, Stephens & Company LLC, subject
to certain exceptions, issue, sell, contract to sell, or otherwise dispose of,
any shares of Common Stock, any options or warrants to purchase any shares of
Common Stock or any securities convertible into, exercisable for or exchangeable
for shares of Common Stock other than the Company's sale of
60
<PAGE>
shares in this offering, the issuance of Common Stock upon the exercise of
outstanding options, and the Company's issuance of options and shares under
existing employee stock option and stock purchase plans. See "Shares Eligible
For Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Conse-quently, the initial public offering price for the Common
Stock offered hereby has been determined through negotiations among the Company
and the Representatives. Among the factors to be considered in such negotiations
are prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.
61
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by its counsel, Cooley Godward Castro Huddleson & Tatum,
San Francisco, California. Certain legal matters will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California. As
of the date of this Prospectus, Cooley Godward Castro Huddleson & Tatum held an
option to purchase 2,000 shares of Common Stock, and certain partners of and
persons associated with Cooley Godward Castro Huddleson & Tatum beneficially
owned 78,339 shares of Common Stock. In addition, a partner of Cooley Godward
Castro Huddleson & Tatum is the Secretary of BroadVision.
EXPERTS
The financial statements and schedules of BroadVision, Inc. as of December
31, 1994 and 1995 and for the periods from inception (May 13, 1993) to December
31, 1993, and the years ended December 31, 1994 and 1995 have been included in
this Prospectus and Registration Statement in reliance upon the report of KMPG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein and in the Registration Statement, and upon the authority of such firm as
experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
In December 1995, the Company retained KPMG Peat Marwick LLP as the
Company's independent accountants and replaced Coopers & Lybrand LLP, the
Company's former accountants. The decision to change independent accountants was
ratified by the Company's Board of Directors. During the period from the
Company's inception through December 1995 and with respect to the Company's
financial statements for the years ended December 31, 1993 and 1994, there were
no disagreements with Coopers & Lybrand LLP regarding any matters with respect
to accounting principles or practices, financial statement disclosure or audit
scope or procedure, which disagreements, if not resolved to the satisfaction of
the former accountants, would have caused Coopers & Lybrand LLP to make
reference to the subject matter of the disagreement in connection with its
report. The former accountants reports, for the years ended December 31, 1993
and 1994, are not a part of the financial statements of the Company included in
this Prospectus and the related financial statement schedules included elsewhere
in the Registration Statement. Such reports did not contain an adverse opinion
or disclaimer of opinion or qualifications or modifications as to uncertainty,
audit scope or accounting principles. Prior to retaining KPMG Peat Marwick LLP,
the Company had not consulted with KPMG Peat Marwick LLP regarding the
application of accounting principles.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the shares of Common Stock offered hereby has been filed by the Company with
the Commission under the Securities Act. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and copies of all or any part thereof may be
obtained from those offices upon the payment of certain fees prescribed by the
Commission.
62
<PAGE>
BROADVISION, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statements of Stockholders' Equity........................................ F-5
Statements of Cash Flows.................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
BroadVision, Inc.:
We have audited the accompanying balance sheets of BroadVision, Inc., a
development stage enterprise, as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' equity and cash flows for the period
from May 13, 1993 (inception) to December 31, 1993 and for the years ended
December 31, 1994 and 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BroadVision, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the period from May 13, 1993 (inception) to December 31, 1993 and for the
years ended December 31, 1994 and 1995, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
March 12, 1996,
except as to Note 8,
which is as of April 16, 1996
F-2
<PAGE>
BROADVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
-------------------- ----------------------
1994 1995 ACTUAL PRO FORMA
--------- --------- --------- -----------
(UNAUDITED)
----------------------
<S> <C> <C> <C> <C>
(NOTE 8)
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 808 $ 4,311 $ 2,663 $ 7,718
Short-term investments.............................................. 1,489 196 -- --
Accounts receivable, net............................................ -- 395 1,953 1,953
Prepaid expenses and other current assets........................... 25 24 162 162
--------- --------- --------- -----------
Total current assets............................................ 2,322 4,926 4,778 9,833
Property and equipment, net........................................... 309 868 1,272 1,272
Other assets.......................................................... 9 63 56 56
--------- --------- --------- -----------
Total assets.................................................... $ 2,640 $ 5,857 $ 6,106 $ 11,161
--------- --------- --------- -----------
--------- --------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 19 $ 161 $ 573 $ 573
Accrued expenses.................................................... 95 327 714 714
Deferred revenue.................................................... -- 355 1,251 1,251
Current portion, capital lease obligations.......................... -- 167 167 167
--------- --------- --------- -----------
Total current liabilities....................................... 114 1,010 2,705 2,705
Long-term portion, capital lease obligations.......................... -- 516 477 477
Other liabilities..................................................... -- 77 92 92
--------- --------- --------- -----------
Total liabilities............................................... 114 1,603 3,274 3,274
--------- --------- --------- -----------
Stockholders' equity:
Convertible preferred stock, $.0001 par value; 10,000 shares
authorized 5,600, 8,601 and 8,604 shares issued and outstanding in
1994, 1995 and 1996 (unaudited), respectively; 15,000 shares
authorized, no shares issued and outstanding, pro forma............ 1 1 1 --
Common stock, $.0001 par value; 22,000 shares authorized; 6,720;
6,308; and 7,344 shares issued and outstanding in 1994, 1995 and
1996 (unaudited), respectively; 30,000 shares authorized, 16,602
shares issued and outstanding, pro forma (unaudited)............... 1 1 1 2
Additional paid-in capital.......................................... 4,330 11,412 13,088 18,143
Deferred compensation related to grant of stock options............. -- (1,036) (2,436) (2,436 )
Deficit accumulated during the development stage.................... (1,806) (6,124) (7,822) (7,822 )
--------- --------- --------- -----------
Total stockholders' equity...................................... 2,526 4,254 2,832 7,887
--------- --------- --------- -----------
Total liabilities and stockholders' equity...................... $ 2,640 $ 5,857 $ 6,106 $ 11,161
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
BROADVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
MAY 13, 1993 THREE-MONTH PERIOD FROM
(DATE OF YEARS ENDED PERIODS ENDED INCEPTION
INCEPTION) TO DECEMBER 31, MARCH 31, TO
DECEMBER 31, -------------------- -------------------- MARCH 31,
1993 1994 1995 1995 1996 1996
--------------- --------- --------- --------- --------- -----------
(UNAUDITED)
---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses......................... $ -- $ -- $ -- $ -- $ 1,099 $ 1,099
Services.................................. -- -- 540 -- 299 839
----- --------- --------- --------- --------- -----------
-- -- 540 -- 1,398 1,938
Operating expenses:
Cost of software licenses................. -- -- -- -- 164 164
Cost of services.......................... -- -- 23 -- 33 56
Research and development.................. 12 748 2,229 371 797 3,786
Selling, general, and administrative...... 131 1,023 2,766 500 2,109 6,029
----- --------- --------- --------- --------- -----------
Total operating expenses.............. 143 1,771 5,018 871 3,103 10,035
----- --------- --------- --------- --------- -----------
Operating loss........................ (143) (1,771) (4,478) (871) (1,705) (8,097)
Interest income............................. 7 101 191 25 43 342
Other expense............................... -- -- (31) -- (36) (67)
----- --------- --------- --------- --------- -----------
Net loss.............................. $ (136) $ (1,670) $ (4,318) $ (846) $ (1,698) $ (7,822)
----- --------- --------- --------- --------- -----------
----- --------- --------- --------- --------- -----------
Pro forma net loss per share................ $ (0.23) $ (0.04) $ (0.09)
--------- --------- ---------
--------- --------- ---------
Shares used in computing pro forma net loss
per share.................................. 18,543 18,888 18,576
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
BROADVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE DEFICIT DEFERRED
PREFERRED ACCUMULATED COMPENSATION
STOCK COMMON STOCK ADDITIONAL DURING THE RELATED TO
------------------------ ------------------------ PAID-IN DEVELOPMENT GRANT OF
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE STOCK OPTIONS
----------- ----------- ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock;
4,000 shares at $0.005 per
share at July 1993; 1,700
shares at $0.02 per share at
October 1993................. -- $ -- 5,700 $ 1 $ 53 $ -- $ --
Issuance of Series A
convertible preferred stock
at $0.60 per share........... 4,267 1 -- -- 2,559 -- --
Net loss...................... -- -- -- -- -- (136) --
----- --- ----- --- ----------- ------------- -------------
Balances as of December 31,
1993......................... 4,267 1 5,700 1 2,612 (136) --
Issuance of common stock at
$0.05 per share.............. -- -- 1,020 -- 51 -- --
Issuance of Series B
convertible preferred stock
at $1.25 per share........... 1,333 -- -- -- 1,667 -- --
Net loss...................... -- -- -- -- -- (1,670) --
----- --- ----- --- ----------- ------------- -------------
Balance as of December 31,
1994......................... 5,600 1 6,720 1 4,330 (1,806) --
Issuance of common stock at
$0.05 to $0.12 per share..... -- -- 334 -- 31 -- --
Issuance of Series C
convertible preferred stock
at $2.00 per share, net of
issuance costs of $49........ 3,001 -- -- -- 5,952 -- --
Common stock repurchased...... -- -- (746) -- (37) -- --
Deferred compensation related
to grant of stock options.... -- -- -- -- 1,136 -- (1,036)
Net loss...................... -- -- -- -- -- (4,318) --
----- --- ----- --- ----------- ------------- -------------
Balances as of December 31,
1995......................... 8,601 1 6,308 1 11,412 (6,124) (1,036)
Issuance of Series C
convertible preferred stock
at $2.00 (unaudited)......... 3 -- -- -- 6 -- --
Deferred compensation related
to grant of stock options
(unaudited).................. -- -- -- -- 1,510 -- (1,400)
Issuance of common stock
(unaudited).................. -- -- 1,036 -- 160 -- --
Net loss (unaudited).......... -- -- -- -- -- (1,698) --
----- --- ----- --- ----------- ------------- -------------
Balances as of March 31, 1996
(unaudited).................. 8,604 $ 1 7,344 $ 1 $ 13,088 $ (7,822) $ (2,436)
----- --- ----- --- ----------- ------------- -------------
----- --- ----- --- ----------- ------------- -------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Issuance of common stock;
4,000 shares at $0.005 per
share at July 1993; 1,700
shares at $0.02 per share at
October 1993................. $ 54
Issuance of Series A
convertible preferred stock
at $0.60 per share........... 2,560
Net loss...................... (136)
------
Balances as of December 31,
1993......................... 2,478
Issuance of common stock at
$0.05 per share.............. 51
Issuance of Series B
convertible preferred stock
at $1.25 per share........... 1,667
Net loss...................... (1,670)
------
Balance as of December 31,
1994......................... 2,526
Issuance of common stock at
$0.05 to $0.12 per share..... 31
Issuance of Series C
convertible preferred stock
at $2.00 per share, net of
issuance costs of $49........ 5,952
Common stock repurchased...... (37)
Deferred compensation related
to grant of stock options.... 100
Net loss...................... (4,318)
------
Balances as of December 31,
1995......................... 4,254
Issuance of Series C
convertible preferred stock
at $2.00 (unaudited)......... 6
Deferred compensation related
to grant of stock options
(unaudited).................. 110
Issuance of common stock
(unaudited).................. 160
Net loss (unaudited).......... (1,698)
------
Balances as of March 31, 1996
(unaudited).................. $ 2,832
------
------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
BROADVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
MAY 13, 1993 THREE-MONTH PERIOD FROM
(DATE OF YEARS ENDED PERIODS ENDED INCEPTION
INCEPTION) TO DECEMBER 31, MARCH 31, TO
DECEMBER 31, -------------------- -------------------- MARCH 31,
1993 1994 1995 1995 1996 1996
------------- --------- --------- --------- --------- -----------
(UNAUDITED)
---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (136) $ (1,670) $ (4,318) $ (846) $ (1,698) $ (7,822)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 3 83 120 37 95 301
Deferred compensation............................. -- -- 100 -- 110 210
Changes in operating assets and liabilities:
Accounts receivable............................. -- -- (395) -- (1,558) (1,953)
Prepaid expenses, other current assets, and
other assets................................... (21) (13) (53) (56) (131) (218)
Accounts payable and accrued expenses........... 156 (42) 374 98 799 1,287
Deferred revenue................................ -- -- 355 -- 896 1,251
Other liabilities............................... -- -- 77 -- 15 92
------------- --------- --------- --------- --------- -----------
Net cash provided by (used in) operating
activities................................... 2 (1,642) (3,740) (767) (1,472) (6,852)
------------- --------- --------- --------- --------- -----------
Cash flows from investing activities:
Acquisition of property and equipment............... (113) (282) (679) (88) (499) (1,573)
Purchase of short-term investments.................. (1,000) (1,489) (196) (1,200) -- (2,685)
Maturity of short-term investments.................. -- 1,000 1,489 1,489 196 2,685
------------- --------- --------- --------- --------- -----------
Net cash provided by (used in) investing
activities................................... (1,113) (771) 614 201 (303) (1,573)
------------- --------- --------- --------- --------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock.............. 54 51 31 -- 160 296
Proceeds from issuance of preferred stock, net of
issuance costs..................................... 2,560 1,667 5,952 -- 6 10,185
Repurchase of common stock.......................... -- -- (37) -- -- (37)
Proceeds from capital lease......................... -- -- 748 -- -- 748
Payments on capital lease........................... -- -- (65) -- (39) (104)
------------- --------- --------- --------- --------- -----------
Net cash provided by financing activities..... 2,614 1,718 6,629 -- 127 11,088
------------- --------- --------- --------- --------- -----------
Net increase (decrease) in cash and cash
equivalents.......................................... 1,503 (695) 3,503 (566) (1,648) 2,663
Cash and cash equivalents, beginning of period/
year................................................. -- 1,503 808 808 4,311 --
------------- --------- --------- --------- --------- -----------
Cash and cash equivalents, end of period/year......... $ 1,503 $ 808 $ 4,311 $ 242 $ 2,663 $ 2,663
------------- --------- --------- --------- --------- -----------
------------- --------- --------- --------- --------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
BROADVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(1) BUSINESS OF THE COMPANY
BroadVision, Inc. (the "Company") provides an integrated software
application system, BroadVision One-To-One, that enables the creation of
applications allowing non-technical business managers to tailor Internet
marketing and selling services to the needs and interests of individual World
Wide Web site visitors, personalizing each visit on a real-time basis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. All of the
Company's cash and cash equivalents as of December 31, 1995 are on deposit with
one major U.S. bank.
As of December 31, 1995, short-term investments consisted of banker's
acceptances with maturities of three months or less and are carried at cost,
which approximates fair value. There were no short-term investments as of March
31, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a straight-line
basis over their estimated useful lives, which range from two to five years.
Leasehold improvements are amortized over their useful lives or the life of the
lease, whichever is shorter.
REVENUE RECOGNITION
The Company's revenue recognition policies are in accordance with Statement
of Position No. 91-1, SOFTWARE REVENUE RECOGNITION, and are as follows:
- Software license revenues are recognized when the software has been
delivered, the customer acknowledges an unconditional obligation to pay,
and the Company has no significant obligations remaining.
- Maintenance revenues relating to contracts which entitle customers to
receive technical support and future enhancements of the licensed software
are deferred and recognized ratably over the contract period.
- Revenues from professional services are recognized as such services are
performed.
CAPITALIZED SOFTWARE
Development costs incurred in the research and development of new software
products are expensed as incurred until technological feasibility in the form of
a working model has been established. To date, the Company's software
development has been completed concurrent with the establishment of
technological feasibility and, accordingly, no costs have been capitalized.
F-7
<PAGE>
BROADVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be recovered.
PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share is computed using net loss and is based on the
weighted average number of shares of common stock outstanding, convertible
preferred stock, on an "as-if-converted" basis, using the exchange rate in
effect at the initial public offering date and dilutive common equivalent shares
from stock options and warrants outstanding using the treasury stock method. In
accordance with certain Securities and Exchange Commission (SEC) Staff
Accounting Bulletins, such computations include all common and common equivalent
shares issued within 12 months of the offering date as if they were outstanding
for all periods presented using the treasury stock method and the anticipated
initial public offering price.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. SFAS No. 123 will be effective for fiscal years beginning after
December 15, 1995, and will require that the Company either recognize in its
financial statements costs related to its employee stock-based compensation
plans, such as stock option and stock purchase plans, or make pro forma
disclosures of such costs in a footnote to the financial statements.
The Company expects to continue to use the intrinsic value-based method of
Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123, to
account for all of its employee stock-based compensation plans. Therefore, in
its financial statements for fiscal 1996, the Company will make the required pro
forma disclosures in a footnote. SFAS No. 123 is not expected to have a material
effect on the Company's results of operations or financial position.
(3) BALANCE SHEET DETAIL
PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- MARCH 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures........................................... $ 53 $ 92 $ 106
Computer and software............................................ 325 844 1,332
Leasehold improvements........................................... 17 42 42
--- --- ------
395 978 1,480
Less accumulated depreciation and amortization................... 86 110 208
--- --- ------
$ 309 $ 868 $ 1,272
--- --- ------
--- --- ------
</TABLE>
Depreciation expense was $3,000, $83,000, $120,000 and $95,000 for the
period from May 13, 1993 (inception) to December 31, 1993, for the years ended
December 31, 1994 and 1995, and the quarter ended March 31, 1996, respectively.
F-8
<PAGE>
BROADVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) BALANCE SHEET DETAIL (CONTINUED)
ACCRUED EXPENSES
A summary of accrued expenses follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
--- --------- MARCH 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued employee benefits................................... $ 28 $ 130 $ 328
Deferred compensation....................................... -- 107 147
Accrued amounts payable to contractors...................... 35 45 70
Other accrued liabilities................................... 32 45 169
--
--- ---
$ 95 $ 327 $ 714
--
--
--- ---
--- ---
</TABLE>
(4) STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The rights, preferences, privileges, and restrictions of the Series A, B,
and C convertible preferred stock are as follows:
- Each share of Series A, B, and C preferred stock shall be convertible at
the option of the holder, at any time after the date of issuance, into one
fully paid and nonassessable share of common stock. The conversion rate is
subject to certain antidilution provisions. Each series has voting rights
equal to one vote per share.
- Conversion is automatic upon either the closing of a public offering of
the Company's common stock at a purchase price of not less than $5.00 per
share or at the election of the holders of at least two-thirds of the
outstanding preferred stock.
- Series A, B, and C preferred stockholders are entitled to noncumulative
dividends at a rate of 8% per share per annum, when and if declared by the
Board of Directors. As of December 31, 1995, no dividends have been
declared.
- Series A, B, and C preferred stock have a liquidation preference of $.60,
$1.25, and $2.00 per share, respectively, plus all declared but unpaid
dividends.
- After payment has been made to the holders of preferred stock of the full
preferential amounts, the holders of common stock shall be entitled to
receive all remaining assets.
Convertible preferred stock issued and outstanding as of December 31, 1995
is as follows (in thousands):
<TABLE>
<CAPTION>
ISSUED AND OUTSTANDING
DECEMBER 31,
------------------------------------------
SHARES AMOUNT
-------------------- --------------------
SERIES AUTHORIZED 1994 1995 1994 1995
- ------------------------------------------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
A.......................................... 4,300 4,267 4,267 $ 2,560 $ 2,560
B.......................................... 1,400 1,333 1,333 1,667 1,667
C.......................................... 4,000 -- 3,001 -- 5,952
--------- --------- --------- ---------
5,600 8,601 $ 4,227 $ 10,179
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-9
<PAGE>
BROADVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
As of December 31, 1995, there was one warrant outstanding to acquire 33,750
shares of the Company's Series C preferred stock at $2.00 per share. The warrant
expires in June 2002.
COMMON STOCK
The Company has reserved 4,536,800 shares of common stock for issuance under
its stock option plan. Under this plan, the Board of Directors may grant
incentive or nonqualified stock options at prices not less than 100% or 85%,
respectively, of the fair market value of the Company's common stock, as
determined by the Board of Directors, at the grant date. The vesting of
individual options may vary but in each case at least 20% of the total number of
shares subject to options will become exercisable per year.
When an employee option is exercised prior to vesting, any unvested shares
so purchased are subject to repurchase by the Company at the original purchase
price of the stock upon termination of employment. The right to repurchase
lapses at a minimum rate of 20% per year over five years from the date the
option was granted or, for new employees, the date of hire. Such right is
exercisable only within 90 days following termination of employment.
Activity in the Company's stock option plan is as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
SHARES
AVAILABLE
FOR OPTIONS PRICE PER
GRANT OUTSTANDING SHARE
----------- ----------- -----------
<S> <C> <C> <C>
Authorized............................................... 3,533 -- $ --
----------- ----------- -----------
Balances, December 31, 1993.............................. 3,533 -- --
Options granted.......................................... (1,014) 1,014 0.05-0.06
Options exercised........................................ -- (10) 0.05
----------- ----------- -----------
Balances, December 31, 1994.............................. 2,519 1,004 0.05-0.06
Authorized............................................... 1,004 --
Options granted.......................................... (1,916) 1,916 0.06-0.20
Options exercised........................................ -- (334) 0.05-0.12
Options canceled......................................... 662 (662) 0.05-0.12
----------- ----------- -----------
Balances, December 31, 1995.............................. 2,269 1,924 0.05-0.20
Options granted.......................................... (850) 850 0.20-4.50
Options exercised........................................ -- (1,012) 0.05-0.80
Options canceled......................................... 2 (2) 0.06
----------- ----------- -----------
Balances, March 31, 1996................................. 1,421 1,760 $ 0.05-4.50
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Company has outstanding options to purchase 20,000 shares with an
exercise price of $0.20 per share, granted to an employee outside of the
Company's stock option plan. These options vest in their entirety on the ninth
anniversary of the date of grant; however, if the optionee achieves certain
performance objectives, the vesting of the options may be accelerated by the
President of the Company acting in his discretion.
As of December 31, 1995 and March 31, 1996 all options were exercisable and
200,000 and 1,097,075 shares, respectively, would have been subject to
repurchase, if exercised.
The Company has recorded deferred compensation of $1,136,000 during 1995 and
an additional $1,510,000 for the three months ended March 31, 1996 for the
difference between the grant price and the deemed fair value
F-10
<PAGE>
BROADVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) STOCKHOLDERS' EQUITY (CONTINUED)
of the common stock underlying options granted from December 1995 through March
1996. In addition, in April 1996 the Company intends to record deferred
compensation of approximately $218,000 related to the difference between the
grant price and the deemed fair value of the common stock underlying options
granted in April 1996. This amount is being amortized over the vesting period of
the individual options, generally five years.
(5) SIGNIFICANT CUSTOMERS
In 1995, one customer accounted for $500,000 and the other accounted for
$40,000 of the Company's revenues. Neither of these is an international
customer.
(6) COMMITMENTS AND CONTINGENCIES
LEASES
As of December 31, 1995, the Company was obligated under noncancelable
operating lease agreements expiring through 2000 for facilities and equipment.
The Company is responsible for certain maintenance costs, taxes and insurance
under the facilities lease. The Company also leases certain equipment under
capital leases expiring through 1999. A summary of future minimum lease payments
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
- ------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1996................................................................... $ 231 $ 272
1997................................................................... 231 301
1998................................................................... 231 311
1999................................................................... 142 320
2000................................................................... -- 135
--- -----------
Total minimum lease payments........................................... 835 $ 1,339
-----------
-----------
Less amount representing imputed interest.............................. 152
---
Present value of net minimum capital lease payments.................... 683
Less current installments of obligations under capital leases.......... 167
---
Obligations under capital leases, excluding current installments....... $ 516
---
---
</TABLE>
Rent expense was $7,000, $87,000 and $264,000 for the period from May 13,
1993 (inception) to December 31, 1993 and the years ended December 31, 1994 and
1995, respectively.
EMPLOYEE BENEFIT PLAN
In November 1994, the Company adopted a 401(k) employee retirement plan
under which eligible employees may contribute up to 20% of their annual
compensation, subject to certain limitations ($9,500 in 1996). Employees vest
immediately in their contributions and earnings thereon. The plan allows for,
but does not require, Company matching contributions. To date, the Company has
not made any such matching contributions.
CONTINGENCIES
The Company has incorporated RSA Data Security, Inc.'s data encryption and
authentication technology into the Company's software pursuant to a license
agreement with RSA. The Company is aware of a dispute between Cylink Corporation
and RSA in which Cylink alleges that license agreements between RSA and its
customers, including the Company, relating to certain RSA software, conflict
with rights held by Cylink. In the Company's license agreement with RSA, RSA has
agreed to defend, indemnify and hold the Company harmless
F-11
<PAGE>
BROADVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
with respect to any claim by a third party that the licensed software infringes
any patent or other proprietary right. The Company's management presently does
not believe the dispute between Cylink and RSA will result in significant
royalty or other liability to the Company.
(7) INCOME TAXES
The components of the net deferred tax assets as of December 31, 1994 and
1995 were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Depreciation and amortization.............................................. $ 22 $ 56
Accrued liabilities........................................................ 6 107
Capitalized research and development....................................... 42 265
Net operating losses....................................................... 620 2,159
Tax credits................................................................ 58 179
--------- ---------
Net deferred assets...................................................... 748 2,766
Less valuation allowance................................................... (748) (2,766)
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
</TABLE>
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company has provided a full valuation
allowance against its net deferred tax assets as it has determined that it is
more likely than not that the deferred tax assets will not be realized. The
Company's accounting for deferred taxes under Statement of Financial Accounting
Standards No. 109 involves the evaluation of a number of factors concerning the
realizability of the Company's deferred tax assets. To support the Company's
conclusion that a full valuation allowance was required, managment primarily
considered such factors as the Company's history of operating losses and
expected near-term future losses, the nature of the Company's deferred tax
assets, and the lack of significant firm sales backlog. Although management's
operating plans assume taxable and operating income in future periods,
management's evaluation of all the available evidence in assessing the
realizability of the deferred tax assets indicates that such plans were not
considered sufficient to overcome the available negative evidence.
The Company's effective tax rate differs from the statutory federal income
tax rate as shown in the following schedule:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate.............................. (34.0)% (34.0)% (34.0)%
Net operating losses not benefited............................. 34.0 34.0 34.0
----- ----- -----
Effective tax rate........................................... --% --% --%
----- ----- -----
----- ----- -----
</TABLE>
As of December 31, 1995, the Company had federal and state net operating
loss carryforwards of approximately $5,632,000 and $2,620,000, respectively,
available to offset future regular and alternative minimum taxable income. In
addition, the Company had federal and state research and development credit
carryforwards of approximately $91,000 and $88,000, respectively, available to
offset future tax liabilities. The Company's net operating loss and tax credit
carryforwards expire in 1998 through 2010, if not utilized.
The Tax Reform Act of 1986 and the California Tax Conformity Act of 1987
limit the use of net operating loss carryforwards in certain situations where
changes occur in the stock ownership of a company. The Company
F-12
<PAGE>
BROADVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES (CONTINUED)
believes such an ownership change, as defined, may have occurred in connection
with the issuance of the Series C preferred stock issued in 1995 (note 4).
Accordingly, $2,600,000 and $1,100,000 of the Company's federal and state net
operating loss carryforwards, respectively, may be limited in their usage to
$600,000 per year, on a cumulative basis.
(8) SUBSEQUENT EVENTS (UNAUDITED)
SERIES D PREFERRED STOCK OPTION
In February 1996, the Company granted its chief executive officer an option
to purchase 500,000 shares of Series D preferred stock at an exercise price of
$4.00 per share. The option vests on a pro rata monthly basis over a five-year
period commencing April 1995.
SERIES E PREFERRED STOCK
On April 10, 1996, the Board of Directors approved an increase in the number
of authorized shares of common and preferred stock of the Company, including the
designation of a class of Series E preferred stock. On April 16, 1996, the
Company sold 634,375 shares of Series E convertible preferred stock for proceeds
of $5,055,000, net of offering costs. In the event the proposed initial Public
Offering Price is less than the Series E Preferred Stock Price of $8.00 per
share, certain antidilution provisions may apply.
REGISTRATION STATEMENT
On April 16, 1996, the Board of Directors approved a proposed filing of a
registration statement with the SEC to sell 4,600,000 shares of the Company's
common stock to the public. If the offering is consummated under the proposed
terms, the Company's outstanding shares of Series A, B, C and E convertible
preferred stock will automatically convert into shares of its common stock. In
addition, options or warrants to purchase preferred stock will convert to
options or warrants to purchase an equivalent number of shares of common stock.
The issuance of the Series E convertible preferred stock and this conversion
have been reflected in the accompanying pro forma balance sheet as of March 31,
1996.
RESTATED CERTIFICATE OF INCORPORATION
On April 16, 1996, the Board of Directors approved the Company's restated
certificate of incorporation under which the Company will have authorized common
stock of 50,000,000 shares and preferred stock of 5,000,000 shares upon
completion of the Company's proposed initial public offering described above.
EMPLOYEE STOCK PURCHASE PLAN
On April 16, 1996, the Board of Directors approved the Employee Stock
Purchase Plan (the Purchase Plan) and reserved 600,000 shares for issuance
thereunder. The Purchase Plan will become effective upon the completion of the
Company's proposed initial public offering. The Purchase Plan permits eligible
employees to purchase common stock equivalent to a percentage of the employee's
earnings, not to exceed 15%, at a price equal to 85% of the fair market value of
the common stock at dates specified by the Board of Directors as provided in the
Plan.
EQUITY INCENTIVE PLAN
On April 16, 1996, the Board of Directors approved the Equity Incentive Plan
(the Incentive Plan) and authorized 5,000,000 shares for issuance thereunder.
The Incentive Plan provides for grant to employees of incentive stock options at
not less than fair value and nonqualified stock options at not less than 85% of
fair value.
F-13
<PAGE>
BroadVision-TM-
ONE-TO-ONE-TM-
Web Sites Tailored to the Needs and
Interest of Individual Visitors
Basic news,
chat lounge,
and shopping
services.
Generic advertisement from
sponsor site.
Visitor registers
areas of interest
and basic
demographic
information in
exchange for incentives. Ongoing
observations of visitor interactions
add to profiles over time.
Personalized
Web site with
targeted content
reflecting current
profile attributes.
Chat lounge con-
nects to others with
similar interests.
Targeted shopping
services with per-
sonalized product
displays and pricing.
Favorite hangouts
link to areas match-
ing profiled interests.
Point-cast and
community-cast
advertising.
[Pictures of three web pages, the first entitled "Annonymous Guest Web Site" and
showing a sample guest homepage, the second entitled "One-to-One Web Profile
Example" displaying a sample personal profile of a guest registering on the
anonymous guest web site, and the third entitled "One-to-One Web Site"
displaying a personalized home page for the anonymous guest web site using the
information from the personal profile.]
To date, no application has been commercially deployed using BroadVision
One-To-One.
<PAGE>
[BROADVISION LOGO]
